MORE ON CANADA
CANADIAN DOLLAR... Following our positive comments on the Canadian market last evening, we were asked several questions on the Canadian market today. Let's take a more extensive look at that market -- starting with its currency. Chart 1 shows the Canadian Dollar starting to bottom about two years ago during the spring of 2001. A case can be made for a "head and shoulders" bottoming pattern -- with the "head" forming at the start of 2002. The Canadian Dollar recently rose to six-month high, and is nearing major a potential "neckline" near 66.50. That represents a formidable resistance barrier. However, a decisive close above the neckline would be a very bullish development. The red circle to the upper right is the next resistance barrier. That previous peak can be seen more closely in Chart 2. It shows the Canadian currency moving up to challenge the highs of last summer (see red square). The 14-day RSI is also nearing overbought territory. Although the weekly chart looks promising, the daily chart does suggest the Canadian dollar could encounter some resistance over 66.
Chart 1
Chart 2
CANADIAN STOCK MARKET... The monthly chart of the TSE 300 doesn't look that much different from the U.S. market. The difference simply lies in relative performance. The TSE 300 has been in a bear market for almost three years. However, it remains above the 1998 bear market low. [The S&P 500 has already broken that support level]. The rising relative strength line also shows that the Canadian market hasn't suffered quite as much damage as the U.S. market. The daily chart shows the Canadian market reaching its 200-day moving average earlier this month -- where it is starting to weaken. Once again, however, the rising relative strength line shows better performance than the U.S. market. Like all global markets the TSE is moving downward. The point here is that it's falling less hard than most others -- which makes it more attractive in relative strength terms. Since we're big believers in relative strength, that makes Canada our favorite market for overseas diversification. The fact that it's currency is rising is another plus for American investors. Having said that, the market could continue to drop over the short-run along with the U.S. market.
Chart 3
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CANADIAN CARPETS... Members can access more information on the Canadian markets through the Stockcharts Market Carpets. Click on "Select Market Carpets" and select Canadian Market Carpets. You'll see that market broken down into its sectors -- with leading stocks in each sector. You can click on each stock to see their chart. Over the past two months, for example, the three strongest Canadian sectors have been materials (mainly gold) up 9.4%, energy up 6.8%, and telecommunications up 3.9%. The next three charts show the strongest stocks in each of those three leading sectors. The rising relative strength line along the bottom of the three stock leaders show outperformance versus the Toronto 300 index (TSE). We're not necessarily recommending these three stocks (which look somewhat overextended). We're just showing where the Canadian leadership has been. The Canadian Market Carpets can be used to hunt for new leadership in other sectors and stocks.
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CANADIAN MUTUAL FUND... The easiest way for an American to participate in the Canadian market is through a country mutual fund. The final chart shows the Fidelity Canada Fund over the past year. It doesn't look much different from the chart of the TSE 300. Our main interest is in the rising relative strength line under the chart. With resistance near the 200-day average, however, and an RSI line (over the chart) slipping under 50, it looks like the Canadian market is also susceptible to near term weakness from current levels. [Canada has been the top-performing global fund so far this year]. As we suggested last evening, the Canada market also provides a global vehicle for participating in rising commodity prices.
Chart 8
