eResearch | The S&P/TSX Composite Index (“S&P/TSX” or the “Index”) has reached a milestone. For the first time ever, it has closed above 20,000! From the March 2020 low, the Index has gone almost parabolic, with just a brief pause in September – October last year. This kind of relentless upward move usually ends with a pull-back, often resulting in a significant retraction. Downside support sits at 18,000.
CHART 1: Ten-Year Chart: S&P/TSX Composite Index
The S&P/TSX closed on Friday, June 4, 2021 at 20,029.19. (Its intra-day high was 20,050.36.) To reach a close of 3% above the 20,029 reading would be 20,630. (See arrow below.)
CHART 2: One-Year Chart: S&P/TSX Composite Index
Observation: In the one-year chart shown above, the arrow denotes 20,630, which is 3% above Friday’s closing price.
Chart 3: Two-Year Chart: S&P/TSX Composite Index
Observation: In the two-year chart shown above, the rising trend-line (Green line) that started in March 2020 at the beginning of the COVID-19 pandemic is still intact, meaning the bullish market that began a year ago March could drop about 400 points from here and still be valid. So, the Index has a useful buffer in place.
CONCLUSION: We remain cautious towards the market and recommend defensive positions. Given the recent strong upward movements in stock prices, we would welcome over the summer months a lengthy consolidation period or a meaningful, but healthy, pull-back.
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