The Tale of Two Markets
Igor Manukhov - Nov 30, 2023
The US market is in an uptrend, whereas the Canadian market has been range bound for over a year.
Last week, I showed a relative strength chart comparing Canadian stocks to other markets. One of the conclusions of that analysis was the persistent dominance of the US stock market over its global and Canadian counterparts. I mentioned that, based on those chart readings, we have been overweight US stocks.
Relative strength is the key element in my investment process, but I also want to invest within areas that are in an uptrend on their own. In short, I want to see relative as well as absolute strength.
The charts below show price history of the US market (black line), as well as the Canadian market (red line). The blue lines on both charts represent their 30-week moving average, a common gauge for trend identification. The difference is obvious. The US market is back within an uptrend as it is trading above its rising 30-week moving average, where as the Canadian market has been stuck within a trading range for over a year. In fact, lately the Canadian market has been trading around a declining 30-week moving average.
This means that, in absolute terms, the US market is in an uptrend whereas the Canadian market is stuck in the mud for now. This does not mean that the trend cannot change, in fact I would not be surprised that it will change one day. However, in my investment process, I prefer to invest with the long-term trend and try not to predict when the downtrend will change.
