The S&P TSX index closed on Friday July 4, 2008 at 14,010.39. The S&P TSX is the headline and broadest index in Canada. It is made up common stock and income trust units of 14 sub-indices. Refer to (www.tsx.com) for a more detailed description.

The rolling 52-week high for the S&P TSX index over the last year was $15,154.77 on June 6, 2008 and the 52-week low was $12,011.68 reached on January 22, 2008. From the trough (low) to the peak (high) that represents an increase of 18.4% for the TSX index vs. the S&P 500, which was up 3.8% over that same time frame. Year-to-date the TSX is up 2.2% if you measure from December 31, 2007 close to July 4, 2008. The S&P 500 is down -14% over the same period. To show why the TSX has outperformed the US, ScotiaMcLeod has published an article, which illustrates the point contribution of the various sectors to May 31, 2008. Notably, the Energy and Materials contributed the most to any positive point gains, 89% & 38% respectively, while Financials and Consumer Discretionary contributed negatively to any point gains, -14% & -13% respectively.

Technically, the chart is telling us that investors are bearish toward the S&P TSX. The trend from March 20, 2008 to May 20, 2008 was bullish represented by the upward channel in the chart. A triple top pattern occurred on May 20, 2008, June 6, 2008 and June 17, 2008 followed by a downward channel from June 17, 2008 to date. On June 25, 2008 the current price dropped below the 50 day moving average at about $14, 550. Watch for the next support level being broken or held at the 200-day moving average, which is about $13,850.

The S&P TSX index price-to-earnings ratio is trading at 17.22 times and is paying a dividend yield of 2.71%. With the exception of resources, the fundamentals suggest the S&P TSX index is not overvalued, however there is a fundamental change with respect to the economic data. Recently the market has dropped on fears of inflation with rising food and energy prices and it’s effect on demand for resources we export. This is not only affecting demand from the US but also worldwide. In addition, a report from TD Bank forecasts weaker consumer spending in Canada in 2009 at 2.6%, down from 4.0% in 2008.

As a side note, the Investment Funds Institute of Canada reported that monthly mutual fund sales were down from $2.3 billion a year ago to $1.7 billion in June and money market sales were at $1.6 billion vs. $430 million a year ago in June.

The technicals are bearish but the fundamentals are mixed favouring the bears. The old adage “Sell in the summer” is holding true.