The Market Has A Memory

TL;DR:

Stocks and indices like Canadian Tire, FedEx, and the NASDAQ 100 exhibit repeatable valuation patterns over time.
Strategic Valuation Analysis (SVA) shows these patterns can inform long-term entry and exit decisions.
Understanding where valuation peaks or bottoms historically occurred can help predict what might come next.

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Introduction: What If the Market Remembers?

Traditional capital markets theory tells us the stock market is efficient, unpredictable, and largely random. But what if that’s not the full story? What if certain price levels consistently act as turning points, not once or twice, but across decades?

In this week’s Friday Focus, Ross Healy, Chairman of Strategic Analysis Corporation, dives into a fascinating thesis: the market has a memory. By leveraging decades of data through Strategic Valuation Analysis (SVA), Ross shows that specific stocks and indices return to the same valuation bands, time and time again.

The Coca-Cola Conundrum: The Spark Behind the Idea

Ross first observed this phenomenon in Coca-Cola, which has cycled through the same valuation range three times since going public in 1919. That’s a 40-year cycle, interesting, but not practical for today’s investor.

So, can this “market memory” appear on more actionable timelines?

Absolutely. And that’s where Canadian Tire, FedEx, and the NASDAQ 100 come into play.

Case Study 1: Canadian Tire and Predictable Peaks

Let’s start with a Canadian household name, Canadian Tire (CTC.A). When analyzed using SVA, Canadian Tire shows a remarkably consistent pattern:

Peak Valuation: The stock has repeatedly topped out near 2.5x book value, also referred to as its mid-growth price.
Bottom Valuation: It has bottomed four times at roughly a 20% discount to book value, or what SVA calls its low bid price.

“This isn’t about general trends. This is about precise, repeatable valuation behavior,” says Ross.

For traders and long-term investors alike, knowing that Canadian Tire historically reverses near these valuation levels adds a critical layer of context to decision-making.

Case Study 2: FedEx and the Rule of Threes (and a Half)

Looking south of the border, FedEx (FDX) presents another compelling example. Dating back to 1984, the stock has consistently peaked at:

3.5x its adjusted book value, known in SVA terms as its super growth price.

This valuation level has acted as a ceiling six different times, including the most recent peak, which coincided with heavy insider selling.

“It was as if the insiders knew, this was the top. The stock hit its peak with dead precision,” Ross notes.

On the downside, FedEx has frequently found support near its book value, or what SVA calls its normal price.

Index-Level Memory: The NASDAQ 100

This phenomenon isn’t limited to individual stocks.

The NASDAQ 100 has a track record of topping out at 9.5x adjusted book value, referred to in SVA as its High Bubble 1 line.

And that’s not just a historical note, we’re almost back there today.

This raises a big question:

Will the NASDAQ 100 break through this critical resistance, or will we see another valuation-driven setback?

As Ross explains, "Understanding these breakpoints, and how they’ve behaved historically, is incredibly valuable when markets are testing extremes."

Why This Matters: Trading With Historical Context

SVA doesn’t rely on guesswork. It provides a quantitative framework for understanding where a stock or index should trade, based on long-term valuation bands that often repeat. When market exuberance or fear pushes prices beyond those bands, history tells us a reversal may be near.

It’s not just theory, it’s pattern recognition with decades of proof.