The Toronto Stock Exchange’s S&P/TSX composite index closed out Monday at an all-time high, eclipsing a mark that stood for the past six years years.

Canadian stocks as measured by the index are up nearly 10% year-to-date, propelled higher by energy stocks, as well as metals/mining companies. But at such lofty levels, how much further can the TSX realistically climb … and how many attractive entry points into Canadian stocks can be left after such a brisk move?

Canada’s Economy Is Beginning to Gain Traction

The good news is that despite Canadian stocks’ recent run, the Bank of Canada (Canada’s central bank) appears more concerned about deflationary pressures than inflation, despite recent increases in the country’s consumer price index. Recent data shows that the Canadian economy is beginning to percolate, which means the stock market rally could in fact continue while the BoC sits on the sidelines.

Last Friday, Canada Statistics released a 1-2 punch showing the Canadian economy was stronger than expected. Canada retail sales surged 1.1% in April, beating forecasts after a revised 0.1% gain in March. Meanwhile, ex-autos retail sales expanded 0.7%, which was also better than expected, after a revised 0.2% gain in March.

Further sparking the bull case, Canada’s CPI accelerated to a 2.3% year-over-year pace in May, greater than expected from the 2% pace in April. The CPI climbed 0.5% month-over-month, also above expectations after the 0.3% gain in April.

Could the TSX Start Playing Catch-Up?

Click to Enlarge America’s S&P 500 eclipsed its all-time high in April of last year, then continued to rally nearly 25% since surpassing its prior peak.

When the TSX hit an all-time high in June 2007, the ratio between the TSX and the S&P 500 index (TSX/SPX) was 9.5. Today, the ratio between the two major indices is 7.66, which reflects the outperformance of the S&P 500 relative to the TSX.

If the ratio between the two indices were to move back to the levels seen the last time the TSX hit an all-time high, you could be looking at the TSX making up significant ground on its neighbor to the south — via a run somewhere between 20% and 25%.

How to Invest in Canadian Stocks

American investors don’t lack for ways to gain exposure to Canadian stocks.

For one, you can buy dual-listed banks such as CIBC (CM), Royal Bank of Canada (RY) or Toronto-Dominion (TD), as well as energy concerns such as Talisman Energy (TLM) or EnCana (ECA).

But to achieve broad-based exposure, one of the easiest ways to buy Canadian stocks is via the iShares MSCI Canada Index (EWC).

Click to EnlargeEWC’s technicals currently show a fund that recently has come back from severe overbought territory, as reflected by the relative strength index (RSI) — an oscillator that measures both momentum as well as overbought and oversold levels. Readings above 70 are considered overbought, while readings below 30 are considered oversold. EWC’s current reading of 62 is in the upper end of the neutral range.

Support on the EWC is seen near the 20-day moving average at $31.30, then again near the 50-day moving average at $30.75, while resistance is seen near the recent highs at $32.15.

With the TSX at elevated levels, investors looking to ride Canadian stocks higher via the EWC can use a couple different techniques.

One strategy would be to dollar cost average and purchase the EWC as it drops, buying near the 20-day moving average and again near the 50-day moving average.

If you don’t want to purchase EWC outright, options are another way to go.

The EWC Dec $32 calls currently go for 80 cents, or $80 for every contract purchased. Breakeven on the trade would be $32.80, which is an improvement of less than 4% at current levels. This way, you’re limiting your risk to just $90 for every contract purchased, but you still have unlimited upside prior to the options’ expiration.

As of this writing, David Becker did not hold a position in any of the aforementioned securities.