The Canadian Technician

The $TSX Through Different Timelines - Sell Signal

The $TSX has not made a new high for three weeks and it looks suspiciously like this week is creating an important support level that needs to hold.


Below is a one hour chart, which I don't look at often. The RSI is stuck below 60 and the Relative Strength chart shown in purple illustrates the $TSX continuing to underperform the $SPX. The price rolled down significantly and has failed to get any higher than 15645. Monday March 1 was a big rally day in the USA with the Dow up over 300 on a push to new highs. The Canadian market has rallied back up to test the March 1 high, but continually rolls over. So far, the highs of March 10th and Monday, March 13 have stalled at lower levels. This chart looks weak. I have drawn a horizontal support line around 15425. The more this level gets tested, the more likely it is to fail.

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The Canadian Market Loses Some Breadth - 2017-03-07 - Today In The Market Tip

While the market awaits the Federal Reserves decision to raise interest rates next week, lots of things are happening under the surface. The bullish moves in the marketplace are now happening in the defensive sectors and we are seeing more and more information creating a warning for the market cycle.

Here is a picture of the Bullish Percent Index (BPI) for the $TSX ($BPTSE). The point I would like to make on this chart is where the BPI crosses the 40 WMA at a very high level, the 4 previous corrections have been at least 5%. In a roaring bull market, that is not so bad but it is nice to be aware of the potential setup. I have drawn the red horizontal line at the current BPI level and the blue lines show the timing on the $TSX when the market crossed down below the 40 WMA from these lofty levels. The other thing to notice is the market does not hold this level of Bullish consensus. You can see the $BPTSE has not spent a whole year above the 68 level since we started recording the data. The 2013-2014 period was close but that had QE Infinity in play at the time.

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Forestry Stocks Surge As Sector Rotation Gets Active

I have posted my Canadian Technician Market Review for the Canadian market. You can click the play button to start the video or use the link below this to open a new browser window.

The Canadian Technician Live with Greg Schnell 2017-02-21 from StockCharts.com on Vimeo.


Here is a look at how the Canadian market performed on a relative basis from the February lows of 2016. So one year later, the market has been in a trend almost straight up with very little corrective activity. 

I spent a significant portion of time at the start of the webinar to display how the Trump Jump rally ignited the financial stocks and left the others well behind.

The $TSX is weighted 1/3 Financials, 1/3 Materials and Energy, and 1/3 the other 6 sectors combined.

As we got to the November 2, 2016 low off the back of the October Fed Meeting, the market had been declining. The Fed meeting started the rally and the Trump Jump accelerated the rally. Canadian stocks followed. For the entire $TSX, it wasn't a very mixed bag. Using the $TSX average as a benchmark, Financials were clearly the outperformers and nothing else came close. This is using the $TSX as a benchmark.

By unclicking the highlighted $TSX in the top left, you can get an absolute percentage change from November 2. You can see all the growth sectors were positive, and the defensive sectors dramatically underperformed.

This changes the look considerably and I should have pointed this out on the recording. However, the main point is still the same. Financials had the vast majority of the gains and the 'Energy and Materials 1/3' had very little. The final third was actually better with the Industrial and Consumer Discretionary doing ok.  That becomes misleading because of what is happening in the past month rather than the past 3.5 months. The majority of the gains in Consumer Discretionary have been in the last month while the Financials are just in line with a lot of the other sectors. We are seeing big improvements in the Healthcare space as the Biotechs surge and some bouncing in the Concordia Health and Valeant charts. Materials got a lift for a few weeks in Gold and then it has gone sideways for the most part. The improvement in the defensive sectors is important.

Zooming in one more time, we see the action over the last week. Materials are getting beaten down, Energy has rallied slightly, but Healthcare and Consumer Discretionary have been surging. A big part of the Energy surge would be the 7% pop in the group from Crescent Point Energy. Canadian Tire has really surged and so has Shopify.

But the Industry group that is moving very well now is Forestry and I talked a lot about looking at the markets more recent history to spot the change in Industry rotation. This is over the last week. 

Here the same list sorted by SCTR and we can see that a large portion of the group is above 50 and a lot are above the 75 level.

So this is definitely an emerging area. 

There is a lot more information on the recording so I would encourage you to watch it. Arthur Hill also produced a recording over the weekend for members. Martin Pring published a members article on the $USD. If you are finding value is some market commentary as a visitor to the site, there is a significantly larger value found in becoming a member. Click here to access a one-month free trial offer

Again, here is a link to my recording.

Good trading,
Greg Schnell, CMT, MFTA.

 

Canadian Energy Stocks Try To Bounce

The energy sector has had a rough ride since December 8th. The decline in the energy stocks has been going on for two months. Even some of the best performers last year are down around 20-25%. On the Commodities Countdown webinar 2017-02-09, I discussed how to monitor stocks in the energy group for improvements. This is starting to show up.

I like to go back and review old chart annotations and last night I came across an interesting chart on $WTIC. The date on this chart was 2014-06-03. Funny enough, it was within days of the final high before oil collapsed. Look how closely it picked some of the major lows/highs in the market. We have another week before it hits another cycle point. The cycle is close enough to be aware of potential moves. I am not a cycles expert, but this is setting up for a breakout move. 

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Important Lessons On The RSI Help Us With The Dollar

The Canadian Dollar ($CDW) has been in a downtrend for a long time. Deep on the Canadian wish list is a stronger dollar so that things Canadians import from the US would finally get more reasonable.

Looking in on the chart for the Canadian Dollar, we see a break on the chart. However, the chart of the Dollar has a couple of clues on it that makes this breakout more likely to hold unlike the one in July 2014. 

Constance Brown did some great work on analyzing the RSI. Here is a link to the book I read, which had a great chapter directed to the RSI

You can see the period from July 2009 to August 2011 has a green line on the RSI. While the Canadian Dollar was rising, the RSI never dipped below 40.

The RSI holds a couple of great clues that hold true most of the time:

  • Bull market RSI readings stay above 40 and usually hit 70 or higher on weekly charts (Green line)
  • Bear market RSI readings stay below 65 and fall below 40 on weekly charts (Red line)

The next period on the chart starts with an RSI dropping below 40 and bear markets tend to have RSI's under 65 and down to 30 or lower. When it breaks to the low thirties, that gives a strong bear market signal. Notice how timely the signal was as a clue of a new bear market in the Canadian Dollar back in October 2011 only 3 months after the highs. The bear market runs from October 2011 to the second quarter of 2016. Then we see the RSI pushes up near 70 warning of a change in trend. Now the RSI dipped down to 40 and bounced at the bull market level. I would interpret this as bullish for the Canadian Dollar and trade with that bias.

Looking at price, we see the 40 WMA has been resistance throughout the bear market. There is divergence on the 2015 low with the RSI making higher lows. The MACD also has the divergence confirming the potential for the change in trend.

Now the RSI is pushing higher. We should assume the bull market might be underway. With the trend line break, this looks more likely. The MACD stayed below zero for the most of the bull market. After rising above zero and pulling back just under zero, it now looks to be turning up in the next leg of the bull market. 

This chart looks a lot like the recent commodity low in precious metals and industrial metals. Usually, Canada's currency moves in line with the major commodities. This RSI clue could be the biggest clue for not only Canadian investors but commodity investors in general. 

Learning to read the clues on the RSI has been a big help in my understanding of the signals. This works great on weekly charts but on daily charts it gives smaller clues of pullbacks in uptrends. Working that together sounds easy but it is hard with all the little pulses that don't make sense or whipsaws. I have found the weekly charts help me to change from bearish to bullish and vice versa. However, the chart in $GOLD recently went all the way to the 30 level, suggesting the bear market in Commodities is not over. Now look back at the top in Gold and we did not get a bear market signal until much later. The bear market signal finally kicks in during the spring of 2013, well after the highs. But notice the RSI broke down before the price broke down through the $1550 support level. That is helpful information.

Currency traders typically use more leverage. They are pretty smart traders and adapt quickly on trend changes due to this leverage. Currently, we have a difference in opinion between the two. On the Commodity Countdown Webinar on Thursday February 2nd, 2017,  I will try to work through the charts using this RSI tool to help us gather the weight of the evidence. Sometimes the clues don't show up as obvious, but when you get these trend line breakouts, they can be another clue to help you get the direction right.


Martin Pring gave a fantastic webinar on Tuesday afternoon. Market Roundup Live 20170131. Timely clues can really help investors keep more of the major trends. Martin delivered that information in spades today for our members. If you are a member of StockCharts.com, this is a 'do not miss' recording.

If you sign up for a 10 day free trial, you can try all these features and listen in on Martin's webinar. There are so many hidden features in StockCharts.com, you really do have to take the free trial to see all the expert analysis tools that are made available to help you make money in the markets. These tools are helping you find strong stocks in strong industry groups early in the new trend. Click here to sign up for a 10 day free trial and use the coupon code BESTCHARTS to get your first month at half price.

Good trading,
Greg Schnell, CMT, MFTA.