We are getting to a pause in the market. Even as the $TSX digests its gains, we should observe that it is at an important level of risk should the market prove to be a bear. This week's video talks about that in detail. The Canadian Dollar failed to break out; I would expect lower levels to come. More importantly, changes in the Dollar direction at this trend line have caused reversals in the $TSX.
The Canadian market can also be a clue, as it usually is weaker than the US market. One of the strong parts of the chart is the momentum, which is very high on the PPO. Markets don't fall with strong momentum; they usually need to work off that momentum before experiencing a meaningful decline. Currently, the chart shows a double top on the PPO momentum indicator, which suggests momentum is waning. That said, we would expect to see a lower high on the PPO indicator to give us some divergence. A good example of what I am looking for is the May-to-August 2018 time frame. You'll notice that PPO momentum was declining while the price went higher. However, the rejection of the Canadian dollar at the trend line shown above suggests heightened focus.
The weekly $TSX is about to test the downtrend on the PPO. If it rolls over in the next few weeks, that would be what the indicator is now trying to tell us. However, the PPO line is well above the signal line, suggesting that this could break out to the top side in momentum. Perhaps the Canadian market can finally break above the 2-year trading range. The Canadian Dollar:$TSX ratio setup is now more important than ever!
Here is the ratio of the Canadian Dollar to the XIU.TO ETF, which tracks the Canadian Market. Notice that, when this ratio changes direction, it usually causes a change in the $TSX. The PPO indicator suggests we are at an extreme level and the PPO is grinding sideways. If this ratio starts to surge higher, I would expect the $TSX to start dropping.
The $CRB rolling over at the center of the Bollinger Bands is a problem - definitely something to watch next week. Notice the PPO just approaching the trend line. This makes this a risky place for the commodities to continue lower, which would probably put pressure on the $TSX as well.
Here is the Canadian Market Roundup for the start of March. In the video, I also set up a scan to find all the stocks that made a new 1-year high. There are some great charts out there!
Here is a link to this week's Weekly Market Roundup video, with a lot more information on the asset classes.
Now that the market has rallied, it will be more important than ever to focus on winning areas or industry groups. Using the tools on StockCharts can help you stay on top of the strongest areas of the market. In my Friday Market Buzz, I showed how to scan for stocks that made new highs at some point in February. You can click on the image below to watch the video, where you may find some stocks suited to your portfolio.
If you would like to learn more about the basics of charting, check out Stock Charts for Dummies. The first section of the book walks through all the chart settings you need to help you get the charts you want, the second section explores why you might use charts for investing and the third section is about putting it all together.
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Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com
Author, Stock Charts for Dummies
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The Canadian Technician