Wow - the Canadian market spoke today. Down 260.
We have been watching a sideways pattern for 3 months. Today wiped out the gains YTD and the $TSX moved into negative territory.
A couple of more significant events were confirmed today as well.
1) We failed at the 12800 level that we have been testing and talking about recently.
2) We failed to find support at the bottom of the range.
3) We failed to find support at the previous breakout from the 12500 range. Previous resistance should have become support.
4) We failed a retest of 50 DMA in late March from the bottom trying to push up. That is a significant confirmation signal.
So let's review the Big Picture here.
OK, let's review the $TSX from the top.
First of all, as we keep discussing, so far the RSI has not been able to break out and tag the 70 level to cancel the bear market on the $TSX. What we mean by that is the RSI usually stays between 40 - 90 in a bull market, and stays between 10 and 65 in a bear market. We are back to the 46 level. So its not over till its over, but buyers didn't show up for work today as the RSI is at some of the lowest levels in the past 6 months. We are supposed to be in the juicy profitable time of year for commodity stocks.
Secondly, the purple shaded SPURS area continues to underperform the $SPX so that is not going to help send a herd of new fund managers into this segment as they are trying to outperform the market. Clearly this index is not outperforming.
Lets talk price action. We are significantly off the highs of 2011. We were trying to break out and make a higher high compared to the spring of 2012. We actually pushed above it, but again no new buyers surged to show up for work and support the stocks. A failed breakout is usually more aggressive to the downside. Well, today was confirmation that we failed to breakout. By falling through the bottom of the range, it confirmed that this breakout will be a target for another day later in the year. It could bounce from here, but I suspect a lot of buyers aren't going to be in a big hurry after we gave up 2% today (puck shy as we like to say in hockey country). It will need some time to form a base. The mood has officially changed when we get a direct blow like we got today.
By failing the retest at the 50 DMA or 10 WMA (similar MA's), we confirm the bearishness.
The next level of support is the 200 DMA or the 40 WMA on the weekly chart. If we were going to test a lower level, it looks to me like about a 10% decline would put us near the black support line. Those would be the 2 targets for me in the near months. 12300 and 11300.
A low MACD rollover is a problem. The MACD is moving higher, but nothing compared to the US markets slope. Today it rolled over and confirmed a top. I see the start of a negative histogram. You can always click on the charts to go in and work with them.
The full sto's made it into bullish territory. Unfortunately, they have just rolled over as well. Look to the far left and you can see that also happened when commodities went on their final run in 2008. I am not predicting a 2008 fall. When the full sto's quickly reverse and fall back out of the 80 zone, that can be a vicious move. The price patterns and the absolute plummeting through support and previous support tells me to get very cautious. It does not appear to be a long sideways move after a fall like today.
We need to see support show up. I would suggest the 2 levels above are the near term levels. 12300 and 11300.
Good Trading,
Greg Schnell, CMT
