Intriguing technical activity is happening in the Canadian indices.
In recent weeks, it has started to appear as though the spring advance in U.S. stocks may have been a bear market rally and that more bearish longer-term trends may have started to reassert themselves. In recent weeks, U.S. indices have been declining in a step pattern of selloffs followed by periods of consolidation at lower levels, a pattern that tends to be viewed as a sign of distribution.
Looking at the S&P 500 (SPX500 CFD) for example, note how the previous support level of 1,365 has recently turned into a resistance point, which suggests that a new downtrend may be underway. Currently the SPX is testing support near 1,330 but should that fail, the SPX could trend toward a retest of support in the 1,250 to 1,260 area in the coming weeks. Similarly, the Dow Industrials (US30 CFD) also appear to have picked up where they left off yesterday, sliding toward a test of 12,050 support after failing to get back through 12,350. On a breakdown, the next potential support levels do not appear until closer to 11,700 or 11,500.
Although some commodities have advanced this morning, it appears that the upward momentum they had earlier this year may have stalled and an extended consolidation period may have commenced. Since failing to break through $140/bbl, for example, crude oil has settled near $135/bbl with additional support in place near $131.50/bbl. Similarly, gold and silver have both picked up today but still remain below key resistance levels at $900/oz and $18.00/oz, respectively. Technical action in the resource-weighted Canadian equity markets, however, seems to suggest that commodities may be more likely to consolidate for a while in current trading ranges than stage a severe correction.
Canadian share update: quiet trading activity obscures building technical momentum
It has been fairly quiet in early trading on this side of the border today, although there has been some interest in oilfield services with Trinidad (TSX: T.TDG, Stock Forum) up 2.8% and Trican (TSX: T.TCW, Stock Forum) up 2.5%. There has been, however, some intriguing technical activity in the Canadian indices.
Last month, the S&P/TSX Composite broke through long-term resistance near 14,650 but stalled near 15,000, a key psychological barrier. Similarly, the S&P/TSX 60 Index (TORONTO60 CFD) broke through 850, but had difficulties overcoming resistance in the 900-905 area. In recent sessions, however, ascending triangles have started to form in both indices, suggesting that this period of sideways trading may represent a rest stop within a larger uptrend rather than a peak. Building on yesterday’s momentum, both indices have been trading above 15,000 and 900 respectively today. A breakthrough 15,150 for the Composite or 905 for the 60 may signal the start of a new advance on trend. Measured moves from the triangle would suggest that moves toward 15,800 for the Composite or 950 for the 60 could be possible over time.
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This commentary is based upon technical analysis. Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.
This commentary is provided for informational and educational purposes only. Nothing contained in this commentary is intended as investment advice or a recommendation or solicitation to buy or sell. All opinions expressed are current as of the date of publication and subject to change without notice.
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