Technical analysis reveals — in graphical form — what is happening in the market: it does not tell why.
On Tuesday, the tsx closed above 13,500 which was good as this was an area of resistance over the last three weeks. On Wednesday, the tsx did not hold 13,500: this is not good from a technical perspective. Today (Thursday), the market gapped down at the open — through 13,400 — and traded in a tight range as indicated by the candlestick pattern called a spinning top. In the snippet to the right which is snipped from this full size chart , you can see where the 40-day moving average was tested: look at the spinning top candlestick pattern and note where the shadow touched the 40-day moving average. The spinning top represents a battle between the bears and the bulls.
At this stage in the market, do not add to long positions: you may even consider liquidating some longs. The chart pattern is telling you to be on guard. The tsx could trade sideways in a consolidation pattern and then make another run at 13,500. Or, it could close below the 40-day moving average which defines the trend: this has negative implications for the market.
Major support for the tsx is 13,000. If the index closes below this level, all bets are off.
Stay tuned to the continuing story.
Note: This analysis is for educational purposes. Please conduct your own analysis or consult your financial advisor before making investment decisions
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