TSX in a consolidation pattern – Jan 24, 2011

Technical analysis gives you a guidepost to make investment decisions and  takes some of the emotions out of those decisions.

TSX Daily Chart - Jan 24, 2011

TSX Daily Chart - Jan 24, 2011

The snippet of today’s chart is snipped from a customized 6-month daily candlestick chart of the TSX. I use the 6-month and the 1-year daily charts to establish the near-term trend (less than three weeks) of the TSX index.  The 40-day, 20-day, and 10-day moving averages are used in conjunction with the candlesticks as confirming indicators: the 40-day average is currently a support level on the chart.   The following is a summary of the price action on the chart:

  • Bearish Engulfing Pattern (highlighted in red) formed last Wednesday which was very negative after the TSX broke 13,500 on Tuesday.
  • On Thursday,  the market gapped down and a spinning  top candlestick formed with the shadow touching the 40-day moving average.  This candlestick shows indecision in the market with a battle between the bulls and bears.  The plus on this day was that the 40-day moving average was not breached.
  • On Friday, the market sold off on heavy volume but held the 40-day average.
  • Today, another spinning top candlestick formed. There are two pluses for the day: the market bounced off the 40-day and closed above 13,300.

Conclusion:The major trend (in effect for six months to a year) as seen on the 3-year weekly chart is up as defined by the 50-day simple moving average. The 40-day moving average as seen on the 6-month daily chart and in the snippet  is also a good approximation of the the trend.  But, as discussed in today’s analysis; the short-term trend is moving in a sideways (consolidation) pattern.  The recommended strategy at this stage is to invest no new money in the TSX until there is a confirmed break above 13,500.  If the market breaks down through the 40-day moving average on the daily chart, it is time to liquidate some long positions.  Major support is at 13,000 and a break through this level could see a retracement to the  12,500  level.


Note: This analysis is for educational purposes.  Please conduct your own analysis or consult your financial advisor before making investment decisions

The chart snippets are from BigCharts.com which I recommend and have used for fifteen years.

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