Author Archives: Trader

Bullish Candlestick for the TSX – Jan 26, 2011

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TSX daily candlestick chart for Wednesday, January 26, 2011

TSX Daily Chart - Jan 26, 2011

Technical analysis provides a graphical picture of the market and one of the most colorful components is the mighty candlestick: a light to illuminate the darkness at the end of the tunnel.

The January snippet to the right —  showing the bullish candlestick for today —  was snipped from this 6-month daily candlestick chart . This is a live chart that changes daily.  Refer to this live 6-month chart for a better overall view of the trend and the chart pattern.

So what are the components of a white bullish candlestick?

  • It should be a relatively tall compared to other candlesticks in the chart pattern. This indicates a nice price move for the day: the  TSX closed at 13,465.75, up 206.12 points, or 1.6 per cent.
  • It should open close to the low of the day and close near the high of the day as indicated by small shadows (wicks). In other words, buyers came in at the open and kept buying right to the top.  The price movement was nearly straight up for the day with very little selling pressure.

The energy and materials stocks were the big movers today.  Traders saw support developing around the 13,300 level and went for the ride.  But, unless there is a break above 13,500; the TSX is still in a consolidation (sideways) trading range.  Will there be a follow-through on the buying tomorrow? Or will the day traders start selling at the 13,500 level?

For an investor with a longer term perspective, I would not buy into the market unless there is a confirmed close above 13,500. Then you maybe able to ride another upward leg in the index.

TSX in a consolidation pattern – Jan 25, 2011

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Technical Analysis - TSX Daily Chart - Support Levels

TSX Daily Chart - Jan 26, 2011

Technical analysis gives you an objective view of the market.

The TSX  is in a consolidation range between 13,200 and 13,500.  The snippet to the right is taken from this customized chart for Tuesday, January 25, 2011.

I would consider a break below 13,200 a reason 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.

TSX in a consolidation pattern – Jan 24, 2011

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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.

Copyright © TradeOnline.ca  All rights reserved

TSX index closes below 13,400

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Technical analysis reveals — in graphical form — what is happening in the market: it does not tell why.

TSX - Daily Chart

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

Copyright © TradeOnline.ca All rights reserved

TSX did not hold 13,500 today

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The first step in technical analysis is determining the overall trend for the market.

Take a look at the 3 year weekly candlestick chart (each candlestick shows the price range for the week) and the 1 year daily candlestick chart (each candlestick shows the price range for each day) for the Canadian stock market.  The overall trend is up on both these charts.  Since September, the 50-day moving average has defined the trend.

Chart of the tsx

2 Month Daily Chart - TSX

Yesterday, the index broke 13,500 which is the white candlestick in the yellow circle on the chart snippet to the right.  The red candlestick in the circle is today’s negative move — opened above 13,500 and closed below 13, 500. The two candlestick pattern in the yellow circle is a bearish engulfing pattern where the market opens — the red candlestick — above the previous white candlestick and then closes below the white candlestick: it has negative implications. The bearish engulfing pattern is in the broad category of reversal patterns.

More analysis to come on this post — candlestick combination highlighted in the circle and the moving averages.

TSX broke 13,500 at miday – will it hold?

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13,500 is an area of major resistance for TSX.

TSX Chart

TSX At Midday on Jan 18, 2011

It broke this level at midday. Will it hold above this level today, and how will it react tomorrow at the open? These are important questions as one decides to commit more money to the market.

The chart at the right is a snippet of the daily candlestick chart for the TSX.  The red line is the 40-day moving average, the blue line is the 20-day moving average and the yellow line is the 10-day moving average.  I use these three averages on the 6-month and 1-year charts with daily candlesticks. Each candlestick represents a day of price action.

Update: Market Close

The TSX is in good shape at this stage as the market closed at 13,559 near the high of the day:

  • The price is above all three short-term moving averages — 10-day, 20-day and 40-day.
  • The 10-day moving average has not crossed below the 20-day average.
  • The market closed on a nice white candlestick — opened low and closed on a high.

An important aspect of support and resistance is whenever resistance is penetrated — 13,500 in this case — it reverses its role and now becomes support.  So, is 13,500 a new  support level for the TSX?  Yes, it is now support but the level has not been tested and the level has only been broken for one day.

Where will the market open tomorrow?

Canadian Stock Market- TSX – January 12, 2011

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What is the major trend for the TSX?

That is the first point in technical analysis: you cannot invest against the trend. Take a look at the current 3-year weekly chart for the TSX.

It is evident that the major trend — being in effect for at least six months — is  up.  Over the last five months (August – January), the 50-day moving average has defined the trend.

TSX Weekly Chart

TSX Weekly Chart - Jan 14.11

This week, the 50-day average acted as support on a pullback. Another point to note on the 3-year chart is the area of major resistance which is currently 13,500. Major support on this chart would be 13,000.

The snippet of the chart at the right highlights the trend line and the areas of major support and major resistance. Trend line, support and resistance are important concepts in technical analysis. Future posts will explain these concepts in detail.

The next post will focus on the one-year chart with daily candlesticks (the price action for one day). This will give us a better picture of the intermediate (three weeks to three months) and near-term (less than two or three weeks) trends.

 

What are the appropriate trading strategies based on this 3-year chart:

  1. The TSX is in a consolidation phase. Do not add to long positions
  2. A close above 13,500 would would be a signal to add to long positions.
  3. A close below 13,000 would be a signal to liquidate some long positions.
  4. A close below 13,000 may also be a signal for some experienced traders to take short positions.

Note: Each candlestick on the chart represents one week of price action.

Note: The above analysis is for educational purposes.  You should conduct your own analysis or contact your financial advisor before making trading decisions.

Patriot Coal (PCX) – Major break at $25

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This is a major coal mining company in the US.  Coal stocks are moving up due to the projected demand in China for metallurgical coal.

Take a look at the 3 year chart.  This is the start of a classic chart pattern with a break at $25 which is major resistance. Now the stock must hold above $25.  An important concept in technical analysis is support and resistance.  Once a stock breaks resistance; the price point becomes support.  In the case of Patriot Coal, $25 is now major support; and I will sell the stock if it does not hold this price point.

You can see the momentum in the 1 year chart.

Disclosure: I have a long position in this company at a purchase price of $20.60