Tag Archives: bearish engulfing pattern

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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TSX did not hold 13,500 today

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.