Technical analysis gives you a snapshot of the S&P/TSX composite.
It has been a good run, and now is the time to closely monitor the candlestick charts and confirming indicators for a top reversal pattern.
2-Year Weekly Candlestick Chart for the TSX
This is an excellent article from the National Post covering the fundamental valuation metrics for different markets: Did I miss the rally?
Note: This analysis is for educational purposes so you can learn to trade online using candlestick charts. Please conduct your own analysis or consult your financial advisor before making investment decisions.
The most important point in technical analysis is to determine the trend.
The intermediate and near-term trend for Pfizer (PFE) is up. This drug stock had a very good move last week as indicated by the tall bullish white candlestick. Also, the volume was above average: the volume is the fuel that drives a stock higher. Any upward price movement on low volume is suspect. If the stock can break resistance at $20, the next target price will be $22.
Pfizer, including other drug stocks, has underperformed the Dow over the last couple of years. Pfizer has a decent yield of 4.15% and a solid cash flow. Now, traders are buying this orphan.
There was a bullish white candlestick for Shoppers Drug Mart (SC) on Friday, February 4.
It opened at $37.15 which was above the support level of $37.00. The stock traded to a high of $39.13 and closed at $38.77 which was a gain of 4.18% for the day. The tall white candlestick is the graphical representation of that price action.
Please customize and then reference the full-size chart from Bigcharts.com for a better overall view of the trend. Shoppers has been trading sideways since October so a break above the $40.00 resistance level would be a significant event.
TSX closes at 13,841 which was in a whisker of the high for the day of 13,844. When the close is at the high or near the high for the day, the candlestick is classed as having a shaven head.
The bullish white candlestick for today (Thursday) is a graphical presentation of what is logically bullish:
The TSX index opened above both the previous day’s (small red insignificant candlestick) close and the close for the bullish white shaven head candlestick on Tuesday.
There was a small lower shadow which indicated that there was little sell-off after the open.
It was a relatively tall candlestick which was just a graphical representation of the 161 point (+1.18%) move in the index.
There was no upper shadow: in other words there was no profit taking at the top of the market.
The bulls were definitely in charge today and I now want to introduce the concept of confirming indicators. Please customize Bigcharts so that we are singing from the same page in the hymn book, and then look at the 6-month daily candlestick chart which will open in a new window. On this chart you will notice the following:
You will see the bullish white candlestick where I snipped the chart for this post.
All three short-term simple moving averages are above each other and are moving up.
The close today is above all the short-term moving averages.
The trading volume was relatively high. The trading volume is the fuel that lights the candlestick and should increase as the index rises.
The on balance volume is trending up. It should move in the direction of the price trend: if not, we have divergence and this is not good.
The MACD indicator, a short-term momentum indicator, is moving up in the direction of the price trend.
Today’s chart snippet for the Toronto Stock Exchange S&P/TSX Composite Index shows the bullish white candlestick which closed at 13,551. This was a close above the resistance level of 13,500. View the this full size customized chart which is provided by BigCharts.
Now, for the rally to continue, the tsx should open at or above the close of today and end higher tomorrow: in other words, another white candlestick. Bulls like tall white candlesticks with small shadows or none at all.
Talking about shadows, a candlestick with no lower shadow is said to have a shaven bottom. And you guessed it, a candlestick with no upper shadow is said to have a shaven head. In a white candlestick, this is a very bullish pattern depending on the height. And in a dark candlestick, it is considered very negative.
All the market news is reflected in today’s candlestick: Egyptian protests, price of crude, copper at a all time high and the list goes on. How the market indexes or individual equities react to both good and bad news is an important observation in technical analysis. One guideline, if a stock does not sell-off on bad news then it is going up.
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.