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.
The intermediate trend (three weeks to three months) for Suncor is up.
But the shooting star candlestick is a warning signal: it is like a yellow light indicating caution. I do not want to see a close below $40 which is a support level. The next major support point would then be $35.
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.
Technical analysis, using candlestick charts, allows you to gain a quick snapshot of the price action without bogging down in the details.
Today (Tuesday), the TSX opened above Monday’s close and high for that day. The high is indicated by the shadow on Monday’s candlestick. So, we had a very nice opening to start Tuesday trading: the opening is the rudder for the trading day.
Then the market continued to trade higher and closed at 13,712 which was very close to the high of 13,714. Anytime a stock or index closes near the high of the day, that is a very good closing. It is called a shaven head white candlestick because there is no shadow.
Another important principle to discuss regarding technical analysis is the reversal of resistance to support. Yes, when resistance is penetrated with a close above that level, that resistance level (13,500) reverses rolls and now becomes support.
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.
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 - 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 currently13,500. 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:
The TSX is in a consolidation phase. Do not add to long positions
A close above 13,500 would would be a signal to add to long positions.
A close below 13,000 would be a signal to liquidate some long positions.
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.