Thursday, September 15, 2011

The TSX 60 recaptures the 20 moving average--just barely...

Today the TSX 60 index recaptured the daily 20 moving average. You'll recall from my analysis earlier this week that I was calling for a float up into the 780 gap fill area. Since then we've seen exactly that and closed today significantly higher at 783.11--just .60 points above the 20 moving average. Because the recapture is so slight, it's difficult to tell if it represents a true breakout or a minor pierce signalling a move lower.

Despite this recapture, there is still a lot of resistance at these levels. Going forward into Friday and early next week I will be looking for a followthrough move to the upside or downside, thereby confirming the levels as cleared or continued resistance. In the meantime, my outlook on the TSX 60 will remain neutral.

Tuesday, September 13, 2011

The TSX 60 walks a thin line

The TSX 60 index is walking a thin line after breaking a key trend line on the daily chart. This represents a significant breakdown and could foretell of more downside in the near future.

This trend line has acted as support since a bottom was formed by the lows of August 8th. This means that whatever strength was there to lift it after it fell steeply in late July and early August is gone. It also means that the bear wedge formed by the fall and subsequent sharp bounce has triggered.

Going forward, there are two scenarios that can play out that will lead to more downside--assuming we don't fall more tomorrow. The first sees us trade up into the 20 moving average, 780 gap fill resistance area and then pulling back. The second involves trading sideways for several days and then ultimately breaking down. In the event of further downside, it is very likely that the TSX goes at least to the pivot low at 732 and probably much lower.

In the meantime, I'm favouring sideways to upside trading. After a major breakdown such as this it's typical for the market to retrace back to the initial breakdown area before falling further. I'm also biased towards short term upside on the TSX because of the major trend line recapture that happened on Monday on the S&P 500 in the US. 

SPX trend line recapture

In any case, just remember that the market is weak right now and any bounces should be quick and can be used as shorting opportunities. Bearishness on the TSX 60 will be negated if it can recapture the 20 and 50 daily moving averages.

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Saturday, September 10, 2011

The only thing that matters on the S&P 500

I apologize for not posting here in over a week. This blog is meant primarily as a place for me to share longer term swing trade idea, but this kind of volatile market has simply not been conducive to that. This kind of market is best traded on a scalping basis and with good deal of caution.

With that being said, I am watching the longer term forecast for the S&P 500 very closely. As I've posted several times before, I will maintain an upside bias until certain technical factors change. Right now, the one technical factor I'm watching is the bottom trend line on the SPY daily chart (in green below).

As far as I'm concerned, if this trend line holds, the market may continue to trade higher. If it breaks, stocks will almost certainly trade lower. Interestingly, the SPY hit this level almost exactly late on Friday and just barely held. Monday will be important test in determining if we bounce into the next several days or begin to trade down.

It's also important to note that we are trading within a macro bear wedge (sharp down move followed by a secondary move sharply higher), as I've mentioned previously. This means that it's only a matter of time before the market breaks, and a break of this green trend line could be a foretelling indicator of that happening.