TSX levels to watch

As the markets normalize, and with US debt issues put to bed for the time being, we can again focus on secondary markets like the TSX 60.

The TSX 60 has bounced considerably from the lows made on August 8. If it continues to move up, there will be several resistance levels to look for. The first is a narrow range between the 61.7% fib retrace, the 20 moving average and the pivot low at 811. This should be very good resistance provided we don't consolidate below it for several days. If this zone is broken to the upside, look for resistance at the 50 moving average. The dominant pattern is a bearish wedge--This means I will maintain a bearish bias and look for pullbacks at these resistant levels.

On the upside, the key levels to watch are the 200 moving average and the down-sloping blue trend line. A confirmed break above these levels will signal a possible breakout and can be bought long.

Oil and other commodities will play a key role in determining the direction of the TSX. If they remain strong, favour upper levels of resistance as the TSX should remain strong in sympathy.

Back to regularly scheduled programming (soon)

It's somewhat ironic that the so-called, and self-proclaimed, "TSXpert"spends most of the time analyzing every micro-move of the S&P 500, America's bellwether stock index, instead of the more local Toronto Stock Exchange. Readers to this blog, or followers of mine on Twitter, may wonder if I look at the TSX at all. Such confusion is understandable.

Part of being a successful trader and student of the market is knowing where the action is, and right now that's the United States. The outcome of the present debt ceiling debates in that country will have a profound effect not only on US finances, but also the macro direction of Canadian stocks as well.

As these issues in the US continue to preoccupy global markets, the major Canadian indices have taken a second stage. Even the best technical analysis is unreliable in the face of inevitable whips and saws caused by events inside the US. For this reason, I've chosen to stick mainly to the S&P 500 as it's most closely linked to the important issues at hand as well as to American trader and investor sentiment--a key psychological indicator.

But what's here today is gone tomorrow and these issues will not be the focus of the market's attention for long. Once that's the case, I'll resume focusing on TSX analysis while always keeping a close eye on the US. But until then, enjoy the show and trade carefully.

Don't Fight the Trend: A Lesson

When I first started trading, I had tunnel vision. I took what I learned about indicators and applied them one chart at a time.  And while I had become fairly competent at charting, nothing ever worked out quite like I expected. I got caught in a frustrating loop: I’d see a setup and take it expecting a big move, but would only get a small one. I wouldn’t get out in time, and I’d end up stopping out. Not wanting to get burned the next time, I’d see a setup and take the first bump I got, only to see the stock continue to rise along with all the profits I wasn’t making.

Fortunately, money management kept me from losing big, but I also wasn’t making big. My technical analysis was missing a key component--I wasn’t paying attention to the overall market conditions.

If the markets are roaring, shorts are going to be more difficult to predict. If the markets are dropping, few stocks will buck the trend. That’s why now if I’m looking at an oil stock, you can bet that I’m also looking at crude oil, and the energy sectors in general. Or if a gold stock looks bullish but gold is in a down-trend, I’m going to think twice before going long.

Since I trade both Canadian and American stocks, my eyes are glued to the TSX 60 index, the S&P 500 and the US dollar at all times. I have to have as solid a grasp as possible on what is happening in all areas of the market before I make any move to make sure I'm not fighting a trend.

MFC.to had a nice bull flag setup but fell with the rest of the market

This is why I didn’t buy MFC.to last week, despite its beautiful bull flag. What tipped me off was the fact that the TSX 60 index was incredibly extended and due for a pullback. This told me that going long any TSX listed stock would be like rowing a boat upstream--i.e., possible, but difficult and likely to fail.

So while this chart looked great by itself, it didn’t look great enough to fight the market, and sure enough it got a big pullback today along with everything else.

Overall, as a lesson for beginners, never stop paying attention to the underlying market conditions, because no stock trades in a vacuum. And if you see a chart with so many factors that you think it just might buck the trend, keep a tighter stop and expect a smaller move.

Are Ag Stocks Ready to Pop?

After a good move on Friday, the market seems prepped for a possible further push up on agriculture stocks like POT.to. The bullish case being made is that people need to eat under any economic circumstances and therefore stocks like this are safe bets.

As a technical trader, I'm not concerned with bullish fundamentals unless there are technical factors suggesting the same.  Fortunately, I see several on POT.to, Saskatchewan’s giant potash company, that suggest possible upside in the near future.

First, Friday's breakout up-move easily pushed through two pivot resistance levels--55.97 and 56.58. This alone is a bullish sign to be sure, but please note that the push up also brought the price above a crucial inverse head and shoulders neckline. What this tells me is that any retrace back down to the neckline (currently just below 55.50) is a good buy. However, a close back below the neckline negates the trade.

If POT.to keeps going up, there is no major resistance until 59.67 and 60.50.  And if it is able to show this much strength, re-testing February’s highs might not be an unrealistic expectation.  But, like always in tech analysis, this pattern has its caveats.

For starters, the left shoulder is not ideal as it is considerably smaller than the right shoulder. I like this pattern best when each shoulder is roughly the same size. This coupled with an overall market that is very extended makes me cautious about jumping on board just yet.

Also of relevance, check out AGU.to, another agriculture stock with a similar inverse head and shoulders pattern. The same rules apply to this trade--a re-test of the neckline is a buy and a close below it is a stop out. AGU.to will have resistance at the 88 and 93 pivot highs.

On either of these trades, please mind your stops. Both stocks will not have significant support until their moving averages several dollars below the necklines.

I may take either POT.to or AGU.to for a long swing on a re-test of the necklines, as outlined in the charts above. If you're already in these trades for any reason, just be sure to use a stop to protect your profits. Also, just to reiterate, please be aware that the market is incredibly extended. Any and all stocks are due for a pullback at any time, including these. This doesn't mean that a bullish pattern can't play out, it just means be careful.

American readers should note that POT.to and AGU.to trade interchangeably with their NYSE counterparts POT and AGU.

New Sections: S&P 500 and TSX 60 Charts

I've added two new sections to this site: a daily chart analysis for both the S&P 500 and the TSX 60.

Each day I'll update these pages with a newly annotated chart and the major support and resistance levels. I'll also post a short commentary on where the charts stand and what I'm looking for going forward.

This will be in addition to the daily market summaries, trade setups and other articles I post on a regular basis. I'm adding these pages for ease of reference and gearing them for those who just want the most basic information at a glance. I plan to add other market indices soon.

You can find links to these sections on the menu bar at the top of every page.

TSX60: Possible Pivot formed

The TSX 60 may have formed a pivot top, as suggested by today's move down in prices. Confirmation  of this top assumes that the index does not recover before the end of the day. A move back up would be considered a consolidation pattern and not a pivot top.

If this pivot is confirmed today, the next support level will be at the 50% retrace/20MA/previous pivot level at approximately 832. If we consolidate above these levels for any amount of time, I'll assume a move to the double bottom or lower is in order.
 

I'll be keeping an eye on this pattern throughout the day and post an update later tonight.

The Week Ahead for the TSX

The week going forward will be an interesting one. I'm eager to see how the Canadian markets react to the sharp rally seen in the US on Friday after being closed for Canada Day.

Most likely, the TSX will gap up to match Friday's gains in the US. The question is where will it hit resistance.

You may recall that the SPX closed Thursday slightly above several resistance levels. The TSX60, as of Thursday, has not yet hit it's upper band of resistance on the daily chart. This includes the 200MA at 845.89, the 50MA at 851.53, the 61.8% fib at 854.26 and the blue trend-line at ~860.

Getting to these levels will take a good push up to be sure, but the fact that there is clear resistance ahead possibly shows a more definitive top than on the US S&P. And while it's possible we eventually break above these levels, it 's very unlikely that it happens before trading resumes in the US on Tuesday.

In any case, Monday's trading should be relatively uneventful. Once the initial gap up has occurred, I expect that the market will trade sideways or slightly up for the rest of the day. I'll be sure to post my initial reactions to the open on Twitter and post a summary here at the end of the day.

USD and the Euro--Keys to the Market

It's no secret that currencies play a huge role in setting the direction of the market, or at least it shouldn't be to anyone who reads this blog. Currency fluctuations are a powerful force. They exert an inflationary pressure on stocks and give us a clue to the market's overall appetite for risk at any given time.

Considering this, have a look at the charts below. One is of the the Euro and the other is the US dollar. If you compare them to the market indices, you'll notice that something is amiss. The markets rallied on Friday with an unrelenting fury, while the world's two major currencies hardly budged. When I'm faced with an incongruity like this I rely on whichever side I believe has the most credibility. Currency markets remain active and liquid even when equity markets do not, so I trust what they tell me.

The Euro generally trades inverse to the USD so we would expect it to mirror the markets--this was certainly not the case on Friday. FXE (the Euro) ended the day positive by just 0.18%, far under-performing the S&P's rally. The blue down sloping trend-line will remain resistance, at least for the short term. The series of lower highs since early May is also a bearish sign. For me to have faith in a continued S&P rally, the FXE will need to get above the blue trend-line and these previous pivot highs.

The US dollar had a similar Friday to the Euro with UUP closing down just 0.09%. UUP will have support at the as-of-yet untouched up sloping blue trend-line. Any bounce in the UUP will put pressure on stocks and stock indices like the S&P. Bulls should be discouraged by the fact that the US dollar showed little signs of breaking down in spite of a huge rally in stocks.

Irregardless of how currencies perform we need to respect price action, so I won't just discount Friday's stock rally out of hand. What I will say though is that the prospect of a continued rally next week is tentative at best without the support of major currencies. I'll be watching both the US dollar and the Euro closely before trading resumes next week as they will be the key to the markets. Check back here and follow me on twitter for my latest thoughts.

Holiday Float Continues

This week's trading has been unfolding much as I outlined in several posts over the weekend. The slow, light volume holiday float up has continued. And while it's been a bit boring to watch, the gains to the long side have actually been fairly substantial.

If you follow me on twitter (@thetsxpert), you'll know that I was looking to pick up several long positions into this week. This included stocks like FTS.to, HSE.to, CNQ.to, IMO.to, ECA.to and SU.to, as well as commodities like oil and natural gas via the HOU.to and HNU.to 2x ETFs. I thought that since the markets were oversold and approaching a holiday period, picking up stocks long into key support levels would be a safe bet. My analysis also showed me that oil & gas were making bottoms, so I concentrated my picks in those areas.

Unfortunately, these stocks came within cents of my entry targets before taking off sharply to the upside--in most cases dollar plus gains so far. The only position I ended up getting filled on was HNU.to and ECA.to, both natural gas related. I'm very happy with their performance but of course I'd be much happier with more long exposure given the gains in the market.

But what the market giveth, it also taketh away. I'd probably be looking to take the gains off the table by now, or close to it. In fact, I was debating towards the end of today whether or not to take profits. I ended up holding as I think we may have a day or two more of upside, but I have breakeven stops in any case.

Both the TSX60 and the SPY are close to some major resistance levels, which you can read about here and here. My position is the same--if resistance levels are hit later this week or early next, I'll short them.

I also think there's a decent chance of going sideways tomorrow. The market appears to have priced in Greece's parliament voting in key austerity measures tomorrow morning. Therefore if the vote passes as expected, the market should hold on to its gains and do little else. Alternatively, a surprise impasse in the vote could weigh on the markets to the downside.

In any case, I'll be looking for trades on both the long and short side so that no matter what happens tomorrow I'll be ready to take advantage of it. I'll advise on my findings later tonight both here and on twitter.