Key medium term breakout area for TSX 60

The TSX 60 index may have some upside in its future if it can make it above a key trend line. This trend line connects the highs from July 25 to the pivot high from August 17, as outlined in the chart below.

A break of this trend line could lead to medium term upside

Since Wednesday of last week, the TSX 60 index has been consolidating sideways underneath this trend line. This resulting bullish flag pattern means that the trend line should provide only minimum resistance.

A breakout above this trend line would be significant as this is a medium term 60 minute chart. I'll be looking to go long here for 1-3 days depending on how fast the price moves up. First resistance on any such breakout will be at the 200 moving average and the gap fill at 795. Secondary resistance will be at the pivot top at 804. A close back below the blue trend line triggers a stop out.

The XIU.to ETF is a good way to play this breakout, as well as individual stocks. If I find any stocks with supporting bullish patterns I'll post them here.

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.

Major Down Move for the TSX 60

Last week I wondered if the TSX 60 had put in a pivot top or if it was merely consolidating sideways. Today the answer to that question is clear as the index traded sharply lower down 1.33%. This is a major reversal to the downside and indicates that for the time being we are in a weak, down-trending Canadian market.

Seeing this down-move is good in terms of gauging the direction of the market, but it's unclear if we'll see further selling or if this dip will be bought.

The TSX 60 will have some support at it's current levels around the 20MA, the 50% and the 61.8% fib retracements. Until we break these levels, it's possible that we at least see a small bounce before going lower. However, today's move down was a very big one and should limit any upside we may see.

A pivot appears to be in on the TSX 60

As with the S&P 500, I'll be watching the TSX 60 very closely over the next few trading days. I hope to have actionable levels to swing trade very shortly, but until then follow the chart above as a guide to the nearest support and resistance levels.

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.

Weak showing for TSX60

The TSX60 Capped Index ended up 0.62% Monday while US markets were closed for the July 4th long weekend. On Friday US markets rallied sharply while Canadian markets remained closed.

As you you'll recall from last night's article, I expected the markets to gap up by approximately the same percentage basis as the US markets rallied Friday. This was not the case as the TSX closed up only by about 1/3 the latest SPY close. In fact, earlier in the morning the TSX was actually trading negative.

Float up, fade down.

This kind of showing is interesting. The fact that the TSX under performed the S&P 500 by a good margin shows that perhaps some of the exuberance of Friday's rally has faded. It also confirms my suspicion that the TSX might lag as it had not yet hit major resistance just above Thursday's close.

If the TSX does continue to push higher it will hit strong resistance at the 860 pivot low and ascending trend-line. If Tuesday's market pulls back, the 50MA at 850.95 will remain a barrier.

With Canada's exchanges re-opened, what remains to be seen is how the US market trades post holiday weekend. The SPY is arguably in a more precarious position as there is no real support until all the way back at 132, the breakout level from Friday afternoon's initial spike. On the other hand if US markets continue up, there's no real resistance until just above 134 and then all the way back to the double top at around 137.

The futures will be re-opening for the week shortly and I'm eager to see how they perform. I'm still short the market and will be looking to get more short in the event of further upside. Personally, I think it's likely that Tuesday is an uneventful day with little price movement either up or down.

If any news is released overnight, I'll re-evaluate my position. Follow me on Twitter to stay up to date with my latest thoughts.

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.

Thursday Market Summary

Thursday was another sharp up day in the markets. This should not be a surprise to anyone who reads this blog or follows me on twitter. The S&P 500 index broke through the 61.8% fib level, the 50 moving average, a pivot low and a down sloping trend-line. I think it's possible we go higher to the 1330 or 1345 levels, but we are currently into strong resistance that should bring some sort of pullback.

I took a short position on the SPY at 131.70 and 132.05 via the HSD.to 2x ETF, as per my post yesterday. I also shorted the NASDAQ at around 2773. Both of these positions ended flat on the day.

The timing of these shorts could be better as we're entering into a holiday period. Those who've been following me know that I generally assume an up market in light volume holiday trading. In fact unless we get some kind of horrible news out of Europe, I wouldn't be surprised to see a flat or slightly up day tomorrow. The shorting levels should still work once the holidays are over.

Canadian markets are closed tomorrow for Canada Day. The TSX60 is into strong resistance as well, but I'd like to see it higher before shorting, preferably into the daily 200MA or even the 50MA. I'm less confident that a top is in on the TSX so I left it to short on Monday or Tuesday in case the markets float up again.

I'll be watching the markets on Friday but I expect trading to be extremely light in volume and therefore fairly boring. If I see anything interesting I'll be sure to post it here or on twitter.