Short Term
Since our last note, the TSX initially declined sharply before bouncing strongly off the identified intermediate term support at TSX index level 10,800. The chart pattern today while bullish, reveals the formation of a potential triple top for the TSX. Continued low trading volumes and a declining MACD are negative hurdles that have to be overcome in the short term. When a variety of technical indicators are considered it points to a weakening market ahead. In the short term, the price direction of gold, and crude oil, will continue to be the primary factors driving the market. Initial upside resistance exists at TSX level 11,700 followed by stronger resistance at TSX level 12000. Support for the market is indicated at level 11,010 then 10,712.
Intermediate Term
In the latest reporting period the TSX broke down out of the previously identified trading channel indicating longer term caution is now warranted. Although pushed higher by oil and gold commodity prices in the short term overall trading volume remains a critical issue. Support in the intermediate term exists first at TSX level 11,000 then at TSX level 10,582.
The Bottom Line:
Caution is warranted as the failure of the TSX to break out above 11,700 on three separate occasions is a dangerous technical warning sign. This accompanied with the fact that internally, the TSX has seen the more defensive sectors of the market gaining strength says the big money and money flow is rotating to a more defensive stance. On this decline, if it occurs, conservative investors should take money from the sidelines and position it for longer term benefit.
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