The overbought pullback has arrived. The breadth of the market heading into the overbought situation appears to be demonstrating a new bull market in my work. However, the macro situation is a big cause for worry. We covered a lot on the webinar yesterday.
Webinar Content // Breadth 0:00 //Crude Oil 4:00 // Currencies 5:30 // $TSX 11:00 // Sectors 21:00 // BPI Charts 44:30 // Commodity Countries 48:00 // Closing Thoughts and Ideas 51:00 //
I am not sure that the fundamental investors are aware of how fine the knife edge is on the charts at this particular moment.
This is the Canadian Financial Services chart. $SPTFS. There are enough technical signals here to send technicians to a bunker. The RSI continues to be in bear mode with a reading below 60. In bear markets, the weekly charts usually stall around 60 on the RSI. Moving to the Relative Strength, the Canadian banks have been losing their strength compared to the $TSX index. While I don't usually compare to the $TSX, this is definitely a concern as the major banks all tried to make new highs recently. The price chart couldn't be more unnerving. After a big topping structure built over the last two years, we recently broke down in the area circled. The rally back up appears to have stalled at the confluence of three trend lines. First is a failure of the short term horizontal trend. The price action recently took out the previous high, only to roll over and fail quite dramatically this week. It also broke below the current uptrend line off the February lows. While that might be considered too steep anyway, there is more to the story. Bear market uptrends are usually quick, vicious and quite upright. They break just as quickly. The third up-sloping line is the neckline for the topping structure. When that line is extended as shown, this looks like a normal backtest of the trendline from below. The final bullet in the gun is the major long-term uptrend going back 6 years was broken in 2015. This is a backtest of that area as well. Having the failure appear at the backtest point as well as the confluence of these trendlines can only be considered as a major blow in the bull/bear debate.
Staying with the chart above, the timid volume in April is concerning as well. The Banks were pushing to record highs, but no new buyers showed up to push the stocks higher. Now it appears the MACD is rolling over once again and the long-term Full Stochastics are also rolling over after failing to reach the 80 zone or a new bull market level.
One sector like the banks shown above does not make a new bull or a bear market. It is the broad confluence of information that makes it a new bull or bear market. The breadth charts shown early in the webinar were particularly bullish. That needs to be tempered with the data coming off these sector charts.
Here is the chart of the industrials. $SPTIN.
For the energy sector, it has been a significant run.
Here is the bull chart. The only problem is, it is not bullish! $SPTCD. The Consumer Discretionary group. The RSI is below the bear market level. The relative strength is a problem as it is trending down. The price stalls at the horizontal support/resistance level.
Let's look at the Consumer Staples so you can scroll between them. ($SPTCS). The RSI is stuck in bull-market mode. It has stayed above 40, bouncing up to 70. The relative strength is drifting down slightly, but maybe the chart can explain some of that. During the recent rally, this has pulled back. But it is in exactly the opposite position as the chart above. That was hitting resistance and failing, this chart is hitting support and bouncing. The MACD is well above zero, albeit with a lower peak on the last peak. The Full Stochastics are still above 80.
The bottom line is the bull market sits on a knife edge. This knife edge is defined as support/resistance. The growth-oriented businesses are breaking down. The defensive businesses are turning up. You can also watch the video for more information on the REITs, Income Trusts, and Utilities. Click on this link to watch the video. The Canadian Technician Live 2016-05-04.
Lastly, I'll be hosting the Commodities Countdown webinar on Thursday, March 5th. Follow the link to register. You can follow me on Twitter for some independent stock charts that are blurted out. @Schnellinvestor. Please click on the big Yellow button below to subscribe to this blog. You will have to do that with each blog that you wish to follow. While the webinar on Tuesday covered the global situation, I also covered that on last Thursday's Commodities Countdown 2016-04-28. Here is a link to the last Commodities Countdown blog article. If you think the lows in the Commodities are in, you might want to hit the big yellow Yes button at the bottom of that blog chain as well.
Greg Schnell, CMT, MFTA.
The momentum continues to surge towards the energy sector and now the oil services sector. If you have not seen the change in momentum, I'll be hosting a Commodities Countdown webinar 2016-04-28 and you can click on this link to register. Here are a few more stocks adding to the momentum.
ARC Resources (ARX.TO) continues to press to the upside. After breaking to new 6-month highs, it has paused. With the momentum across the industry, this probably has more to run.
Oil and Gas stocks are breaking out from the big 6-month bases they have been building. Some of the juniors are moving faster than the majors. During the Canadian Technician Webinar 2016-04-19, I spent the vast majority of it going through Oil and Gas stocks. So here is a link to the webinar.
After another OPEC /non-OPEC meeting where nothing was concluded, the initial reaction was a plunge in oil. On Monday, after the market opened, oil actually held in pretty well and forced early short positions underwater.
Today was a good day to do another quick look at the oil services stocks. There are excellent bases that look pretty solid. Breakouts from these bases would be the first signs of spring in a 2-year nightmare.
First of all is Precision Drilling. From a 2014 high of $14.84, the $6.30 level looks interesting.
There is a collection of REIT's that are performing in Canada. Here is a look at a few of them. As we struggle to find yield everywhere, this is a list of some nice looking charts that pay a monthly dividend and have some potential for capital growth as well. Some need to go on a watchlist for entry, others look attractive here.
Killam (KMP/UN.TO) still pays a 5% yield even after running for a couple of months above the old highs. A little concerned that the relative strength trend in purple is breaking. This might set up a better buy point a little lower.
Canadian stocks have been range bound for five weeks now. The zoom box shows the friction around the 40 WMA. Since oil stopped rising, we have been trapped in a range. I covered off a lot of sector information on The Canadian Technician Webinar 20160405 for those that would like a review of Canada's top sectors.
With the market recently surging, it is difficult to be bearish when the US Market makes higher highs. The $TSX made its highs on March 17th while oil made its high on March 18th, first thing in the morning. We've traded between 13650 and 13250 since. At the time of writing, we are at 13500.
Currently, the themes of the market have all relaxed. The precious metals trade made highs in early March and we have not been able to make progress since. Oil is near 2-week lows but a lot of traders are looking for potential support at $35. The Canadian banks were making new highs last week and a few are extending those highs. When I look through the leadership areas, I did not see any new emerging trends, but I did find some interesting charts. Aecon and SNC are both rising as the 'throw money at infrastructure' idea received capital in the budget.
During The Canadian Technician 20160322 Webinar, I covered off some of the signals that were leaning to a new bull market. While I am still in bear camp mode, I did discuss some powerful charts that suggest a transition to a new bull market is very close.
The symptom of a bear market rally is that it seems to suck you in as you believe the worst is over. Just when you start to feel the trouble is over, it reverses into a downward slide. Then at the extreme lows, the pain is so real, you don't want to jump back in.
Let's look back at some of the moves in the market. Here is an article from July 14th marked by a red arrow. Why Technicians Are Worried And Fundamentalists Are Not. Then on October 3rd, we talked about the fundamental and technical approaches to the market. I covered this off in one of the most popular articles I have written. For fundamentalists, the bull market resumes. For technicians, this is a very important chapter. While the $SPX rallied into November, the $TSX rolled over a meager 5 days later in October and continued the bear market trend. The $SPX resumed a bear market trend in November without making new highs as well. The technicians were right to be concerned. Then in December, on the red arrow, an article about Three Topping Structures was pretty good timing.
In January, the indicators had dropped to the levels where extreme lows are created. While there was a retest of the lows in February on the US indexes, the Canadian markets did not test those lows. You can see this in the two charts below. It was a nice time to enter the market from a profit perspective but difficult from an optimism perspective as the plummeting market rattled the nerves of the investor. In my own investing, I started putting capital to work in mid-January and had some moves whip me around. It is hard to get easy entries in volatile markets. Some of the industries that moved off their lows made substantial increases. A bear market condition of lower highs and lower lows suggested positioning in defensive sectors. The oversold areas of the market had substantial bounces for a trade. This brings us to the current yellow arrow.
Now in late March, both of these charts have rallied off the lows and have swung the indexes to the point that they could be starting new bull markets. My target for this rally was between 2020-2030 on the $SPX. On the $TSX, my target was 13000 with a potential of 13500 which was the 200 DMA. We have exceeded that.