A couple of sideways indices

Today, I thought I’d take a quick look at the S&P TSX 300 index, and the Russell 2000 US small capped index from a technical perspective.

 

TSX 300

Before we get to the chart – A worthy interview on the Canadian economy with David Rosenberg: Why David Rosenberg is ‘downright bearish’ on Canada’s economy (msn.com)

OK, lets take a gander at the TSX and see what conclusions we can draw:

The TSX has been stuck in a range of about 19,500 support to 20,800 resistance. I’ve noted this pattern several times on this blog in the past. Recently the index failed yet again at 20,800. This, despite lots of positive trading south of the border. MFI, Force and MACD are moving bullishly. So, there’s that to be positive about. But you really need to see 20,800 to break decisively with a bit of time above that level. Until then, the TSX is a sideways trading candidate. And there’s nothing wrong with that! Like I always say – you know your buy, stop loss and sell point. Paint by numbers trading!

Seasonality

The TSX typically declines in the summer, rallies and peaks in December, takes a break, and then resumes its bullish ways March. That, like the US index, typically lasts until June. Recall that seasonality is a tendency, not a trading rule. So, I’d hope to see that 20,800 breakout happen later this winter before I went perma-bull on the TSX. As noted above, until that point, the TSX is a trade-only pattern.

Russell 2000 US small capped index

Now lets look at the IWM ETF, which is a good proxy for the US small capped index. You’ll note the sideways consolidation since early 2022. Big, big resistance around $200. I would not buy the ETF unless that price breaks significantly with a few weeks of holding above $200. Of note–hopefully next week I will publish a video interview with Peter Hodson of 5ii Research. One of the areas Peter likes is the small capped arena – which we discussed in the interview. I’ll give you a heads up on its publishing date. You’ll want to see this one.

Technically, there is hope for the Russell 2000…

Very bullish signals coming from MFI – which is quite good at spotting market bottoms and tops when we see an overbought/oversold signal. Also note that the Force index is suggesting money is moving into the ETF, along with a lovely MACD hook and bullish cross.

Seasonality

As you’ll note on the seasonality chart, IWM can peak in performance right around this time of the year (December) and then enter into a flat performance period until the spring. That’s a point against the IWM ETF breaking out.

Conclusion

Between the two candidates above, I’d think that the Russell 2000 (IWM ETF) has the better chance of breaking out. Especially given Canada’s economic woes per Rosenberg. Still, as with the TSX 300, you don’t predict, you just prepare. So until we see a breakout on either index, we need to trade, not invest.

Final note: Here is my Bloomberg BNN MarketCall show from yesterday: Full episode: Market Call for Monday, December 18, 2023 – Full episode: Market Call for Monday, December 18, 2023 (bnnbloomberg.ca)

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