Heads up

Seasonal guru Don Vialoux mentioned on his blog today that the TSX may be making a head and shoulders topping formation. Below is a daily chart of the TSX with notations.  The TSX may be putting in a complex H&S Top. Complex H&S patterns are identified by multiple shoulder formations – in the current case, the double left shoulder of the formation. From my perspective, the formation has not broken its neckline, which is necessary to project a downside target. It appears that the neckline for this formation, should it prove to be a valid top, lies around 15,300.

If, and only if, the neckline breaks, I’d suggest a downside target between 14,800 and 14,500 for the TSX given the prior trading zone for the index. Coincidentally this lines up with the traditional way of measuring a H&S topping target by measuring  the peak of the head to the neckline- and then subtracting that again from the neckline. The head’s peak was around 15,900, which gives us 600 points to the neckline. That’s going to suggest a “measured move” downside target of 14,700. Again though, it’s not a top until the neckline breaks.

Crude oil shows some interesting patterns. The daily chart below shows us that crude has been in a wide swinging uptrend, but just broke its 200 day MA. The prior low of around $42.50 has not been violated, suggesting the main trend remains intact. Momentum indicators are oversold.

Meanwhile, WTI crude oil is displaying a longer termed pattern suggesting possible bullish tones. WTI seems to have been forming a reverse (bottom) H&S pattern since 2015. On the weekly chart, WTI needs to break its neckline of around $55 before we can expect a bullish upside target to be achieved. I’ve noted in the past a target of $62 in a prior blog, but a measured move target of $27.50 (low of the head) to the neckline ($55) suggests well over $30 upside from the $55 neckline, should that break occur.

So, Head & Shoulders patterns abound. Keep your head on straight, and you may just shoulder some profits should you trade these breakouts properly.

 

3 Comments

  • I only found one trader who, like you, pointed out that long-term, we may be making a higher low within a wide “band”. 39, 43, and now, 47. Almost everyone else thinks we go back down to 41.

    On the other hand, I hear people say things like “we’ll always need oil and it can’t stay below 50 for long”. I think there is probably a lot of buyers that will step in if ever we do dip to 45 because they feel confident it will at least trade up to 54, fairly short-term.

    For that reason, I think the pain trade must be up all the way to 60, and then, perhaps, back down. This would mean we see this rising wide band work-out.

    Idea for a post:

    Canadian banks, especially TD, have sliced through their 50 sma. It does look like a break in the trend, as it held for more than 4 days. I think the right move is to wait. I read many retail investors say that this 5% dip is a “no brainer buy”. I bet there is more pain to come, and so, maybe we will see the TSX at 14800 over the next 3 months.

    Have a good weekend Keith!

    Reply
    • Matt- thanks for the idea, I will post a blog on the banks!

      Reply
  • Well Don dangerously close to the neckline today. Prescient call.

    Reply

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