Long term bullish, possibly more neartermed volatility

 

Russia’s policies surrounding the Ukraine changed the short termed market views for both the TSX and S&P 500 last week. Note the MACD, RSI, stochastics sell signals on the S&P and TSX daily charts. Today (Monday March 17th) I note a rally after last week’s selloff. It will be interesting to see if this is just an oversold movement or a movement that can get some traction.

On the daily chart, moneyflow via the Accumulation/Distribution line on the S&P500 remains positive. Not so much for the TSX. If you look back on the TSX chart, you will see back in November when these indicators diverged from the TSX’s rising market, coinciding with falling (diverging!) Accum./Dist.  this lead into a December correction. It looks like this divergence has happened again on the TSX for stochastics, MACD and Accumulation/Distribution (moneyflow). The risk right now is that this divergence may be signalling a similar correction for the TSX.

tsx nearterm

Both the TSX and the S&P 500 remain bullish –although I note the 2011 resistance on the TSX chart at around 14,300-ish (not shown) that has yet to be penetrated. Perhaps the TSX will underperform the S&P 500 for the coming weeks, given its technical resistance at 14,300 or so, and its bearish moneyflow profile.  The S&P500’s chart still shows a smoother money flow profile, and it did not experience divergence in momentum indicators prior to the recent selloff. Both charts are above their 50 and 200 day MA’s.

S&P nearterm

I’d mention here that I don’t tend to worry much on a 50 day MA penetration – as you can see on both charts, it happens frequently. It’s the 200 day that tells us the significant trend direction. According to the 200 day MA, the trend remains up. So my two cents for now: there is still potential for a near termed correction for both markets, with more pain for the TSX on a relative basis. I’m wondering if the recent action will see-saw markets down, then up again over the coming few days or weeks to shake investors out of their perma-bull mindsets. Such an occurrence, from a contrarian point of view, would add to the long termed bullish case.

Time will tell.

3 Comments

  • Keith: I’d like your view on UGA, US gasoline fund. The seasonal play does not end until end of April. RSI is 45 so perhaps over sold. Full STO is below 20, however MACD is still in a decline. Until the Macd turns it would appear the technicals say it could go lower. Thoughts please.
    Thanks

    Reply
    • UGA on the weekly chart is flat–possibly forming a descending triangle. I’d want to see it break out past $62 for a bullish signal. If it breaks below $53-ish I would be concerned. Meanwhile–not a good trade to get into (long or short!) until it breaks up or down from the current formation.

      Reply
  • I’m two days late reading this but I note the SPX is trying but may be having difficulty reaching its previous high 1883.57. If it can’t clear, does it mean the October to April rally is finished? If it doesn’t drop that much but languishes at its current level, I would suggest the “easy money has been made” and it wouldn’t cost much going forward to take some profits (or mitigate your losses).

    Reply

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