Only gamblers need apply

October 31, 20126 Comments

This week’s sector coverage is a little unusual for me. You see, I’m going to present a technical opinion on the TSX Venture Composite Index. And I really, really hate penny stocks. They are often illiquid, sometimes manipulated, and usually difficult to chart due to their very concentrated audience of speculators. Penny stock traders really don’t represent the average investor, in my view. Having said all of that, I do recognize the need for emerging venture companies to capitalize their operations, and the penny stock market allows them to do so. And yes, some of them even make it to the big boards. But not many -it’s a gamblers market.

 So, let’s consider this week’s sector as a look at something that only the inner daredevil in you might want to consider. If you are so brave, iShares does offer an ETF that attempts to mimic this index under the ticker of XVX-T.

The chart above shows us that the venture exchange has been in a downtrend trend since early 2011. It looks like it’s trying to form a “cup & handle bottom”, but that formation will not be confirmed as a true bottom consolidation until a breakout past the handle . The handle – which lies at around 1300 – also lies at the cusp of the down trendline. You can see just how important it will be to break the 1300 level with conviction, given both the trndline resistance and the handle formation coming together at this point. Should that happen, however, the rewards could be significant. I’d target 1600-1700 as a minimum. 

Supporting the potential for a breakout would be the declining volume during the downtrend on the weekly chart above–note how much its fallen since 2009. Obviously, people aren’t speculating on venture stocks much as they used to. But declining volume in a downtrend also suggests a lack of conviction in the trend. If volume spikes, that could indicate a change in trend. Also–volume does appear to be picking up as the cup & handle formation has been forming. Supporting the possibility for a successful bottom for this index is its comparative relative strength vs. the TSX on the daily chart below (bottom line). Its outperforming the senior index lately. A move above the 50 day MA in August (circled) and oversold momentum oscillators (stochastics and RSI on the daily chart) could also put some upward pressure on the venture index.

All in, the TSX Venture Exchange may be ready for a move – but before I’ll be interested, I’m looking for a strong move well over 1300 for 3+ days, supported by increased volume. It’s not a trade that I’d consider with too much of my capital, but it might be a fun little trade if the ducks line up over the next little while.

6 Comments

  • Keith,

    Like you, I don’t like to gamble, but your analysis was very educational. Thanks.

    Reply
  • Thanks for this good info Keith.

    I like to gamble a bit on TSXV but after May it`s nothing but a loosing postion for me, so staying out of this for now.

    Just order both of your books through Amazon, and it`s 1-3 months wait.

    Marcin

    Reply
    • Marcin–I am surprised it takes that long to get the books–too late now buy you could have called my office and ask for Cindy – she can get them to you faster. Oh well–thanks for ordering them.

      Reply
  • Gold technicals look like it has dropped to a point where it can only go up from here.
    Full Stk has crossed over 20 which I understand is bullish.
    RSI at 30 looks oversold
    Nearing support at the 200 MA.
    Monday looks like a buy? Your thoughts?
    When will you be buying?

    Silver is much the same but has not crossed for MACD.
    Do you sit and wait for a confirmation of it going upwards or jump in now saying it’s at it’s bottom now & go long for the YE ride?

    Reply
    • Daddyo–I am officially long gold now. I do have a bit on the side to possibly buy more–but my first leg in is complete

      Reply

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