TSX may be nearing an entry point

I’m posting this blog today (Friday Feb 2nd) in lieu of Monday’s usual blog. I’m on BNN on Monday at 5:30 pm EST (see bottom of this blog for details) and wanted to get a blog out prior to that appearance. Hope you can catch the show.

The TSX is guided by a concentration in energy, materials and financials. All of these sectors tend to do well from around now until the spring. The caveat for this generalization is that February can be a little spotty for overall markets—both Canadian and US. According to Jon Vialoux at www.equityclock.com:

“Looking ahead, as noted in a previous report, the month of February tends to be the weakest month of the six month positive trend for equity benchmarks in the US.  Over the past 50 years, the S&P 500 Index has averaged a gain of a mere 0.2% in the month of February with positive results recorded in 56% of periods.  Returns have ranged from a loss of 11.0% in 2009 to a gain of 7.1% in 1986.  Gyrations in the month tend to follow the conclusion of earnings season, leaving investors to fend for themselves until companies report again in April.”

 

February’s jittery tendencies may provide opportunities to enter into new stock positions. Specific plays on the sectors noted above might be complimented by a broad TSX play, given its recent pullback. There are several ETF’s out there to consider, but the iShares XIU and the Horizons HIX ETF’s – both of which represent the TSX 60 index, might be suitable for a broad based Canadian play.

Mid termed view

Let’s take a look at the TSX 300 chart and draw out some support/resistance points for potential entry timing.

The weekly chart above shows us that the TSX 300 composite recently broke its 10 week (50 day) SMA, but remains over its 200 day SMA. More importantly, the TSX remains above its prior significant resistance/breakout point of around 15,600. From the big picture perspective, the TSX would be a “buy” if it bounces off of 15,600.

Neartermed view

The daily chart below shows us oversold conditions via the neartermed momentum indicator, full stochastics. It looks to be trying to hook up, but that is not yet confirmed. RSI – with a 14 day lookback, is also oversold, and it has not yet shown signs of hooking up. RSI tends to show mid-termed momentum when viewed on the daily charts.

MACD is a longer termed momentum oscillator. Because it measures the “space” between two moving averages, it will lag a bit. So its best interpreted as a longer termed indicator even when viewed on the daily chart. But MACD, when it hooks up from an oversold condition after similar hooks on stochastics and RSI, can be comforting to those who like to move on the highest probability bet. MACD is still moving south, suggesting things haven’t yet starting firming up for the TSX.

 

Strategy

We might be wise to see if stochastics and RSI hook up before considering an entry into a broad based ETF for the TSX. This could occur at any time over the coming days or weeks. Seasonally (chart below, courtesy Equity Clock) , we have the odds in our favor from February into May on this index. For that reason, I am looking to enter such a trade upon a positive technical signal as outlined above.

 

 

Keith on BNN Televisions MarketCall this coming Monday February 5th at 5:30pm

Keith appears regularly on BNN MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.

If you have questions about the technical analysis of stock trends for individual stocks, be sure to phone in with your questions for Keith during the show.

Call Toll-Free 1-855-326-6266

Or email your questions ahead of time (specify they are for Keith) to [email protected]

ATTENTION SNOWBIRDS: KEEP FEB. 10TH OPEN

Some of you know that I speak at the Toronto MoneyShow every year. This winter, the MoneyShow has invited me to speak at their Orlando show on February 10th at 6:15pm. Honestly—who would say no to that offer, given our wretched winter weather in Ontario? If you happen to travel to central Florida during the winter, or if you have family/friends who do the snowbird routine—come on over to the show. It’s taking place in the Omni Orlando Resort –  here is the link.

quote-teal

15 Comments

  • Do you know an ETF that tracks the TSX in US Currency? I’m a little shy on $ C and flush with $US.

    Reply
  • Im thinking if we get a strong snap back correction in the US market, that TSX will just follow that and blow right through that support line. But who knows.

    Reply
  • I know you do not usually comment on specific stocks. However, I am somewhat confused why Manulife is selling off given that higher interest rates are usually good for life insurers. Financial are generally performing well. Can you shed any light?

    Reply
    • Hi Dave,
      I’ve got something from ValueTrend’s resident CFA, Craig Aucoin on the fundamentals–below. I will note that technically, the stock is down to its trendline, although today it penetrated its 200 day MA. So it may be a buy opportunity, but only if it manages to re-emerge over the 200 day MA. As an aside–this would be a good question for Monday’s BNN show if you care to call in. If you note that you read the blog, I twill try to move you to the front of the line.
      Anyhow– Here are Craig’s comments:

      “Yes it is generally agreed that higher rates are beneficial for insurance companies. In face of higher rates – Manulife and their peers (SLF, GWO and even IAG) have been weakening over the past couple of weeks (along with Canadian banks). It does seem to coincide with heightened weakness in the USD. With a significant portion of revenue generated in the US, this uncertainty may be pressuring MFC specifically. Also the uncertainty around US tax reform impact on MFC might be a factor. The company reports next Wednesday, Feb 7 it’s Q4 2017 earnings. After MetLife’s disastrous performance this week it is no wonder there is uncertainty in the space.”
      Craig.

      Reply
  • Keith – For Bob, an ETF that tracks the TSX in USD: ECA, which trades on NYSE. Check it out.
    RE: Manulife and comments from Craig- thanks for this. I was wondering the same thing as Dave. Note that TD, in particular has been holding up near its all time high and I keep hearing about how they are now bigger in the US than Canada, so the weaker USD and US tax reform may not actually be the reason that MFC is weak.

    Reply
  • Do you foresee an entry into a broad based S&P/TSX ETF or would you look for specific sectors? Or would you look to the low volatility funds?

    Reply
    • I expect to be buying a broad based ETF for the TSX play like XIU or HXT
      We hold a postion in the BMO ZLB ETF–which is fine, but if you want to capture the mov made by the sectors mentioned (materials, energy in particular) you need a broad based ETF–the low vol ETF’s by their nature tend to discard the higher beta resource stocks.

      Reply
  • My comment has been “awaiting moderation” since Feb 02 at 2:40pm. I wonder why. I don’t think I said anything offensive.

    Reply
  • Actually gave the wrong symbol for Cdn etf that trades in USD. Should be EWC, not ECA. Sorry about that.

    Reply
  • If your trading off the dailies we already look way over sold on the S&P. But if you trade off the monthy there’s still plenty of room for downside.

    Reply
  • I see a big oversold bounce tomorrow but continued downside with a 2500 target on the S&p

    Reply
    • That often happens-after a kicking you get a rebound -just mentioned that very scenario to my wife this morning.

      Reply

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