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.
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.
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.
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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.