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The Technical Take - November 4, 2013.pdf

The Technical Take - November 4, 2013.pdf

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Published by dpbasic
The Technical Take - November 4, 2013.pdf
by Ryan Lewenza, TD Wealth
The Technical Take - November 4, 2013.pdf
by Ryan Lewenza, TD Wealth

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Published by: dpbasic on Nov 05, 2013
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11/22/2013

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Report prepared by:
Ryan Lewenza, CFA, CMT North American Equity Strategist
Inside
Technical Commentary (Pages 2
 –
 10) Technical Almanac Trading Ideas (Pages 11
 –
 13) Sentiment Indicators (Page 14) Overbought/Oversold Stocks (Page 15) Market Statistics (Page 16)
This Document is for distribution to Canadian clients only. Please refer to Appendix A in this report for important information.
0.010.020.030.040.050.060.0Dec-09Jun-10Dec-10Jun-11Dec-11Jun-12Dec-12Jun-13
AAII Investor Sentiment Bearish %
Source: Bloomberg Finance L.P. As of October 30, 2013
Last reading of 17.5% is well belowlong-term average of 31%.
Volume 8 Highlights
 
The S&P/TSX Composite Index (S&P/TSX) broke above a key technical resistance level of 12,900 in October. We view this breakout as an important event for the S&P/TSX, as we believe it is now in a new higher trading range. With the recent strength, the S&P/TSX is now technically overbought and we expect some near-term backing and filling for the S&P/TSX; however, we are growing more bullish on the S&P/TSX.
 
We have been bullish on the Canadian financials sector; however, we believe the sector is due to take a breather in the coming weeks. Given the recent strong gains and overbought condition, we could see some near-term profit taking.
 
We continue to believe that the U.S. Federal Reserve`s (Fed) asset purchases are providing a significant boost to the equity markets,
and with our expectations of the Fed “taper” being pushed out until
Q1/14, we see the potential for continued strength in U.S. equities. In the near-term, however, we see the potential for a pause in the rally and more likely, some short-term profit taking.
 
Bearish investor sentiment has dropped to levels not seen since early 2012. Currently 17.6% of investors surveyed are bearish, which is well below the long-term average of 31%. Overall, investor sentiment is heavily skewed to the bullish camp, which could be foreshadowing a short-term pull back in the equity markets.
 
In this week’s
report, we highlight
Corning Inc. (GLW-N)
and
 Teck Resources Ltd. (TCK-T)
as attractive buy candidates and recommend investors trim/sell
International Business Machines Corp. (IBM-N). Chart of the Week
 –
 The Bears Have Gone Into Hibernation
November 4, 2013
 
 The Technical Take November 4, 2013 Page 2
Technical Commentary
S&P/TSX Composite Index
 
It
’s
a positive sign when you have to expand your date range following a technical breakout to help determine next resistance levels.
 
The S&P/TSX Composite Index (S&P/TSX) broke above a key technical resistance level of 12,900 in October, which has contained the S&P/TSX for much of the year. We view this breakout as an important event for the S&P/TSX, as we believe it is now in a new higher trading range.
 
With the recent strength, the S&P/TSX is now technically overbought with its Relative Strength Index (RSI) reading of 77.80. In fact, the S&P/TSX is the most overbought it has been in over three years. Additionally, we note that the S&P/TSX is quickly approaching its next resistance level of 13,500. Given the overbought technical condition and with the S&P/TSX at technical resistance, we expect at a minimum, a pause in its ascent and more likely some short-term profit taking to help work off its overbought condition.
 
Overall, we expect some near-term backing and filling for the S&P/TSX; however, we are growing more bullish on the S&P/TSX, and believe it could now be trading in a new higher trading range.
 
Key support level to watch is 12,900, which is the convergence of the 50-day moving average (MA) and previous resistance. Next key resistance levels are 13,500, then roughly 14,000.
 
 The Technical Take November 4, 2013 Page 3
Canadian Sector Highlights
Last Trend ofTrend ofRSI Market NamePrice50 DMA50 DMA200 DMA200 DMA14 DayConditionCurrent 23456
S&P/TSX MATERIALS INDEX 2224.88 2179.00 Uptrend 2362.66 Downtrend 56.52 Neutral 1 1 11 11 11 9S&P/TSX INDUSTRIALS IDX 1907.61 1749.04 Uptrend 1691.16 Uptrend 79.29 Overbought 2 9 4 2 4 3S&P/TSX UTILITIES INDEX 1829.93 1738.48 Uptrend 1859.67 Downtrend 70.65 Overbought 3 4 6 5 8 1
S&P/TSX COMPOSITE INDEX13441.8012868.34Uptrend12621.63Uptrend77.96Overbought459766
S&P/TSX TELECOM SERV IDX 1145.94 1091.91 Uptrend 1113.56 Uptrend 68.93 Neutral 5 7 1 10 7 2S&P/TSX CONS DISCRET IDX 1457.36 1390.85 Uptrend 1259.69 Uptrend 75.73 Overbought 6 10 8 3 3 7S&P/TSX FINANCIALS INDEX 2027.85 1920.67 Uptrend 1845.56 Uptrend 83.65 Overbought 7 3 5 6 2 8S&P/TSX CONS STAPLES IDX 2601.06 2502.49 Uptrend 2351.20 Uptrend 68.73 Neutral 8 8 3 4 1 11S&P/TSX HEALTH CARE IDX 1465.75 1419.52 Uptrend 1217.80 Uptrend 59.58 Neutral 9 2 10 1 10 5S&P/TSX ENERGY INDEX 2869.72 2779.91 Uptrend 2730.57 Uptrend 67.20 Neutral 10 6 7 9 5 10S&P/TSX INFO TECH INDEX 135.48 136.49 Downtrend 129.03 Uptrend 45.87 Neutral 11 11 2 8 9 4
Ranking of Weekly Momentum
 
Source: Bloomberg Finance L.P. As at October 30, 2013.
Weekly Momentum:
 
The materials sector has recently shown strength, with the sector in the top spot of the sector rankings for two consecutive weeks.
 
The industrials sector remains strong, coming in near the top of the sector rankings over the last six weeks.
 
The rate-sensitive utilities and telecommunications sectors have been showing improved performance over the last six weeks.
 
The information technology and energy sectors underperformed last week, coming in at the bottom of the sector rankings.
Market Condition:
 
 As a result of the recent strength in the S&P/TSX, a number of sectors are registering an overbought technical condition. The industrials, utilities, consumer discretionary, and financials sectors are all overbought with RSIs above 70. As such, we expect some near-term backing and filling in these sectors.
Other:
 
Despite the recent strength, the utilities and materials sectors remain below their 200-day MAs, which factor into our call to underweight these sectors within portfolios.

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