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The Technical Take - March 3, 2014

The Technical Take - March 3, 2014

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Published by dpbasic
Ryan Lewenza's The Technical Take - March 3, 2014
Ryan Lewenza's The Technical Take - March 3, 2014

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Published by: dpbasic on Mar 04, 2014
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05/08/2014

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Report prepared by:
Ryan Lewenza, CFA, CMT North American Equity Strategist
Inside
Technical Commentary ......................... 2 Technical Trading Ideas ...................... 11 Sentiment Indicators ........................... 15 Overbought/Oversold Stocks .............. 16 Market Statistics .................................. 17
This Document is for distribution to Canadian clients only. Please refer to Appendix A in this report for important information.
Volume 13 Highlights
 
The technical evidence is mounting for a short-term pullback in the S&P/TSX Composite Index (S&P/TSX). However, any pullback is likely to be shallow, and given that the primary trend for the S&P/TSX remains bullish, we would look to add to positions and increase exposure on any short-term weakness.
 
The S&P/TSX Capped Energy Index has experienced an important technical breakout, and as such, we are growing more constructive on the sector.
 
If the S&P 500 Index (S&P 500) breaks and remains above 1,850, which is our expectation, then the pullback seen in January would be over and we would expect further upside. From a seasonal perspective, March and April are historically strong months for the U.S. equity market, which increase the odds that the S&P 500 will break and hold above the key 1,850 level. With the S&P 500 in a long-term uptrend, we remain bullish on U.S. equities and continue
to recommend a “buy on the dips” strategy.
 
The technical profile of the S&P 500 Telecommunications Services Index remains bearish and we continue to recommend investors underweight this sector in their portfolios.
 
In this week’s
report, we highlight
Analog Devices Inc. (ADI-N),
and
 Davis + Henderson Corp. (DH-T)
as attractive buy candidates and recommend investors trim/sell
Canadian Utilities Ltd. (CU-T)
and
 Genworth MI Canada Inc. (MIC-T). Chart of the Week
 –
 The current path of the Dow Jones Industrial Average is tracking the path made in 1928-29. Does this portend an imminent collapse in the stock market? We d
on’t
believe so.
16021026031036012,40013,40014,40015,40016,40017,400Jul-12Jan-13Jul-13Jan-14Jul-14
Dow Jones Industrial Average Analog
Source: BloombergFinance L.P. As of February 18, 2014
DJIA1928-1929DJIA today
March 3, 2014
 
 The Technical Take March 3, 2014 Page 2
Technical Commentary
S&P/TSX Composite Index
 
Our focus is and always should be on the longer-
term or “primary” trends in the markets. However, we do, with
varying success, attempt to forecast the short-term gyrations of
the markets. For example, in recent reports we’ve
discussed the potential for the S&P/TSX to correct in an ABC pattern, with the belief that we could see another short-term leg lower (wave C). So far, this has not played out, but the technical evidence is mounting for a pullback in the coming week or two; however, any pullback is likely to be shallow.
 
First, we note that following the 750 point gain in the S&P/TSX since the February low, the S&P/TSX is once again trading at its upper channel line, which could provide some short-term resistance. Second, as a result of recent gains, the S&P/TSX is technically overbought, based on a number of technical indicators. In particular, the Relative Strength Index (RSI) reading is currently at 69.66 (over 70 indicates overbought), and the percentage of stocks in the S&P/TSX above their respective 50-day moving averages (MA) is currently at 73, which is above the typical 70 overbought level (lower panel). Finally, we note that the MACD indicator is elevated and approaching levels where it has peaked in recent months. Putting it all together, we believe the S&P/TSX could pullback in the short term. Levels we are monitoring on the downside include: 1) 14,000 (previous resistance, now support); 2) the 50-day MA at 13,726; and 3) the lower channel line, which intersects at 13,650. We expect the S&P/TSX to hold above these levels on any short-term weakness.
 
But as mentioned at the outset, the primary trend for the S&P/TSX remains constructive, and we would look to add to positions and increase exposure on any short-term weakness.
 
 The Technical Take March 3, 2014 Page 3
Canadian Sector Highlights
Last Trend ofTrend ofRSI Market NamePrice50 DMA50 DMA200 DMA200 DMA14 DayConditionCurrent 23456
S&P/TSX HEALTH CARE IDX 2003.73 1744.14 Uptrend 1446.44 Uptrend 67.45 Neutral 1 3 7 1 11 2S&P/TSX MATERIALS INDEX 2403.42 2209.47 Uptrend 2163.82 Uptrend 64.36 Neutral 2 1 1 6 7 1S&P/TSX INFO TECH INDEX 160.03 149.42 Uptrend 138.18 Uptrend 63.68 Neutral 3 6 10 9 1 3S&P/TSX CONS STAPLES IDX 2672.44 2589.57 Uptrend 2509.71 Uptrend 66.63 Neutral 4 7 8 5 9 6S&P/TSX TELECOM SERV IDX 1166.06 1152.71 Uptrend 1117.94 Uptrend 56.50 Neutral 5 10 11 3 4 4
S&P/TSX COMPOSITE INDEX14207.8413704.34Uptrend13013.84Uptrend68.91Neutral646855
S&P/TSX ENERGY INDEX 3020.90 2917.67 Uptrend 2804.33 Uptrend 67.61 Neutral 7 5 5 7 3 8S&P/TSX FINANCIALS INDEX 2093.02 2058.45 Uptrend 1945.66 Uptrend 62.32 Neutral 8 2 4 11 6 9S&P/TSX INDUSTRIALS IDX 2050.65 1996.10 Uptrend 1828.57 Uptrend 59.68 Neutral 9 9 3 2 10 11S&P/TSX CONS DISCRET IDX 1484.20 1482.58 Uptrend 1390.68 Uptrend 47.54 Neutral 10 11 9 10 8 7S&P/TSX UTILITIES INDEX 1840.90 1795.65 Uptrend 1797.10 Uptrend 58.72 Neutral 11 8 2 4 2 10
Ranking of Weekly Momentum
 
Source: Bloomberg Finance L.P. February 25, 2014.
Weekly Momentum:
 
The health care sector continues to power higher on the back of Valeant Pharmaceutical International (VRX-T). The sector has been near the top spot in our sector rankings, in four of the last six weeks.
 
Similarly, the materials sector remains strong, with the sector at the top of our sector rankings in four of the last six weeks.
 
Conversely, the consumer discretionary sector continues to underperform, with the sector near the bottom of our
sector rankings over the last six weeks. We’ve been highlighting this weakness in recent reports, and we
 currently remain cautious on that sector.
Market Condition:
 
 All sectors are neutrally ranked (RSI’s below 70), but many sectors (health care, cons
umer staples, and energy) are approaching an overbought condition, with RSIs in the high 60s.
Other:
 
 All 10 GIC sectors are trading above their respective 50- and 200-day MAs. This is a very bullish sign, and one factor why we remain constructive on the Canadian equity market.

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