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The Technical Take - June 2, 2014

The Technical Take - June 2, 2014

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Published by dpbasic
by Ryan Lewenza - June 2, 2014
by Ryan Lewenza - June 2, 2014

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Published by: dpbasic on Jun 04, 2014
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09/18/2014

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Report prepared by:
Ryan Lewenza, CFA, CMT North American Equity Strategist
Inside
Technical Commentary ......................... 2 Technical Trading Ideas ........................ 9 Sentiment Indicators ........................... 12 Overbought/Oversold Stocks .............. 13 Market Statistics .................................. 14
This document is for distribution to Canadian clients only. Please refer to Appendix A in this report for important information.
Volume 19 Highlights
 
The S&P/TSX Composite Index (S&P/TSX) continues to trade in a bullish upward channel, with the index consistently making higher highs and higher lows since its July 2013 low. Additionally, the index continues to find technical support at its rising 50-day moving average (MA). We view the 14,400 to 14,500 range as a key short-term technical support level. We maintain our bullish short-term stance on the S&P/TSX, as long as the index remains above this important support zone. A break below this range would likely cause us to revisit our bullish stance.
 
The Canadian financials sector has traded in line with the broader market since February 2014, but we believe the sector could soon begin to outperform again. Given the strong performance in the energy sector year-to-date (YTD), and lagged performance by financials over this time, we believe there is the potential for some sector rotation into the financials, which if correct, could result in the financials breaking out on a relative basis.
 
The S&P 500 Index (S&P 500) has made another all-time high, breaking above the psychologically important (but not technically important) 1,900 level. While calls for a market correction are picking up, the S&P 500 is showing little signs of technical weakness. The index remains in an uptrend, is trading above its rising 50- and 200-day MAs, and continues to climb the proverbial "wall of worry."
 
Copper has had an impressive short-term rally, moving up 8.5% since its recent lows. Despite the strong move, copper remains in a well-defined downtrend, and is trading below its 200-day MA. With copper approaching resistance around the US$3.20/lb. level, we would expect the upside to be capped in the short term.
 
In this week’s report
, we highlight
Mondelez International Inc. (MDLZ-Q), Nordstrom Inc. (JWN-N),
and
 Enerplus Corp. (ERF-T)
as attractive technical buy candidates.
Chart of the Week: The Volatility (VIX) Index is trading at 2007 levels. Are investors overly complacent?
June 2, 2014
 
 The Technical Take June 2, 2014 Page 2
Technical Commentary
S&P/TSX Composite Index
 
The S&P/TSX continues to trade in a bullish upward channel, with the index consistently making higher highs and higher lows since its July 2013 low. Additionally, the index continues to find technical support at its rising 50-day MA, which is a sign of technical strength.
 
We view the 14,400 to 14,500 range as a key short-term technical support level. This range marks the convergence of the 50-day MA and lower channel line. We maintain our bullish short-term stance on the S&P/TSX, as long as the index remains above this important support zone. A break below this range would likely cause us to revisit our bullish stance.
 
While the short and intermediate trend remains upward and bullish, we continue to believe the S&P/TSX could encounter a period of consolidation over the weak seasonal summer period. This belief is predicated on: 1) the S&P/TSX remaining technically overbought (on a weekly basis); and 2) the S&P/TSX quickly approaching its all-time highs around the 15,000 level, which we expect to provide formidable resistance.
 
Overall, we remain bullish given the very constructive technical profile for the S&P/TSX, but believe the index is likely to encounter a period of consolidation in the coming months.
 
 The Technical Take June 2, 2014 Page 3
Canadian Sector Highlights
Last Trend ofTrend ofRSI Market NamePrice50 DMA50 DMA200 DMA200 DMA14 DayConditionCurrent 23456
S&P/TSX HEALTH CARE IDX 1677.83 1712.31 Downtrend 1606.49 Uptrend 48.52 Neutral 1 11 10 2 1 3S&P/TSX FINANCIALS INDEX 2186.61 2141.71 Uptrend 2041.92 Uptrend 70.40 Overbought 2 7 2 9 10 7S&P/TSX TELECOM SERV IDX 1227.88 1189.30 Uptrend 1145.28 Uptrend 68.63 Neutral 3 1 1 6 11 8S&P/TSX INDUSTRIALS IDX 2134.23 2070.50 Uptrend 1942.76 Uptrend 61.87 Neutral 4 6 5 5 4 2S&P/TSX ENERGY INDEX 3301.10 3251.17 Uptrend 2958.12 Uptrend 51.01 Neutral 5 2 8 8 9 1S&P/TSX INFO TECH INDEX 149.32 152.35 Downtrend 145.31 Uptrend 49.58 Neutral 6 10 11 3 2 5
S&P/TSX COMPOSITE INDEX14607.5614479.34Uptrend13641.21Uptrend55.45Neutral756766
S&P/TSX UTILITIES INDEX 1890.71 1902.40 Downtrend 1809.05 Uptrend 44.97 Neutral 8 9 4 11 8 10S&P/TSX CONS DISCRET IDX 1588.86 1563.95 Uptrend 1476.02 Uptrend 58.68 Neutral 9 3 3 4 7 4S&P/TSX MATERIALS INDEX 2162.63 2270.16 Downtrend 2207.95 Downtrend 35.56 Neutral 10 4 9 10 3 11S&P/TSX CONS STAPLES IDX 2737.42 2754.62 Downtrend 2609.53 Uptrend 45.09 Neutral 11 8 7 1 5 9
Ranking of Weekly Momentum
 
Source: Bloomberg Finance L.P. As at May 28, 2014.
Weekly Momentum:
 
The health care sector remains in its volatile trading pattern, with the index oscillating between top and last spot in our sector rankings over the last six weeks. The sector rebounded last week to top spot, following two preceding challenging weeks.
 
The financials also rebounded last week to second spot in our sector rankings. The sector rallied on strong Q2/14 earnings results.
 
The telecommunications services sector remains strong and has been near the top of our sector rankings for three consecutive weeks.
 
Conversely, the materials sector remains under pressure and has been near the bottom of our sector ranking in four of the last six weeks.
Market Condition:
 
With the recent gains in financials, the sector is currently overbought with a Relative Strength Index (RSI) reading of 70.40.
Other:
 
We have seen some technical deterioration in S&P/TSX sector profiles, with five sectors now trading below their respective 50-day MAs.

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