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On a huge macro scale, we are trying to break out of a consolidation range. 13 year. Breaking out on Dow, SP500, Nasdaq, $RUT.  Unfortunately, the rest of the globe has not been confirming.
But the 2 days since the Fed announcement since they removed the upside limit on intervention has really changed the shape of the market.

This was a major week for the markets.
Here was a view from April 24. Notice by right clicking on the Perf Chart you can bring up the cycle tool and slide the yellow line, left to right!!!!!! (That 's a new feature!)

Compare that to now.

The $UTIL relative strength line plummeted. That is actually a good thing. The transition to tech leadership this week was particularly acute.
The transports were doing well, now the techs are starting to move.  Next should be the industrials and raw materials. So I visited the $COPPER chart.
The 7% move in Copper yesterday was working real hard and I believe a trend change.
Unlike the $INDU market Copper kept climbing from open to close. The $INDU market opened high, climbed slightly and gave back into the close.
There are 7 big green volume candles on the daily JJC. Live Chart

We need to look at the bigger picture in Copper. $COPPER

So one week does not make an all clear and the problems are wider spread than America, so its still cautionary. But in 7 trading days things have clearly reversed.
It's pretty important timing in the market as normally a summer swoon sets in. This week and the change of behaviour to the growth side of the cycle is very encouraging for me.
We also made a confirming move above the $SPX 1597,$TRAN, $RUT, $INDU, $TYX.  We are still in a dicey spot on the charts. But when you are looking for technical signals, we got a bag of confirmations this week. Short term we might have run a bit too far, too fast. Big picture, we got some great signs this week. $COPPER's change was huge in my mind.
Good Trading,
Greg Schnell, CMT

One of the hardest trades to make is the one you don't put on. Just sit. The martial arts practice Defence and Offence.

The 40 WMA (Weekly Moving Average) is roughly equivalent to the 200 DMA (Daily).  Lets call it the Black belt for today.  Many technicians employ a simple strategy of the price action being above or below the 40 WMA. If it is above they are bullish and below they are bearish.Depending on your investment strategy depends on how short or how long the timeline is for your long term MA.

John Murphy reviewed 2008 and remarked that the $SPX never spent 1 day above the 200 DMA all of 2008. Just sitting on your hands while it was below would have saved many accounts from the beating that ensued. So many investors could have been out of the market just using that strategy for the down turn. Here is what makes that difficult for Canadian investors. Every time the $TSX broke below the 40 WMA in the last 3 years, it surged back above, tested a higher level and then continued lower. So it's not as easy as it sounds. Here is the link to the $TSX chart. $TSX. If we use the slope of the red line it can be a guide. It is either pointed up or down while the market tests the 40 WMA.  This is not infallible either but it helps. Sometimes using Elliott wave theory can try to place us on the right part of the wave structure. It looks to me like we have had a 5 wave move down off the 2011 highs, to an ABC correction which we just completed if my marks are right. An equivalent move from the 5 wave down would have us finish this corrective wave at about 9500. That would be optimistic. The bearish views of EWI (Elliott Wave International) would suggest much lower than that.Let's just say I am not an elliottician. The bottom line is the pattern looks lower right now.

Today we sit at that junction. We moved the major Canadian Index below the black belt or the 40 WMA. Now what? There are many moving parts to this chart. It feels like a thriller, and it should. The moves are straight out of 'Skyfall'. The $TSX is already 7.8% off it's highs from peak to trough. We've already had 200 and 300 point moves down in the last 3 weeks.  While investing in a firestorm is very tricky, the $TSX is a market riddled with cross currents. Our major trading partner is the USA. 80% of our trade is with America. But our index is filled with commodities and has traded closer to the growth markets rather than America. So assuming the USA is doing well, tells you  to stay long.  Most of the growth markets are testing the 200 DMA or just the opposite of America's charts.

An example would be growth markets like Shanghai daily. ($SSEC).

and India  daily.($BSE)

Both had 2% up days this week which may be indicative of at least a slowing of the downward trend if not a reversal. India moved below and is retesting the 50 DMA from the bottom. The multiple big candles suggest this move is not done. Notice that all three charts flirted with the 200 DMA this week. The $TSX made its high 6 weeks ago, roughly timing with the first test of the 50 DMA from the underside on the other two charts in March.

What we need to see now is a surge above the 50 DMA. For Canada, that is a long way above. I think watching these global indices will tell us if the frightful move to the downside in commodities is finished and we are going to reverse right here, or if we are entering into the strongest part of the major wave down. If we are entering the strongest part of the major wave down, sitting on my hands might just be the best trade I can put on. Or trade with a black belt. Defence is as important as offence. Many are enamoured with going short. It is not a game for the buy and hold either. The overnight bounces off major lows have been 150 points higher. That is hard to hold short positions through. The charts make it look easy but short time intervals are way more profitable than trying to catch the top and the bottom of the big move down. That is what I have found anyway. We are at a tricky part of the charts. Smaller positions can also help mitigate the risk.

Good Trading,

Greg Schnell, CMT

We have a few wonderful indicators we can use to judge the overall health of the market. The problem for the technician is when to say, "I'm Out!"
Lets compare the $TSX to the $SPX using these two charts to analyze the broader picture. Here are the links. $TSX, $SPX

The blue vertical lines are placed when the index fell below the 10 week or approximately the 50 DMA line.  The $TSX looks like it is ready to breakdown here, with the exception of the stocks above the 200 DMA.   That still looks strong as does the Bullish percent. But both are at levels where markets have broken down before.

The $SPX appears stronger. Period. The only signs of weakness are the stocks above the 50 DMA appear to be making lower highs.  The Ratio of Stocks above the 50 and the 200 DMA seems to be weakening to a level where things normally break down from.

Looking back up at the stocks above the 200 DMA (black) area, you probably don't want to wait until that number starts falling.  But a drop below 80% would be ending a trend I think.  The % of stocks still above their 50 DMA is strong.  The level was almost 10 % lower midweek so there is some weakness.

Good Trading,
Greg Schnell, CMT

Strolling through the the mid month charts, I came across this ETF.

This ETF represents Municipal Bonds.  MYI

It has only moved below its 40 WMA twice in the last 5 years. Till this week. It marks the third time.
In 2007 it marked a drop early in the year and could not stay above the black line.
It tried twice in 2008 to get back above but failed in June and July. It was important.
In late 2010, it plummeted below the line, while the stock market went on a final run into April before correcting 20% in 2011.

This fund has shown more red in the last 3 months than at any time in the last 2 years.
At this point, its a heads up that something is going on in the Municipal Bond Market. We'll stay tuned to see if it has broader implications.

Good Trading,
Greg Schnell, CMT

This weekend, I want to talk about the technology sector. Some of the major tops of the market have been spotted on the $NDX before the market breaks down.
Here's the chart. It has a lot of data on it. I would encourage you to click on this link $NDX to see a larger version.

Let's start at the top.

• Lower Valleys on the RSI seem to be one of the consistent themes among the recent tops.

Well, we clearly are seeing that here. 3 months  after the RSI has put major lows in, we are trending up, but I think everyone could agree begrudgingly. The tech market has not exactly exploded higher.  If you look at the shaded area behind the RSI, that is the $NDX compared to the $SPX. It has been under performing for a while now.

• Looking at the CMF, the surface area of the recent pullbacks below zero are large, like the 2007/2008 top.
• The major fund managers aren't as supportive.  
• After 3 months off the November low it hasn't been an overwhelming bull surge in.  The price action is barely above the moving averages where usually the $NDX surges away from the moving averages. Maybe its just early and I am too optimistic in this charts power to outperform.
• The Head/Shoulders pattern is remarkably clear and the MACD is mimicking a perfect trend for a head/shoulders top. Highest peak on the first one, progressively lower after that.  You will also notice the red arrows I placed on the 2 previous market peaks. They both happened at the 3rd peak of the MACD pattern. Again, the lower lows on the MACD is a better indicator than the lower highs but even the slightly lower highs were present in 2010.   Specifically on the MACD, we would be very concerned if the market rolled over at this level. The MACD at such a low level, rolling over near zero would confirm a bigger decline coming in my view.
• To confirm all of this, The Full Sto's are above 80 so you are in overbought territory or a strong bull market depending on your view. I don't find the full Sto's that valuable an indicator currently, but if it breaks through the bottom of the current trendline (not immediately), we could find ourselves in a big bear market. Currently, the Full Sto's are half way between. Still bullish based on any interpretation.
• Lastly, I want to point out that MSFT was the market leader and it fell fast and hard in 2000. Then AAPL was a big market leader and it fell fast and hard from Dec 2007. And then recently, AAPL was the market leader but it has recently fallen fast and hard with slight slowing of growth. After a 40% pullback, we are all expecting it to rise here. In both previous cases, the pullback was 70%. 

I will blog about the tech stocks this week. You can follow my blog at this address - The Canadian Technician.

Good Trading,
Greg Schnell, CMT

Starting in the summer, some of the global stock markets started to move higher. Once Mario Draghi suggested he would do whatever it takes to save the euro, the European markets have been on a tear higher.
This is the first monthly close that all 18 global markets I track are above the 20 Month MA. Why is that level significant? Because when the entire world got above the 20 Month MA in 2003 it confirmed the global push higher and lasted 4 years. In 2009 it did it again but it only lasted into 2010 when the Shanghai started weakening. Here we sit in 2013 with all the global markets pushing higher. Here is what it looks like simplified.

When the entire world is trying to rally together, it can be very supportive. Both exports and internal confidence grows which can be very complimentary.
So we have to maintain a bullish approach to the markets. Why fight this trend?

As regular readers of The Canadian Technician blog are aware, the commodities have not broken out yet, but are very close.
While I want to see that happen for obvious reasons, I have one interesting hurdle the markets have to overcome.
This is the chart of the 4 major commodity supply countries charts for the last 15 years. (Commodity Countries)

Now we could debate exactly where to draw each line. These lines reflect a range that has significant support and resistance in each market.
Brazil actually rose above the line in January and has since pulled back under.

A renewed interest in commodities would probably confirm the new bull market. If it was to all unwind after a giant final rally that stalled at resistance on both the commodity and equity markets, this would be the time. I see very little negative divergence on the major indices so that is positive. The $USD is testing the lower boundary of its trading range. The Euro is pretty stretched here with gapping 1 cent moves a couple of times a week. Feels like an exhaustion move to me and based on the blue boxes below it looks like this run has been at least as long as the previous bull run into the September high.

So just when everybody shouts the all clear, I see some major similarities in these charts that might take time to work through.
Maybe the bulldozer provided by central banks worldwide will break down the barriers and this will all breakout to the upside shortly.

I'm Bullish and have been for months but the charts usually stair step up at a rate slower than 50% a year gains.
After a 10% move off the November lows, it might be time to expect a step. $TSX

Good Trading,

Greg Schnell, CMT

Back in November I blogged about the currencies and the events around them. Recently in Early January, 4 of the currencies in the Dollar Index were testing the trend line for the dollar cross.  Today, 3 of 4 of those currencies broke down this week, and the Euro is losing strength.  Keep watching as currency changes can help time market breakdowns. The Euro makes up 56% of the dollar basket, so until it breaks, this bull train continues.

First of all here is the British pound. It fell dramatically this week. $XBP  It lost the 50 DMA, the trend line, and the 200 DMA all in a week.  Notice the purple relative strength line plunging to new lows.  The negative divergence on the RSI and the MACD played out perfectly. Remember this chart style as the $XEU is setting up a similar trade.

Here is the Swiss Franc. $XSF  Notice the large negative divergence between September and December. Lower peaks on the RSI between the mid-September 2012 high and the December 2012 High. The price was making a higher high, but the RSI was making a lower high.  The MACD was making the identical pattern. You will also notice two short term divergences  between September/ October and the current move down. The price on January 14 was near the previous high, but both the RSI and the MACD were significantly lower.
This is called double divergence. We have it on the short term (2 weeks) and intermediate term (3 months).

Notice in October, the purple SPURS line was gaining strength compared to the price.  So people were enjoying the outperformance of the Swiss Franc. It was breaking down through both the 200 DMA and the 50 DMA. So this is a hard signal in real time. Notice how the Swiss France bottomed a few days before the overall stock market ($SPX) bottom of November 16.

Here is the Swedish Krona. FXS  You can see this chart shares many of the similarities in divergence  that the Swiss Franc above shows.  This market is showing even more divergence over the intermediate 3 month period.  You can also see the purple relative strength breaking down. This would need to get support here immediately.

Here is the Euro. $XEU.  So I won't belabour the point here. Short term and medium term divergence is apparent.  The price is still clearly in an uptrend. I would suggest if the Euro starts to break lower, we'll mark a top of some sort in the equity markets.

Here is the Canadian Dollar which is also usually a good indicator of the tops and bottoms in the equity market. $CDW  It had a bad day Friday losing .65 cents to the $USD.  On this one we see the same short term and intermediate term divergence setting up. The Loonie has dipped below the trendline once again.  Will it reverse higher again?  I don't expect it to with the divergence on this chart and the divergence that has created price reversals on the British Pound and the Swiss Franc.
It doesn't really matter what I expect, it is more important to follow the price action. If both the Canadian Dollar and the Swedish Krona break their trendlines, I would not be surprised to see the Euro come down as well.

The tables on the chart label the $SPX market tops and bottoms.

So, I expect the currencies to continue to help us with market direction. 2 of the smaller currencies have broken. Two more are testing the trendline and look to be breaking in terms of momentum and relative strength.  The Euro appears toppy as well. The $DAX market and the $CAC have not been moving much this month. We'll see if this all concludes together.

I will be doing a webinar to the MTA on Wednesday January 23rd at Noon EST if you would like to hear my current macro view of the market and some unique perspectives on market analysis.
You can follow this link to login. MTA Webinar   It is free to attend.

Good Trading,
Greg Schnell, CMT

Gold has become pretty unloved. That in itself is usually bullish. This week we look at why it might be time to renew your interest in Gold and the miners.

First of all, Lets look at the Gold Miners. Here is a link to the live chart. Gold Miners Index.

Lets start at the $BPGDM. First of all, the Bullish percent index is very close to the level it normally reverses at which is denoted by the green line. The index has 29 stocks in it, so each stock is more than 3% influence. It would only require 2 stocks to change the index below the line. So, getting into bullish territory.

In examining the chart information for more detail, I found a couple of interesting points. Lets start with the RSI.
There have been 4 times in the past 5 years where the index has dropped below the current level of 40. All of them produced nice trading rallies. It is clear that down at 40 is a pretty good area to look for a buying opportunity.

Next, the MACD histogram shows a deep push on momentum. This is the momentum of the Gold Miners index, not Gold. We have only had the selling momentum reach this level 7 times. This is one of the worst if you look at the area of the histogram over the last few months. It looks really bad. So that could be bad or good. However, the histogram recently seems to have bottomed out and made a higher low this week. That is important. I have drawn vertical lines where the histogram starts to improve. You can compare it to Gold's price at the bottom panel. Pretty nice location to start buying. The April to July 2012 period was harder to call as the histogram didn't go very deep.

Next is seasonality. I marked the vertical lines green if the rally started near the first of the year. Look at how strong those rally points were. I dotted the one in 2008 because of the trauma that was ensuing that particular year. While it did not happen in January, it did start near the beginning of the year. The seasonality factor looks to be huge. 4 for 4 in rallies for the beginning of the year. 3 rallies started around July.

Continuing down is the final panel where I have $GOLD plotted in Gold color. I have annotated the chart with some blue trend lines. The solid lines are equidistant from the middle as shown by the black lines. The dotted lines are best fit based on the trends in the price. This could be due to a log scale chart which would normally be used for a multi year chart with so much price movement. What I see from here is that GOLD is at an area that is near the lower extreme of distance from the trend. The blow off top of 2011 was a clear exaggerated move outside the trend. Could we see that to the downside still? Anything is possible. But this chart shows a lot of good reasons for a trade right here.

Lets look at a chart of $GOLD on the daily. Here is a link. $GOLD

Recently, the RSI has been improving. The GDX:GLD ratio is rising which is very good to see. The downward sloping bullish wedge is also a positive signal to help spot a reversal. Friday's reversal candle was textbook on higher volume as a lot of stops were tested on the weekly chart below. The MACD appears to be trying to make a higher low while price is making a lower low. The force down was not as significant on this push so that too is bullish. I have shortened the time to 6 months so the price action is clear, but the shelf back in August is at a very important level. This level has marked support and resistance for 15 months. You can see that on the weekly below.

Here is a Weekly of $GOLD. $GOLD Weekly

On this weekly chart, the RSI is holding 40 which is excellent. The purple shaded area represents relative strength compared to the $SPX and is declining so that is not a good sign.

 $Gold looked to find support at the horizontal line of $1625. This line has been a support resistance zone for the last 15 months.  The $GOLD price also tested stops below the 2 year uptrend line this week. This is a very nice place for the chart to reverse, especially with seasonality.

The MACD is making higher highs in October compared to March 2012 even though the price was the same. That is a bullish divergence.

One thing that looks weak on this chart is the full sto's falling below 50. They really need to find a floor right here or that would mark a significant negative trend reversal.

This looks like a very interesting place to enter a gold related trade to the upside. Like all great entry points, they have significant potential to fail if no new major investors join the falling trade. For the gold followers, it has been a very difficult trade and they would sure like to see some upside reprieve.

In conclusion, I like the seasonality and the bullish candle. We'll see how 2013 treats the gold trade.

Good Trading,
Greg Schnell, CMT

Overall, the world couldn't be more of a sovereign wild card. But at its weakest point, sometimes the strongest investment time is at the point of most change. While I don't forecast a quick turn, what can each investor watch for to see a global improvement? I'd like to propose the following chart could really help us.

The USA just elected a president. China just elected a new leader. Europe appointed a new ECB chairman.   Japan has an election coming soon with a new leader trying to push for a plunge in the Yen.  That is usually bullish for the stocks there. Germany and London have traded well. Australia has as well.
Here is why I don't want to sing a bearish tune for the long term. This chart looks excellent from a basing point. Notice the rising MACD lows while the price continues to decline. What would make a more obvious choice to start climbing than the change of leadership? It doesn't appear to be done falling yet but it is at a very interesting time.

If China can make a bullish turn here that would be important. Today, the Shanghai continues to test support at 2000. The blue line at the bottom of the chart is flat at 2000. From the 2 year chart above, lets look at the 12 year chart below.

I would suggest a couple of interesting levels here. 2135 did not hold, but notice the scale levels as we go lower. Each about 5% below 2135. We currently sit near 2000. Just below this are levels at 1895, 1775 and 1665. Notice the coiling of the MACD. It is building energy here for a surge on the breakout. I didn't want to put too many lines on this chart, but an argument for a bullish wedge can be made from the 2009 high. It is called a bullish wedge because the distance between high and lows get narrower and narrower as the price falls. This creates a downward trend line on the top that has a more aggressive slope down than a trend line under the lows that has a less aggressive slope. Usually the break above the upper trend line would be fuel for a significant rise as the short positions have to cover quickly which also propels the price higher.

Have a great Thanksgiving with family and friends.

Good Trading,
Greg Schnell, CMT

Given the current chart for the Canadian Dollar, migrating snowbirds might want to exchange some loonies for some sawbucks very soon.  The Canadian Dollar continues to hit resistance above the $1.02 level.  It had a rough week chart-wise, forming a big red bar on the Elder Impulse System chart.

On the other hand, the US Dollar is strengthening, breaking to the upside compared to the Yen ($XJY), the British Pound ($XBP), the Euro ($XEU), and the Loonie ($CDW).

Commodities have a rough time whenever $USD is strong which is one reason that Gold behaved poorly on Friday.  Even so, mining stocks held up well.  We'll see if that remains true next week.

Good Trading,
Greg Schnell, CMT

The Canadian mining stocks appear ready to roll over.

It is quite surprising that they've not been able to rally given the recent weakness in the US Dollar. With the move down in the US dollar, we would've expected the value of the metals and the associated miners to move up but that just isn't happening.  Check out this chart to see what I mean:

This hardly looks like a bull run off the June lows.  While the weekly bars have moved a little higher, they have not moved up enough to turn the Elder Impulse System from blue to green, nor has the Full Stochastic line moved up.  The MACD and Ultimate Oscillatior are slowly improving, but the RSI and relative strength lines at the top of the chart have gone sideways.  If Canadian miners were really rallying, the weekly technical signals would be much more positive.

For all those reasons, caution appears warranted.  A case can even be made that the 750 level makes a nice head/shoulders neckline on a long term chart!

Greg Schnell, CMT

On Thursday August 2, $WTIC crude made an interesting turn.

Currently crude is in a downtrend denoted by the red line.
We have started August creating a downward column of O's. The Red 8 shows the first box in August with a move of at least $3.

You can see that since June (The red 6), we were stuck in a range into July. In July (Red 7) Crude was able to push above $87. It then pulled back, roared to $93 and has since settled back to sit just around the previous support / resistance level built in June.

Upside: If Oil can rally from this level, it would be very bullish. A push through to $93 would break the downtrend line. Looking left, $93 and $94 have been resistance. A push through there would probably allow oil to surge to $102.

Downside: If Oil goes through $86, it is bearish. A break through $84 would be a bigger warning as the price has spent a lot of time there (9 X's and O's) and should have more support. Obviously the 3 O's at $82 are a significant level. We are currently in a downtrend as indicated by the red line. The $76, $77,$78 level is the major floor for this market. The last 3 years, August has been a weak month where oil pulls back and then surges into the September, October months.

Watch crude closely for hints on a major economic trend. The big picture on the chart above is higher highs and higher lows. We are just in the trading range now.

Good Trading,
Greg Schnell, CMT