The TSX has been victim to a violent down-trend the past year that has claimed the lives of several stocks including: Valeant, Performance Sports Group, NewAlta, and Sears Canada. Most of these stocks have seen declines the past year in excess of 70% and many investors have been caught up in the financial turbulence. While the US markets have been in the spotlight for recent declines from the 2100 high on SPX, the 15% declines the SPX has experienced from peak to trough have looked more like a hiccup when compared alongside the TSX. All of these stocks had several warning signals and red flags flashing giving you opportunities to exit them with small losses, but unfortunately most ignored these signals and they have experienced the results of fighting price and the overall trend. The TSX as of earlier this year had lost over 26% of its value and had left almost no sector unscathed, with the exceptions of a few stocks that managed to buck the overall market trend. Fortunately for most investors on the TSX we have bounced over 10% off the lows and look to be nearing a huge level for the TSX as we speak.
Valeant Pharmaceuticals (TSX:VRX)
Performance Sports Group (TSX:PSG)
Trend Following Perspective:
The TSX has made new 55 day highs at 13,300 giving a new buy signal for most trend following investors. Proponents of Richard Dennis and his Turtle Trading techniques would advise that you enter a market on a 55 day high, and use your trailing stop as a new 20 day low on the position. Currently this system would have entered the TSX at 13,300, and be riding this position until the TSX violates the 13,100 mark, which would invalidate the current long entry.
Weekly 10/40 Perspective:
The Weekly 10/40 moving averages flashed a sell signal on the TSX at 14,600 last year on July 17, 2015 – had it been heeded most investors could have exited the market and taken profits on any weak positions less than 5% from the TSX 2015 highs, and managed to avoid a 20% drop from these levels. Currently the 10 week moving average is curling up and while it has not given a buy signal by crossing back through the 40 week moving average, it is certainly looking constructive at attempting to make a come-back. The most important thing to notice is that while past break-outs above the 10 week moving average did NOT close above the down-trend line, this down-trend break has not only broken above the down-trend line on a weekly basis, but begun basing there attempting to see if price discovery at higher levels is possible.
Moving Average Long Term Daily View:
The TSX has fought hard to regain it’s 50-day moving average and did so last month finally which has helped the market climb back above the 13,000 level and give it an opportunity to battle it’s declining 200-day moving average: it’s largest nemesis and biggest form of resistance since this decline started last year. On each break of the down-trend the market briefly rallied but did not come close to testing its declining 200-day moving average. Currently the market is battling against it’s 200-day moving average which is the bull/bear line in the sand and a close above here would be a very healthy start and attempting to confirm a new bull market is underway. One would expect that the first test of the 200 day moving average given it was stiff resistance would have been met with a harsh pullback but instead the TSX pulled back only 2% and is back at it’s 200 day moving average once again, attempting to give another attempt at breaking through it. Even I am surprised at the resiliency of the TSX in attempting to do this, as I thought I would be a seller at the 200-day moving average, but currently there is nothing bearish about price action as we sit on the 20 day moving average, finding support there in the near term. The 50-day moving average which was a gift to short-sellers entering new shorts on the TSX over the past 6 months is now finally curling upwards, and should provide some support on any pullback which would give us a “buy-the-dip” scenario at 13,000 TSX.
Having weighed all of these factors, it’s very difficult to be bearish on the TSX here and while I am not long the TSX currently (though I am long several stocks in up-trends) all of these stocks can be found on my twitter feed (Twitter.com/TaylorDart01)
, I would likely get long on 2 consecutive closes above the 13,500 level on the TSX. The daily charts are pointing to more upside ahead IF we can break the 200-day moving average in a bullish way and close above it, the weekly charts are still early but are beginning to look constructive and from an aggressive trend following stand-point the Turtle Trading system (55 day high entries) is currently long and riding the TSX as long as it’s holding above 13,100.
Current Positions – 100% Long Stocks in TSX with NO hedges short currently, all stocks are trading in bull markets of their own above their 50 and 200 day moving averages as I wish to ride the strongest trends on the market, especially when the market itself is on a neutral basis for me.
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