Technical Look at Key Stock Markets – Fundamentals Play Less a Role on Stocks at This Part of The Cycle, so Watching How Markets Act is the Key!

When markets are at risk of breaking down, technical information on the markets is critical.  There are many major institutions and money managers who have buy and sell orders above or below certain key resistance and support lines.  Also, psychology is critical to the performance of stocks. If key levels are breached, it tends to change the belief in stocks.

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So let’s have an update on the Toronto Stock Exchange and the 3 key US markets, the S&P 500, NASDAQ and Dow Jones Industrial Average.

First, Canada, as our indicators have rated it a sell for about a month:

The trend has not changed…it is still down. We hear of rallies in stocks and think that the painful selling is over. Investors must remember that down waves are fast but include many up days that fool the masses. As you can see, we are still above the downtrend line (red line). So rallies are nothing but testing key resistance levels.

Also, we have included our key sell line (purple line) and as you can see, we are still well below it. We are still out of Canadian stocks at this stage in our Market Timing Portfolio.

Now, let’s look at key US indices. First, the broadly based S&P 500 index:

In the S&P 500 index case, we are right at the key resistance level (red line) as of today. The market would have to break through this level on good volume and stay above it to change our short-term down bias. For investors, the market is still above our long-term sell indicator, so long-term investors should still be invested, at least to a reasonable level.

The tech-heavy NASDAQ index was the last US index to peak, which is a phenomenon that we saw at the 2000 and 2007 peaks as well (just prior to major crashes).  Here is an update on this index:

Again, we are at a key resistance level as of today. The rest of this week will be important. If we continue upwards, we believe that former highs may be tested. But as of today, the downside is still in place for short or intermediate term investors. For long-term investors, our buy indicator is still in place.

The last index, which provides conflicting information, is the large capitalization, Dow Jones Industrial Average:


I this case, the market has broken out of its downtrend. This is bullish for this index. It clearly is in conflict with the other two major US indexes, so we will be watching the movement of stocks closely this week. We expect the other two markets to follow the DJIA lead OR the DJIA to break down once again and show this move to be a false breakout.

This week is important for both the bullish and bearish case. But our coaching customers understand that our objective and the extremely successful long-term indicator is still in buy territory, the Canadian TSX in sell territory…

Matt Sammut
Founder & Chief Investment Strategist