Equity markets have been sending mixed signals to investors over the last week. At the highest level things appear very bullish with several indices breaking out to new all-time high closes and completing bullish Point and Figure patterns led by the Dow Industrials and the S&P 500. Other indices completing bullish patterns include the S&P/TSX Composite, the NYSE Composite and the S&P 100. With the exception of the Russell 2000 which continues to climb, many of these indices broke out by one box and then stalled, while the NASDAQ 100 did not break out at all. A look at individual stocks and sectors also suggests that equities may be near exhaustion and in need of a rest. Several retail stocks have reported positive earnings this week but either failed to respond with significant gains such as Walmart which shot up briefly but then dropped back, or Lowes which sold off on weak numbers.Similarly, the halo effect of positive vaccine news appears to be losing some of its strength. Moderna, who announced positive trial results on Monday soared for one day, then gave it all back over the next two days. Several stocks in COVID-impacted sectors that rallied on vaccine news, such as airlines, cruise lines and hotels, did not rally as much on the second, November 16, vaccine announcement and have found themselves contained by the intraday highs set from the first vaccine announcement on November 9th. One group which has maintained recovery momentum this week, however, has been energy, boosted by an upswing in oil and natural gas prices. In fact, several commodities sensitive to the global economy and industrial/consumer demand for resources have turned upward this month including Brent and WTI Crude Oil, Copper, Lumber and Platinum. Gold, on the other hand, has broken down again this week, indicating that capital continues to leave defensive havens. Bottom line, equity market breadth continues to improve and leadership still appears to be shifting from “stay-at-home” stocks toward economically sensitive groups such as Industrials, Consumer Discretionary and even some Financials. With earnings season winding down, and the risk of new lockdowns in the near-term still growing, some of the stocks and sectors which had become overheated have gone into consolidation mode for now, which lagging areas continue to catch up as the prospects for vaccines to support an economic rebound in the medium to long-term continue to improve. In this week’s issue of Equity Leaders Weekly, we take a look at the S&P/TSX Composite Index and the price of Gold as indicators of changing investor sentiment.
Canada’s benchmark index has been lagging behind its US peers in recent months, seen most clear in the TSX’s current SMAX score of 3 compared with the stronger SMAX scores of 7 for the S&P 500 and 8 for the NASDAQ Composite.The S&P/TSX Composite Index (TSX.I) has started to attract renewed interest this month, breaking out of a downswing and then clearing its September high near 16,950 to trade at its highest level since February. TSX.I also has completed a bullish Spread Double Top pattern, confirming the start of a new upleg. In terms of sectors, Energy, which had acted as one of the main drags on the index for months has started to rebound at least easing a headwind and possibly creating a tailwind. Materials have been mixed with a retreat in gold producers offset by gains in the base metals, chemicals, and forest products subgroups. Financials have started to show signs of life heading toward bank earnings which are due near the end of this month or early December. Other groups also continue to attract interest, particularly Industrials and Consumer Discretionary (particularly automotive companies).Next potential upside resistance for TSX.I appears near 18,000 where a round number, the February high and vertical/horizontal counts cluster, followed by 18,715, where another group of vertical/horizontal counts converge. Initial support appears near 16,280 based on a 3-box reversal.
From June of 2019 through August of 2020, Gold (GC.F) soared from near $1,275/oz to near $2,080/oz propelled by a dovish turn by the world’s major central banks and massive monetary stimulus, particularly asset purchases which devalued paper money relative to hard currency. Since peaking in August, Gold has gone into retreat. The first pullback appeared to be a normal trading correction, but the ensuing bounce was small and faltered well short of $2,000/oz. this week, gold has broken down below $1,880/oz completing a bearish Double Bottom pattern and signalling the start of a new downtrend. Initial downside support appears near $1,775 were a horizontal count and a previous column high converge. Initial resistance on a rebound appears between $1,938, a 3-box reversal, and $1,967, a previous column high. Gold’s retreat can be attributed to two previous tailwinds flipping and becoming headwinds. Back in the spring central banks unleashed massive new stimulus but they are no longer acting in concert. While the Bank of England and the Reserve Bank of Australia recently added stimulus, the US Federal Reserve Board and the Bank of Canada have been scaling back asset purchases and the Reserve Bank of New Zealand recently declined to introduce negative interest rates. The European Central Bank and the Bank of Japan have been sitting on the fence lately.
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