Equity Leaders Weekly

S&P/TSX Composite Index & Select Sector SPDR Financial ETF - August 20, 2020 

It is not uncommon these days for market commentaries to ring loud with confusion.  Markets in general continue higher, US markets such as the NASDAQ in particularly have been persistent in making new all-time highs.  All this in the face of widespread economic devastation, severe unemployment, and a grim outlook for a recovery to truly take hold in any material way.  Regardless of the undeniable uncertainty in the economy, it appears most global markets want to climb this wall of worry.  At this point it is unknown what it might take to shake these market moves to the upside off their bearings.Perhaps investors are becoming more and more comfortable with the fact that although we have seen a recent second surge in the COVID-19 virus, we are seeing signs of this trend abating, and it would appear expectations for corporate profits seem to have ceased carrying a dire tone.  Also, the slow but notable progress towards a relevant vaccine, could be acting as a tailwind to the markets and supporting bullish sentiment amongst investors.This week in the Equity Leaders Weekly we take a look at our home market the S&P/TSX Composite Index (TSX.I), as well as a sector ETF from our neighbors to the south with a review of the Select Sector SPDR Financial ETF. Not enjoying the same rise to new all-time highs as the S&P500 Index, the TSX.I is worthy of our analysis none the less.  Our last review of the broad Canadian Market space was around a month ago on July 23rd.  

S&P/TSX Composite Index (TSX.I)

With some North American markets continuing to make new all-time highs, the S&P/TSX Composite Index (TSX.I) appears to be running into resistance, struggling to keep pace.  At this point it would be important for the TSX.I to break out and rise above current levels.  Perhaps Canada’s large weighting in banks and energy could help it push through. However, this would require continued strength in commodity prices, and a continued improvement in interest rate spreads, supporting higher prices in bank and financial stocks.From our last review of the TSX.I, July 23, there has been no change in the SMAX score, still holding a negative position with a score of 5.  Now sitting squarely against our previously reviewed resistance level of 16,776, a move through this level could be the boost needed to continue higher.  If this were to happen, watch for resistance at 17,632, then again near all time highs of 18,000.  To the downside, and if current resistance holds, watch for support at 15,962, and then right around the 15,500.

Select Sector SPDR Financial ETF (XLF)

After some down-side pressure through the heat of July, the Select Sector SPDR Financial ETF (XLF) found some upside momentum through the beginning of August.  With a continued rise in the 10 and 30-year bond yields, XLF could be in for more upside potential.  Watch for resistance to step in between $26.30 and $26.50, and then again near the $28 round number.  If XLF cannot sustain this pop, watch for support at $24.28 and then again at $23.10.

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