Technically Speaking (June 18, 2015)
The S&P/TSX Composite Index (S&P/TSX) broke down through its short-term upward channel. With the recent weakness, the S&P/TSX is now trading below its 50- and 200-day moving averages (MA). We expect a short-term bounce in the S&P/TSX, but see it trading range-bound through the seasonally weak summer.
by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James
• The S&P/TSX Composite Index (S&P/TSX) broke down through its short-term upward channel. With the recent weakness, the S&P/TSX is now trading below its 50- and 200-day moving averages (MA). We expect a short-term bounce in the S&P/TSX, but see it trading range-bound through the seasonally weak summer.
• The S&P 500 Index (S&P 500) has stalled around the 2,100 level. With the S&P 500 not experiencing a 10% correction since mid-2011, some believe the S&P 500 is well overdue for a pullback/correction. While that may be the case, the long-term uptrend remains firmly in place which we must respect. The S&P 500 continues to outperform the S&P/TSX which is one factor in our preference for US equities at present.
• WTI oil prices have been trading in a tight trading range of roughly US$58/bbl to US$61.50/bbl since early May. However, it is quickly approaching its 200-day MA at US$62.60/bbl. We remain constructive on oil prices believing WTI has bottomed. In the short term we could see some backing and filling given overhead resistance from the 200-day MA.
• Lumber prices have broken above the short-term downtrend but are quickly approaching the 200-day MA. Given overhead resistance from the 200-day MA and the overbought condition (RSI at 68) we see the potential for some short-term weakness. However, with lumber prices being seasonally strong in the fourth quarter we would use weakness through the summer/fall period to add exposure to lumber stocks.
• Copper prices have pulled back 12% in line with our forecast from our May 13, 2015 report. Momentum is negative and therefore we could see copper prices decline a bit further, possibly to the US$2.50/lb. to US$2.40/lb range, before setting up for a trading bounce.
• The US 10-year Treasury yield has risen sharply in recent weeks, up 45 bps since April. Some are suggesting that this is end of the bull market in bonds. While we agree that yields could slowly grind higher on the back of US Federal Reserve tightening later this year, we believe the US 10-year needs to break above its long-term downtrend before making any bold statements about the end of the 30+ year bull market in bonds.
• The S&P/TSX Capped Consumer Discretionary Sector remains in a long-term uptrend and above its rising 50- and 200-day MAs. The sector remains one of our preferred Canadian sectors and we continue to recommend investors increase exposure.
• The S&P/TSX Capped Financial Services Sector has traded range bound between roughly 235 and 255 since H2/14. Overall, we’re neutral on the sector with our preference for the life insurance companies.
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