Technically Speaking

October 23, 2015

Inside this Report

Highlights

S&P/TSX Composite Index: Continued Resistance From

Short-term Downtrend ....................................................... 2

S&P 500: Double Bottom Pattern With Measured Move to

2,110 ................................................................................... 3
Market Breadth: Improving With Higher Prices on Equity
Indices................................................................................. 4
US Dollar Index: Continues To Weaken And Approaching
Key Support ........................................................................ 5
Gold Price: Important Short-term Breakout ....................... 6
CRB Reuters/Jefferies Commodity Index: Remains in a Well
Defined Long-term Downtrend .......................................... 7
S&P/TSX Capped Energy Relative To The S&P/TSX: First
Positive Development in Sectors Recovery ....................... 8
S&P/TSX Capped Health Care Relative to S&P/TSX:
Significant Breakdown But Oversold .................................. 9

Glossary ............................................................................ 10
Important Investor Disclosures ........................................ 11

Ryan Lewenza, CMT, CFA

SVP, Private Client Strategist

Having rallied over 1,000 points since late September, the S&P/TSX Composite Index (S&P/TSX) is finding
resistance at the short-term downtrend around the 14,000 level. We continue to expect strength into year-end,
but see 14,000 as the key technical level. A break above this level would help validate our year-end rally call.
The S&P 500 Index (S&P 500) has rallied sharply following a classic double bottom formation. Having broken
above the top of this formation, the measuring implications of this pattern is 120 points, or 2,110.
Market breadth had been in a steady decline since the spring. While there are a number of breadth indicators
we look at, we tend to focus on the NYSE Advance/Decline Line and the Percentage of Stocks in the S&P 500
trading above their 50-day MAs. Both of these indicators recently broke out, which signals broadening market
participation, a bullish sign for the equity markets.
The recent deceleration of US economic momentum has led to reduced expectations of a US Fed rate hike. As a
result, the US dollar has been weaker of late with the US Dollar Index trading below its 50- and 200-day MAs.
The US Dollar Index is trading near key technical support around 93. A break below this level would have
significant implications for commodities, and in turn equity markets/sector performance.
As a result of the US dollar weakness, the technical profile for gold has significantly improved in recent weeks.
With commodities being priced in US dollars, a weaker US dollar is typically bullish for commodities. The recent
gains off the August lows for the CRB Commodity Index can in part be attributed to the US dollar weakness.
Further US dollar weakness would be bullish for the commodity complex.
With an oversold condition for the energy sector and US dollar weakness, the Canadian energy sector has
experienced a decent bounce in recent weeks. As a result, the energy sector has broken above its relative
downtrend versus the broader equity market. This is a positive first step in the energy sectors turnaround.
The S&P/TSX Health Care Index has been in a very strong uptrend for years. As a result, it has consistently
outperformed the overall equity market. However, with the recent sell off in Valeant Pharmaceuticals
International (VRX-T) and Concordia Healthcare Corp (CXR-T), the sectors relative strength has deteriorated. In
the short-term the sector is very oversold and could soon see a trading bounce. Following an expected bounce, if
the sector then makes a new relative low, investors should consider reducing exposure to this sector.

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October 23, 2015 | Page 2 of 12

S&P/TSX Composite Index: Continued Resistance From Short-term Downtrend

Source: Stockcharts.com, Raymond James Ltd.

Having rallied over 1,000 points since late September, the S&P/TSX is finding resistance at the short-term downtrend around the 14,000 level.
The S&P/TSX is now pulling back to its 50-day MA allowing the S&P/TSX to rebuild its internal energy.
We continue to expect strength into year-end, but see 14,000 as the key technical level. A break above this level would help validate our year-end rally call, and open the
door for the S&P/TSX to rally back to the 200-day MA at 14,578.

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October 23, 2015 | Page 3 of 12

S&P 500: Double Bottom Pattern With Measured Move to 2,110

Source: Stockcharts.com, Raymond James Ltd.

The S&P 500 has rallied sharply following a classic double bottom or W formation. Having broken above the top of this formation, the measuring implications of this
pattern is 120 points, or 2,110 on the S&P 500.
In the short term the S&P 500 is nearing an overbought condition following 10 of 13 days of gains. Additionally, we note that the S&P 500 is approaching its 200-day MA at
2,059. Therefore, we expect the S&P 500 to stall soon and possibly pullback to work off the overbought condition.
This could then set up the S&P 500 to rally into year end and realize the 2,110 measured move of the double bottom formation.

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October 23, 2015 | Page 4 of 12

Market Breadth: Improving With Higher Prices on Equity Indices

Source: Stockcharts.com, Raymond James Ltd.

Its one thing for equity indices to move higher, and its even better when its supported by improving market breadth. Market breadth refers to market participation and
whether the stock market is rising on broad participation or rather due to a few stocks or sectors. The broader the participation the better.
Market breadth has been in a steady decline since the spring, which was providing an early warning signal for the overall stock market.
While there are a number of breadth indicators we look at, we tend to focus on the NYSE Advance/Decline Line and the Percentage of Stocks in the S&P 500 trading above
their 50-day MAs. Both of these indicators recently broke out, which signals broadening market participation, a bullish sign for the equity markets.

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October 23, 2015 | Page 5 of 12

US Dollar Index: Continues To Weaken And Approaching Key Support

Source: Stockcharts.com, Raymond James Ltd.

We are strong believers in intermarket analysis which looks at the inter-relationships of interest rates, currencies, commodities and equities. The direction of interest rates
or currencies can have a significant impact on commodities and equities, and vice versa.
We believe the direction of the US dollar is critical for the outlook on commodities, equity markets, and sector performance.
The recent deceleration of US economic momentum has led to reduced expectations of a US Fed rate hike. As a result, the US dollar has been weaker of late with the US
Dollar Index trading below its 50- and 200-day MAs. Additionally, we note a recent death cross with the 50-day declining through the 200-day MA.
The US Dollar Index is trading near key technical support around 93. A break below this level would have significant implications for commodities, and in turn equity
markets/sector performance. We are monitoring this very closely as it could have a material impact on positioning over the next few quarters.

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October 23, 2015 | Page 6 of 12

Gold Price: Important Short-term Breakout

Source: Stockcharts.com, Raymond James Ltd.

As a result of the US dollar weakness, the technical profile for gold has significantly improved in recent weeks. First, gold has recently broken out of a triangle formation and
above its short-term downtrend. Second, gold is trading above its rising 50-day MA and last week broke above its 200-day MA.
The recent strength in gold can likely be attributed to the weaker US dollar, which can be seen in the lower panel where we note the high negative (-0.90) correlation
between gold and the US dollar.
In the short-term gold appears extended given the overbought condition (RSI at 64.61), which could result in some backing and filling. Should gold hold key support and MAs
on the expected pullback, this would be very bullish for the precious metal.

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October 23, 2015 | Page 7 of 12

CRB Reuters/Jefferies Commodity Index: Remains in a Well Defined Long-term Downtrend

Source: Stockcharts.com, Raymond James Ltd.

With commodities being priced in US dollars, a weaker US dollar is typically bullish for commodities. The recent gains off the August lows for the CRB Commodity Index can
in part be attributed to the US dollar weakness. Further US dollar weakness would be bullish for the commodity complex.
However, expectations should be tempered given the well-defined long-term downtrend for the CRB Index. We would need to see the CRB Index break above the 205 to
215 range which represents: 1) the long-term downtrend; 2) horizontal price resistance; and 3) the 200-day MA. Until then, commodities remain in a long-term downtrend
and we maintain our cautious long-term view.

Technically Speaking

October 23, 2015 | Page 8 of 12

S&P/TSX Capped Energy Relative To The S&P/TSX: First Positive Development in Sectors Recovery

Source: Stockcharts.com, Raymond James Ltd.

With an oversold condition for the energy sector and US dollar weakness, the Canadian energy sector has experienced a decent bounce in recent weeks. As a result, the
energy sector has broken above its relative downtrend versus the broader equity market. This is a positive first step in the energy sectors turnaround.
The sector (on a relative basis) is trading back near horizontal resistance. A break above 0.014 would be bullish for the sector and another positive sign in the energy sectors
recovery. A break above this level would likely prompt us to get become more bullish on the sector.

Technically Speaking

October 23, 2015 | Page 9 of 12

S&P/TSX Capped Health Care Relative to S&P/TSX: Significant Breakdown But Oversold

Source: Stockcharts.com, Raymond James Ltd.

The S&P/TSX Health Care Index has been in a very strong uptrend for years. As a result, it has consistently outperformed the overall equity market. However, with the
recent sell off in Valeant Pharmaceuticals International (VRX-T) and Concordia Healthcare Corp (CXR-T), the sectors relative strength has deteriorated.
In the short-term the sector is very oversold (lower panel) and could soon see a trading bounce. Following an expected bounce, if the sector then makes a new relative low,
investors should consider reducing exposure to this sector. We are monitoring this closely and will update accordingly.

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October 23, 2015 | Page 10 of 12

Glossary
Ascending Triangle
A continuation pattern where the period of consolidation takes the shape of an upward sloping triangle with an ascending lower trendline. A break down through the support trendline
can sometimes mark a reversal pattern.
Bollinger Bands
Bollinger bands gauge a securitys trading activity and trend by showing a range of normal price swings.
Candlestick Chart
A graphical representation of prices where opening and closing prices are connected to form coloured boxes. Generally, a series of dark candlesticks suggest downside momentum and
light candlesticks upside momentum.
Continuation Pattern
A chart formation that signals the continuation of the prevailing trend. Continuation patterns often occur after a period of brief consolidation.
Descending Triangle
A continuation pattern where the period of consolidation takes the shape of a downward sloping triangle with a declining upper resistance trendline. A break up through the resistance
trendline can sometimes mark a reversal pattern.
Double Bottom
Chart formation that normally occurs after an extended downtrend and resembles a W. Double bottoms signal potential price reversals.
Double Top
Chart formation that normally occurs after an extended uptrend and resembles an M. Double tops signal potential price reversals.
Fibonacci Sequences
Mathematical relationships that help predict points of support or resistance. The key Fibonacci ratio is 61.8% also referred to as "the golden ratio" or "the golden mean".
Flag
A chart formation in which prices move sharply to create a near vertical line (the flag pole) followed by a small move in the opposite direction (the flag). Flags are often continuation
patterns.
Gap
An open space on a chart. A gap is created when the low of one time period is above the high of the previous period, or the high of one time period is below the low of the previous
period. Gaps can signal breakouts or continuations of up or down trends.

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October 23, 2015 | Page 11 of 12

Head-and-Shoulders Formation
A reversal chart formation that looks like a head and shoulders (with both a defined left and right shoulder). Head-and-shoulders formations can occur at both the bottom and top of a
trend.
MACD
The moving average convergence/divergence determines turning points in a trend by differencing two exponential moving averages of specific periods. The trendline of the MACD can
also signal continuation or reversal trends for share prices.
Moving Average
A statistical tool that plots smoothed prices to signal future price trends. 50-day and 200-day moving averages are the most common indicators.
On Balance Volume (OBV)
A cumulative indicator that adds volume on up days and subtracts volume on down days. OBV shows buying or selling pressure. An upward sloping OBV confirms an uptrend, while a
downward sloping OBV confirms a downtrend.
Resistance Level
A technical level that prices may have trouble rising above (i.e., where the price may experience selling pressure).
Rounded Bottom
A bullish reversal pattern taking the shape of a U. Ideally, the rounded bottom should be accompanied by a similar volume pattern.
RSI
The relative strength index measures the velocity of directional price movements with extreme values indicating overbought and oversold conditions. The trendline of the RSI can also
signal continuation or reversal trends for share prices.
Support Level
A technical level that prices may have trouble falling below (i.e., where the price should have buying support).
Trendline
A line connecting a series of ascending lows (in the case of an up trendline) or descending highs (in the case of a down trendline).

Important Investor Disclosures

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October 23, 2015 | Page 12 of 12

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