Technically Speaking

April 21, 2016

Inside this Report

Highlights

S&P 500: Approaching Key Resistance .....................2

Market Breadth: Improving And Adding Support To

The Rally In Equity Markets........................................3
S&P/TSX Composite Index: Trending Higher After
Important Breakout .....................................................4

CRB Commodity Index: Important Technical Breakout

...................................................................................5
WTI Oil: Breaks Out But Due For A Pause .................6
Gold Price: Looking Good After Breakout...................7

US Dollar Index: Due For A Bounce ...........................8

S&P/TSX Capped Industrials Index: Improving
Technical Profile .........................................................9
S&P/TSX Capped Energy Index: Downtrend Has
Ended .......................................................................10

Glossary ...................................................................11
Important Investor Disclosures .................................13

Ryan Lewenza, CMT, CFA

SVP, Private Client Strategist

The S&P 500 Index (S&P 500) is approaching its all-time highs around the 2,130 level, which we believe could
provide stiff technical resistance. Adding in the fact that the S&P 500 is technically overbought with an RSI
reading of 67, and the percentage of stocks in the S&P 500 above their 50-day MAs at 91%, we believe the S&P
500 is overdue for a short-term pause/pullback.
Market breadth, which refers to the level of market participation, has significantly improved since the February
market lows. For example, we have seen a marked improvement in the number of new highs to new lows and
the Advance/Decline (A/D) line for the NYSE has improved significantly. In fact, the NYSE A/D line has made a
new high, which is a bullish confirmation of this recent rally.
Since breaking out from its year-long downtrend in March, the S&P/TSX Composite Index (S&P/TSX) has
continued to trend higher in an upward channel. With the 18% rally since the January lows, the S&P/TSX has
become overbought with an RSI reading of 72. Additionally, the S&P/TSX is now trading at an important
technical resistance level of roughly 14,000. Given that the S&P/TSX is overbought and at an important technical
level, we see the potential for a near-term pause/pullback.
The CRB Commodity Index has broken out from this long-term downtrend. Given this important technical
development we have become more constructive on commodities, with the improving technicals being one
factor in in our upgrade of the S&P/TSX Materials sector on March 18.
In the short term, oil prices are technically overbought and we note a momentum divergence which suggests
the potential for some near-term weakness. On the expected pullback, WTI needs to hold the important support
range of US$36/bl to US$37/bl, or the rally could be at risk. Overall, we are getting more bullish on oil prices, but
see the potential for some near-term profit taking.
The US Dollar Index (DXY) has fallen from 98.60 in March to 94.47 currently. It is now trading at key technical
support around the 93 to 94 level. As a result of the weakness the DXY is now oversold. With the DXY oversold
and at support, we see the potential for a move higher.
The S&P/TSX Capped Energy Index broke above its downtrend in early March. In recent days it has broken
above its 200-day MA. In the near term we see the potential for some profit taking given the recent rally, but we
would use weakness to increase exposure. We believe the worst is behind the sector.

Technically Speaking

April 21, 2016 | Page 2 of 13

S&P 500: Approaching Key Resistance

Source: Stockcharts.com, Raymond James Ltd.

Last month we stated we see the potential for some near-term profit taking. But, after the expected short-term pullback, we see the potential for the S&P 500 to break
above its 200-day MA, and rally up to 2,090, where key resistance comes into play. While we didnt get the first part correct (short-term pullback) we got the second part
right with the S&P 500 trading at 2,094 as of April 20. Now where?
The S&P 500 is now approaching its all-time highs around the 2,130 level, which we believe could provide stiff technical resistance. Adding in the fact that the S&P 500 is
technically overbought with an RSI reading of 67, and the percentage of stocks in the S&P 500 above their 50-day MAs at 91%, we believe the S&P 500 is overdue for a
short-term pause/pullback.
Key supports levels on the expected pullback are: 1) 2,070 (lower channel line); 2) 2,040 (April lows); 3) 2,014 (200-day MA); and 4) 1,998 (50-day MA).
We see the potential for short-term profit taking with the S&P 500 pulling back to one of these support levels, with the worst case scenario being 1,998 (50-day MA). Once
the expected pullback plays out, well see if the S&P 500 can make another attempt at the all-time highs, before the weak seasonal summer months come into play.

Technically Speaking

April 21, 2016 | Page 3 of 13

Market Breadth: Improving And Adding Support To The Rally In Equity Markets

Source: Stockcharts.com, Raymond James Ltd.

Market breadth, which refers to level of the market participation of stocks rising/declining, has significantly improved since the February market lows.
For example, we have seen a marked improvement in the number of new highs to new lows and the Advance/Decline (A/D) line for the NYSE has improved significantly.
In fact, the NYSE A/D line has made a new high, which is a bullish confirmation of this recent rally.

Technically Speaking

April 21, 2016 | Page 4 of 13

S&P/TSX Composite Index: Trending Higher After Important Breakout

Source: Stockcharts.com, Raymond James Ltd.

Since breaking out from its year-long downtrend in March, the S&P/TSX has continued to trend higher in an upward channel.
With the 18% rally since the January lows, the S&P/TSX has become technically overbought with an RSI reading of 72, and 83% of the stocks in the S&P/TSX above their 50day MAs. Additionally, the S&P/TSX is now trading at an important technical resistance level of roughly 14,000. This level was technical support in July 2015, and then
became resistance in October. When support becomes resistance it is known as a change of polarity in technical jargon, and it represents an important technical level.
Given that the S&P/TSX is overbought and at an important technical level we see the potential for a near-term pause/pullback. While we do see the potential for a pullback,
possibly as a result of a pullback in oil, we dont believe it will end this current rally. We see the potential for another move higher into May, before the weak seasonal
period emerges. During the May through October period, we expect some weakness and more of a trading range environment.

Technically Speaking

April 21, 2016 | Page 5 of 13

CRB Commodity Index: Important Technical Breakout

Source: Stockcharts.com, Raymond James Ltd.

The CRB Commodity Index had been trading in a well-defined downtrend since June 2014. This was an important factor behind our cautious view of commodities and
resource stocks.
However, with the recent strength in oil and gold prices, the broad-based CRB Index has broken out from this long-term downtrend. Given this important technical
development we have become more constructive on commodities and is one reason why we upgraded the S&P/TSX Materials sector on March 18.
The next technical hurdle is the 200-day MA which comes in at 183.89. If the CRB Index breaks above this important level this would be further positive technical
confirmation, and would cause us to get more constructive on commodities and resource stocks.

Technically Speaking

April 21, 2016 | Page 6 of 13

WTI Oil: Breaks Out But Due For A Pause

Source: Stockcharts.com, Raymond James Ltd.

In our March 16 report we highlighted that WTI was approaching a key technical level at its 200-day MA. The 200-day MA proved to be key resistance in June and again in
October 2015, hence its importance.
In recent days WTI has broken above this level which we believe is a big positive for oil prices.
In the short-term oil prices are technically overbought and we note a momentum divergence which suggests the potential for some near-term weakness. On the expected
pullback, WTI needs to hold the important support range of US$36/bl to US$37/bl, or the rally could be at risk. This range represents the intersection of the down trendline
and the 50-day MA.
Overall, we are getting more bullish on oil prices, but see the potential for some near-term profit taking.

Technically Speaking

April 21, 2016 | Page 7 of 13

Gold Price: Looking Good After Breakout

Source: Stockcharts.com, Raymond James Ltd.

In lasts month publication we stated, Overall, we have become more constructive on gold given the breakout, and would recommend increasing exposure on any shortterm weakness.
Our bullish technical view on gold is based on: 1) gold has broken above its long-term downtrend; 2) momentum remains positive; and 3) gold is finding support at the
important 50-day MA.
We believe the US dollar is due for a bounce which could pressure gold and the commodity complex in the short term. We would use any weakness to add gold exposure.

Technically Speaking

April 21, 2016 | Page 8 of 13

US Dollar Index: Due For A Bounce

As weve outlined earlier, we see the potential for some near-term profit taking in commodities. One key factor behind this thesis is our belief that the US dollar is due for a
bounce.
As a result of more dovish commentary from the Fed, the US dollar has declined significantly versus the EUR, YEN and CAD to name a few. Looking at the US Dollar Index
(DXY), it has fallen from 98.60 in March to 94.47 currently. It is now approaching key technical support around the 93 to 94 level. Additionally, with the weakness it is now
oversold. With the DXY oversold and at support, we see the potential for a move higher, which, given the negative correlation with commodities, could pressure them in the
short term.

Technically Speaking

April 21, 2016 | Page 9 of 13

S&P/TSX Capped Industrials Index: Improving Technical Profile

Source: Stockcharts.com, Raymond James Ltd.

Despite a neutral technical profile for the Industrials sector to start the year, we maintained our overweight recommendation. Part of this recommendation was based on
the belief that we would see a rotation this year from mid-cycle (where consumer discretionary and health care do well) to late-cycle (where industrials and resources do
well).
While we still believe in this late-cycle rotation theme, we now have improving technicals with the S&P/TSX Capped Industrials Index breaking above its downtrend and it
trading above its 50- and 200-day MAs.
In the near term the sector is overbought with an RSI reading of 73. As such, we could see some profit taking but we would use the weakness to add to positions. Within the
sector we like the rails and engineering & construction subgroups.

Technically Speaking

S&P/TSX Capped Energy Index: Downtrend Has Ended

Source: Stockcharts.com, Raymond James Ltd.

The S&P/TSX Capped Energy Index broke above its downtrend in early March. In recent days it has broken above its 200-day MA.
In the near term we see the potential for some profit taking given the recent rally, but we would use weakness to increase exposure.
We believe the worst is behind the sector.

April 21, 2016 | Page 10 of 13

Technically Speaking

April 21, 2016 | Page 11 of 13

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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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).

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April 21, 2016 | Page 13 of 13

Important Investor Disclosures

Complete disclosures for companies covered by Raymond James can be viewed at: www.raymondjames.ca/researchdisclosures.
This newsletter is prepared by the Private Client Services team (PCS) of Raymond James Ltd. (RJL) for distribution to RJLs retail clients. It is not a product of the Research
Department of RJL.
All opinions and recommendations reflect the judgement of the author at this date and are subject to change. The authors recommendations may be based on technical
analysis and may or may not take into account information contained in fundamental research reports published by RJL or its affiliates. Information is from sources believed to
be reliable but accuracy cannot be guaranteed. It is for informational purposes only. It is not meant to provide legal or tax advice; as each situation is different, individuals should
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