Chart watch: Expect a minor correction over the next few weeks

Chart watch: Expect a minor correction over the next few weeks

The long-term outlook is unchanged. The bull market that commenced in 2009 should continue through 2021 and probably longer.

But investors should brace for some medium-term turbulence over the next month or so.

Let’s look back to the behaviour of markets between the end of October and last Friday. During this 40-day period, the S&P 500 (SPX) appreciated 15%, the DOW (DJI) 14%, the NASDAQ 17%. Toronto (TSX) kept pace as it rose 15%. Our technical indicators kept pace with the rise: the Advance/Decline Index for New York rose from -70 to +115, the Up-Volume/Down-Volume Index moved from -150 to +500. In Toronto the readings for these same Indicators were -200 to +200 and -20 to +25, respectively. The number of stocks hitting new 52-week highs expended in both countries. The percentage of stocks above their respective 10-week Moving Averages rose to 87.5%, and according to Investors Intelligence, the Bulls out-numbered the Bears by 64-to-17.

The FAANG stocks, except for Alphabet (GOOG), stayed relatively unchanged. Other stocks such as Disney (DIS), General Motors (GM) and Nike (NKE) in Consumer Discretionary; Colgate-Palmolive (CL), Philip Morris (PM) and Rite Aid (RAD) in Staples; Chevron (CVX), Exxon (XOM) and Haliburton (HAL) in the Energy; Deere (DE), FedEx (FDX) and Honeywell (HON) in Industrials; Citigroup (C) , JPMorgan (JPM) and Morgan Stanley (MS) in Financials; Applied Materials (AMAT), Cisco (CSCO), Seagate (STX) and Unisys (UIS) in Info Tech; and Cleveland-Cliffs (CLF), Freeport-McMoRan (FCX), International Paper (IP) and United States Steel (X) in Materials, had similar upside moves.

In Toronto, many mirrored these rises on Wall Street: Gildan Activewear (GIL), Linamar (LNR) and Magna (MG); Maple Leaf Foods (MFI) and Saputo (SAP); Canadian Resources Natural (CNQ) and Suncor (SU); all the banks; ATS Automation (ATA), Finning (FTT) and Transcontinental (TCL.A); CCL Ind. (CCL.B), Canfor (CFP) and Methanex (MX).

Gold ($1892.30) rose from $1,451 in March to $2,082 in August and has been in a corrective pattern that reached a low of $1,767 on November 30th. The decline reached the exact 1/2 correction level of the March-August rise and brought gold precisely to its rising 200-day moving average. This coincidence suggests that a price turn-around should be close.

Conclusion The market rise from the end of October to last Friday has been aggressive and finds the Indices quite above their respective 50-day and 200-day moving averages. This could result in a minor corrective move. A one-third pull-back for the SPX may see it at 3550 and Toronto at 16,920. Similarly, the securities mentioned above may also experience a one third correction of their recent rise, providing excellent entry points.

Ron Meisels is the president of Phases & Cycles Inc. (www.phases-cycles.com).

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Published at Fri, 18 Dec 2020 16:30:38 +0000