Technically Speaking - June 18, 2015

8/21/2019 Technically Speaking - June 18, 2015

http://slidepdf.com/reader/full/technically-speaking-june-18-2015 1/12

Technically SpeakingJune 18, 2015

Inside this ReportS&P/TSX Composite Index: A Short-term Bounce ButRange Bound Through The Summer ..................... ....2

S&P 500: Stalling Short-term But Remains In A Long-term Uptrend ..............................................................3

WTI Oil Price: Approaching Resistance At The 200-day MA .......................................................................4

Lumber Price: Due For A Pause But Outlook IsImproving ....................................................................5

Copper Price: Oversold And Due For A Bounce ........6

US 10-Year Treasury Yield: Approaching Long-termDowntrend ..................................................................7

S&P/TSX Capped Consumer Discretionary Sector:Remains In A Long-term Uptrend – Accumulate ........8

S&P/TSX Capped Financial Services Sector: TrappedIn A Range .................................................................9

Glossary ................................................................... 10

Important Investor Disclosures ................. ................ 12

Ryan Lewenza, CMT, CFA

SVP, Private Client Strategist

Highlights 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 resistancefrom 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 USFederal 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.



Technically Speaking

June 18, 2015 | of 12

S&P/TSX Composite Index: A Short-term Bounce But Range Bound Through The Summer

Source: Stockcharts.com, Raymond James Ltd.

The S&P/TSX recently 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 MAs.

The index is currently trading at is first support zone of 14,600 to 14,700. With the S&P/TSX nearing an oversold condition and trading at support we are expecting a near

term bounce.

However, a break below the 14,600 to 14,700 range would be bearish and open up the door for a retest of the next support level around 14,400. Key technical support

remains 13,650, which represents the October and December 2014 lows.

Overall, we expect a short-term bounce in the S&P/TSX, but see it trading range bound through the seasonally weak summer.




June 18, 2015 | of 12

S&P 500: Stalling Short-term But Remains In A Long-term Uptrend


The 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.

Currently, the 40-week MA and long-term uptrend intersect around the 2,050 level. As such, we view this as a key long-term level, and we remain bullish with the index

above this key level.

The S&P 500 continues to outperform the S&P/TSX (lower panel) as exhibited by the positive relative strength since 2011. We continue to prefer the US to Canadian equity

markets in part due to this technical trend.




June 18, 2015 | of 12

WTI Oil Price: Approaching Resistance At The 200-day MA


Despite continued high oil production, record inventories levels, and bearish calls by numerous commodity strategists, global oil prices continue to hold up.

WTI has 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,

but we see oil prices trading closer to $70/bbl by year-end, versus closer to $40/bbl as some bearish commodity analysts are calling for.




June 18, 2015 | of 12

Lumber Price: Due For A Pause But Outlook Is Improving


Lumber prices have broken above the short-term downtrend but are quickly approaching the 200-day MA.

With the recent strength (up 24% since May) momentum has become stretched for the commodity.

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, as we

see lumber prices ultimately breaking above the 200-day MA, and moving higher in H2/15.




June 18, 2015 | of 12

Copper Price: Oversold And Due For A Bounce


In our last Technically Speaking report dated May 13, 2015, we stated “copper prices look extended in the short term with an elevated RSI reading. We expect some short-

term profit taking in copper.”

Copper prices have pulled back 12% since that recommendation. As a result, copper prices have now become technically oversold (RSI at 29.22).

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 long-term trend remains negative but we see a trading bounce coming soon.




June 18, 2015 | of 12

US 10-Year Treasury Yield: Approaching Long-term Downtrend


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, with yields set to

climb further.

While we agree that yields could slowly grind higher on the back of US Federal Reserve tightening later this year, we believe it’s too early to make any bold statements

about the end of the 30+ year bull market in bonds.

The key level to monitor on the US 10-year is 2.70%, which is where the long-term downtrend intersects. We would need to see the long-term downtrend broken before

turning more negative on bond prices.




June 18, 2015 | of 12

S&P/TSX Capped Consumer Discretionary Sector: Remains In A Long-term Uptrend – Accumulate


The S&P/TSX Capped Consumer Discretionary Sector remains in a long-term uptrend and above its rising 50- and 200-day MAs.

Its relative strength remains positive, with the sector outperforming the S&P/TSX since August 2014.

The sector remains one of our preferred Canadian sectors and we continue to recommend investors increase exposure to the sector.




June 18, 2015 | of 12

S&P/TSX Capped Financial Services Sector: Trapped In A Range


The S&P/TSX Capped Financial Services Sector has traded range bound between roughly 235 and 255 since H2/14.

Similarly on a relative basis the sector continues to trade in line with the overall market, capturing its neutral relative performance.

Banks and REITs are neutral to negative on a technical basis, whereas lifeco’s have begun to show better relative strength.

Overall, we’re neutral on the financials sector with our preference for the life insurance companies.




June 18, 2015 | 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 security’s 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 TriangleA 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.




June 18, 2015 | 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.

MACDThe 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).

TrendlineA line connecting a series of ascending lows (in the case of an up trendline) or descending highs (in the case of a down trendline).




June 18, 2015 | of 12

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 RJL’s 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 author’s rec ommendations 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

seek advice based on their circumstances. Nor is it an offer to sell or the solicitation of an offer to buy any securities. It is intended for distribution only in those jurisdictions

where RJL is registered. RJL, its officers, directors, agents, employees and families may from time to time hold long or shor t positions in the securities mentioned herein and may

engage in transactions contrary to the conclusions in this newsletter. RJL may perform investment banking or other services for, or solicit investment banking business from, any

company mentioned in this newsletter. Securities offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance products & services offered

through Raymond James Financial Planning Ltd., not a Member-Canadian Investor Protection Fund.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not

guaranteed, their values change frequently and past performance may not be repeated. The results presented should not and cannot be viewed as an indicator of futureperformance. Individual results will vary and transaction costs relating to investing in these stocks will affect overall performance.

Information regarding High, Medium, and Low risk securities is available from your Financial Advisor.

A member of the PCS team responsible for preparation of this newsletter or a member of his/her household has a long position in the securities of BRP Inc. (DOO-T).

RJL is a member of Canadian Investor Protection Fund. ©2014 Raymond James Ltd.

http://www.raymondjames.ca/researchdisclosures




Technically Speaking - June 18, 2015

Documents

Transcript of Technically Speaking - June 18, 2015