The Canadian market – Weekly Comment February 7th, 2010

The Canadian market broke its long term bullish support line two weeks ago and thus we must call the end of this bull market. A very important correction is now going on. We are therefore in a bear market and bear strategies should be privileged until further notice.

We provided timely warning that the uptrend was under attack as signs of distribution surfaced progressively. Later, the point & figure bullish trend line was broken decidedly thus putting this market in a bear mode. But all is not lost at this time because the bulk of investors/traders do not use the same tools as I do for their “market call” and I therefore must respect their beliefs and monitor the market’s reaction to those beliefs.

One of my beliefs, beside the use of P&F for calling market tops and bottoms is the use of the 100 days moving average as my proxy for the long term trend. When this moving average was broken, it confirmed in my mind the bullish line breakdown that occurred earlier. Subsequently, the market rallied back up to this moving average which became resistance and the downtrend resumed.

The TSX 100 days moving average


Please “click” on the image for a larger view

The majority of market participant belief is that the 200 days moving average is the true measure of a long term trend. We must therefore evaluate this indicator and look at the probabilities that it becomes support whenever the market is near that level.

The TSX 200 days moving average


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Using traditional trend analysis, we can identify the current resistance level which was the support level of the 3 days rally: 11,100. We can also see the bottom of the previous correction from 11648 to the low of 10,745. But before we get there we see that famous 200 days moving average which is at 10,915 at the time of this writing. If the majority of investors/traders believe that we are in a long term bull market, then they should start betting on that future by increasing their positions in the 10,800 to 10,900 zone. If this support level holds, we will have had a 10% correction from the top which is near the average bull market correction. If that level of support fails, then we are in for something even bigger on the downside…!

But why write about two slow moving averages which are “far away” (from a short term trader’s perspective) when the TSX was able to trace an intraday double bottom at 11,000 and then proceeded to climb back up above the previous close and more, closing at 11,223.12?

The TSX Short term intraday Point and Figure chart


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From a point & figure perspective, this double bottom was actually a higher low (11,000 & 11,025) and the close above the previous close was actually a short term breakout (11,125) buy signal followed by consecutive higher highs (11,100 & 11,200). The rising 200 days moving average is shown on this chart as a red horizontal line.

The first upswing off the low gives us a projection of 11,300 which is still below the bearish line at 11,525 and the channel score in now a positive +2 which validates the short term uptrend for the short term trader. However, the probabilities are that this is a bounce in an ongoing bear market because of the major influence from the bearish resistance line in this time frame and also on the longer term chart.

The TSX Friday 1 minute chart


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Friday was a reversal day as the bulls took over control near the psychological level of 11,000. As you will see on the longer term point and figure chart below, at the opening we should have a reversal into a column of X + an additional X if the market is able to hold 11,175 or above for the whole day. The more critical level to hold will be 11,150 for a three box reversal. The potential reversal is shown as “X” in a light yellow background in the chart below.

The TSX Long term Point and Figure chart


Please “click” on the image for a larger view

This potential reversal into a column of “X” provides us with a preliminary price target of 11,600 which is well below the bearish resistance line of 11,900. We are still under the influence of a downtrend with lower highs (12.050 & 11,400) and lower lows (11,100 & 11,000) and the channel count is still a -2.

A reversal Monday will convert channel support of 10,450 into a +1 count. First resistance is channel X at 11,300, A breakout to 11,350 will give us a count of +2 validating any double top (11,400) breakout as a serious clue that the bulls have indeed taken over control of this market and there is a potential that the correction might be over because the price target will now be above the bearish resistance line.

But I would like to reiterate my respect for the long term bearish resistance line which is where the bears will start shorting again if the scenario above materializes. There will be tradable rallies but the odds now favor the short side.

Under these conditions, where 12,050 might be the top for many months to come, a trader must adjust both his management of risk and his return expectations by reducing the investment time horizon of all his trades until we see strong evidence that market volatility has been reduced significantly under all time frames. For me, it means that my stops will be tighter and point and figure buy and sell signals will be respected but for short term prospects only.

The level of risk


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The bullish % index is now in a column of “O” closing at 73.76 which is still above the over bought level of 70% and close to a double bottom (74%) breakdown. It is suggesting to me that capital protection strategies should be favored at this time.

Stock Selection.

Everywhere I look this week-end, I see a lot of technical damage stock by stock especially in cyclicals. The bounce from January 28th to February the 2nd has cleared up the determination of the correct downtrend line for a good majority of securities with the January 14th top as the anchor and the February 2nd top as the second valid point on the trend line. Generally, we would need two more days of Friday’s upswing move to break the confluence of this downtrend line and major resistance levels before one could hope for some type of reversal. However, reversals and especially bottoms usually take some time to form and mature into high probability breakouts. As I see it there is the potential that January the 27th was the beginning of a short term accumulation pattern. If I am right, there should be a short term trade opportunity on or near February the 17th. As always, I will be a respectful market observer looking for clues every single day but I will keep in mind that I must protect my capital first and foremost for the foreseeable future.

Have a good week

Pierre Brodeur ( The Word )
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

The Canadian market – Weekly Comment February 1st, 2010

The Canadian market broke its long term bullish support line this week and thus we must call the end of this bull market. At the very least an important correction is expected. We are therefore in a bear market and bear strategies should be privileged until further notice.

On December 7th, 2009, I said

“So what now? Today's action did not resolve anything as buying and selling appears to be mostly in equilibrium. The buying was in low beta sectors and stocks while the selling was in the more cyclical sectors. If you did your homework on sector's relative strength this week-end, you saw that today’s trading was just an extension of the past week or two relative strength trend. Money is shifting towards more conservative assets and since it is the institutions that are doing this, it must follow that they expect some kind of correction and they are positioned for their typical relative strength game. When in doubt, they mumble...! But they can also evaluate the risks very well, and we are in a high risk zone right now with a risk reward ratio which is higher than -3.”

Shortly there after I reluctantly started a major sell program and reduced my long exposure to a few positions. Why reluctantly? I will have to pay income tax on my capital gains and would have preferred to defer that to 2010…

When I came back from vacation January the 17th, I said:

“This market is at a level of valuation that has not been seen in this chart’s previous past. A level of 84% is quite high and I don’t believe buying at these levels. I think one need to be bullish over the longer term but current valuations and risk levels do not justify any entry in the near term. Patience is the order of the day.”

An autopsy of my Canadian stock universe shows 55.7% of stocks in oversold territory while 81.7% are currently in a short term downtrend, 11.7% in an uptrend and 6.6% are trying to reverse their current short term trend. Trying to be brave and purchasing value is like catching a falling knife: this is very dangerous as I experienced this week while the market was sitting on the long term bullish line. Now the optimal strategy is to wait for signs of a bottoming process. A long time ago I learned that it is better to be a little late that too soon. In the meantime, selective short strategies are in order.

Right now one can feel the level of anxiety of the crowd increasing with every passing day. Bids are being hit as some people want to exit their positions at any price. We now have downward exponential price changes. It reminds me that when selling, it is better to be early when the evidence points to some distribution and late when evidence points to accumulation. When you are trading, there is no rush to purchase in anticipation of the next buy signal. That, sometimes, is my worst mistake. With time, I have disciplined myself to wait for the signal perhaps losing a few % gains but at least capturing the real new trend. Right now, the trend is DOWN and we should all respect it even though the value indicators confirm extreme oversold levels. We should be on high alert for a short term trend reversal to up but we should never jump the gun… My preferred tool for monitoring trend reversals to up and confirming them is looking at levels of resistance from “pivot analysis”. I recently was made aware of a new pivot tool (pivot calculator available at http://www.effectivevolume.eu/ , for a donation to a charity) developed by a fellow called Billy who came up with the idea of “confluence of periodic support and resistance level”, a major improvement to what I was doing in my trading which was to look at daily pivot levels only. My workbook support and resistance levels now incorporated these estimates when they provide me with a better estimate than point and figure charts do.

The TSX Short term intraday Point and Figure chart January 29th, 2010


Please “click” on the image for a larger view

There is no evidence of a bottom yet as the market is still trying to find its last bottom. There is no upward price objective yet. However, our second down price objective is 11,050 which is a clue that we may be near that short term low.

We are at the Fibonacci 38.2% retracement level which is also the -8% correction level from the top. Our channel resistance is currently 11,175 and a breakout would give us a direction count of +1. Further back and forth would be required to provides us with a +2 count required to hope for a bottom.

Canadian Sectorial Relative Strength.

The Canadian market is strongly influenced by cyclical sectors and most of then are experiencing a lot of relative strength pressure as institutions have been exiting at any price. Relative strength volatility is now very high. For example, this past Friday, in the morning Energy, Gold & Materials reversed their bearish status and lead the market up until 10:30. But then after that they reversed back into their bear mode and given the way Point and Figure “eliminates the intraday noise”, this reversal will only appear next Monday if these sectors do not improve.

The defensive sectors are doing well. Real Estate, Utilities, Financials, Consumer Staples and Telecommunications are money losing investments in absolute terms but are doing well in relative terms.

Have a good week

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

The Canadian market – Weekly Comment January 24, 2010

The following comments are made in the most important context of a full fledged long term bull market trend.

The cat came out of the bag. Finally, it’s all about Bernanke…!

http://www.nytimes.com/2010/01/23/business/economy/23fed.html?hp

From time to time I do read “fundamental” information but most of the time it’s too late. I prefer to look at market prices. They don’t lie. For many years, I used the fundamental approach and got tired of being behind the parade. Then I started using technical information (in the closet) and for a long time I was using it the wrong way. One day it all came together when I decided that I had to get rid of my Fundamentalist training and start listening to the markets. The biggest mistake that I made was to think that what I thought about the market or a stock should happen in the future because I knew better than the market. The market does not care about me and you. It will go its own way and if I think as a fundamentalist or an economist, I will be wrong most of the time and I will be late all the time.

This week, I would like to focus on the long term TSX Composite box 50 Reversal 3 chart. By now the whole world knows that we are in a short term down swing. The main question is will it last? If you are a fundamentalist, you never saw it coming. If you are a technical analyst you may have become bearish Thursday or Friday. But is it time to short now that the trend is down? The correction was so swift that almost every asset is now in deep oversold territory. Not the time to short unless there is further evidence that this correction is going to be a major one. What does the chart say?

The TSX Long term traditional Point and Figure chart


Please “click” on the image for a larger view

The trend

The long term trend is still up given that the bullish support line which is anchored on the March 2009 low is still below all price activity. It now lies at 11,250 which is about 90 points below where the market closed this past Friday. This kind of situation did happen before when the market closed at 10,750 while the bullish support line was at 10,650 (please look at the Red Circle with the red arrow). With hindsight, it was a great buying opportunity and it can happen again if the market estimates that the world will see better times ahead! As I said last week, should this trend line be crossed, the odds increase that we will live a much more severe correction. If I were you, I would focus on Monday’s activity in search of clues as to the future of this correction.

What we have now is a lower bottom after our first P&F sell signal but we still have a higher high. The last time we had a signal near the trend line we had a bear trap where the shorts got squeezed. I would not be surprised that we see a reversal back to a column of X next week followed perhaps by a confirmation of a bottom near 11,350 or above. But that is speculation on my part…In any event, an entry near current levels with a stop just below the trend line appears to be a low risk entry. Of course a trend breakdown would be another story…

Moving Averages - Negative

A few days ago both the 20 days and 50 days moving averages started a decline. In their own ways, they will now be “moving” resistance on this intermediary decline. Things started to get sour when the 50 days moving average (the proxy for an intermediary trend for many) could not act as support. What bothers me more is that the 100 days moving average which is my proxy for the long term trend has been broken as well. If we don’t get a reversal before a trend line breakdown, things will get ugly indeed. There is always Fib 38.5% (11,100) and Fib 50% (10,800) and the 200 days moving average at 10,800 but I don’t want to be there if that happens.

Valuation

How things change in just one week! In our Canadian stock universe, we now have 47.5% in the oversold zone while only 8.2% are in the overbought zone. In general, this valuation trend appears to be accelerating perhaps because of the increase crowd fear that I am measuring currently. For example, if you calculate the rate of price change and weight that by the 60 minutes volume change, you will measure the acceleration of crowd fear. You do not want to be a bold value trader/investor as the probabilities are still suggesting that you may be picking up a “falling knife”. Only when this rate of change decelerates into a flat status will you conclude that most of the sellers out there have done their thing. Patience, patience, patience as we wait for market prices to come to us.

This approach to the purchase of securities is quite conservative and is based solely of the principle of “listening to the market”. Only those pros with superior information can try to pick the stock bottom, a very risky strategy.

Another way of looking at valuation and applying the art of evaluating the proper support and resistance areas for each security is to use the Fibonacci retracement levels to estimate the likelihood of a bottoming process. I have looked at a lot of charts this week-end and what stands out is that a good proportion of cyclical stocks have gone trough their Fib 61.8% retracement level which would suggest that the probabilities are very high that the bottoming process will not begin at least until these stocks reach the bottom of the previous uptrend which occurred in the first half of December 2009.

Conclusion.

There may be a few good trading opportunities either long or short after many weeks of sucking my thumb with a lot of cash in the bank after taking my profits as the market was telling me. There is no doubt that we are near a critical point, again, for this uptrend and you now know as well as me what to look for this next week. If we get a breakdown, we have to respect that although as I have said many times, the breakdown will be too far from the double bottom breakdown (11,400) so that a confirmation will be required in the form of a failed reversal to X followed by another double bottom breakdown. After that going short will definitely make sense.

The alternative is a resumption of the uptrend which is possible but now viewed as a shorter term trading opportunity only. This market is tired and needs to take a rest.

Have a good week

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

The Canadian market - Weekly Comment January 17, 2010

The following comments are made in the most important context of a full fledged long term bull market trend

I really needed a vacation. As I started looking at the market this past Friday, I noticed that on December 15th I left a message that I would be back on my desk January 18 2009. I wish I could come back in time and never age. But then coming back to last year with the accumulated knowledge of the past year would make me a billionaire. I wish…

I read a few books during the past month but the one that struck me the most was “Your 5-step trading plan workbook” by Vadym Graifer who also authored “Techniques of tape reading”. What I learned there was that there are as many “types” of traders as there are people in the World. And thus my efforts in generating a workbook with trading ideas probably does have much value to others because we are all unique individuals with our own idea of value, growth and momentum.

So I might just stick to publishing Canadian market timing analysis on the blog and let the reader monitor the stock picking. What do you think?

The TSX Short term intraday Point and Figure chart January 15th, 2010


Please “click” on the image for a larger view

It is quite clear that the intraday chart shows a very short term downtrend which will only potentially get worse after a break of the bullish support line (11,625). Further weakness towards the channel support and the 50 days moving average near 11,575 would even the risk reward trade off and perhaps encourage me to nibble again since a large part of my portfolio is in cash equivalent. But I am unwilling to short this downswing for the time being.

Now let us look at the longer term chart.

The TSX Long term traditional Point and Figure chart


Please “click” on the image for a larger view

There appears to be a lot of support near current levels but again I am unwilling to move into equities near the top of this widening trading range. Near the middle where support gets stronger (11,450) and the trend line (11,250) are the areas of potential accumulation. I would only short on a failed reversal to a new column of X which would confirm in my mind that a secondary correction is on its way.

All in all, there are times where one must be patient and wait for opportunities. Momentum has waned and it is not the time to be bold and taking risks that could not be compensated. Our target in the 12,000 has been reached and many stocks are plain overbought.

Canadian Sectorial Relative Strength.

The following sectors are currently in an uptrend as far a relative strength (RS) is concerned:
Energy – Industrials – Real Estate – Technology – Consumer Discretionary – Consumer Staples.
Generally, this is where one should focus our stock picking for the following week, all other things being equal… and they are not!

The following sectors are currently in a downtrend as far a relative strength is concerned:
Gold – Financials – Materials (which are strongly influenced by Gold)

This past Friday, Mines and Metals and Utilities both reversed their downtrend. However the message of the market is not yet clear on these two sectors as one could be labeled aggressive while the other is quite defensive. During the week, the Telecommunication sector has been going through a slow reversal from an uptrend to a downtrend.

Note: You can monitor the sectorial RS in my workbook as I update the data on a daily basis. Why? My investment process is sequential as I look at these factors every day in the following sequence:

-1- The market – As a swing trader, I need to determine the most probable course of the market for the next 5 to 7 days. Right now the odds favor a continuation of the ST downswing.
-2- The sectors – I only want to add positions that will out-perform the market on a industry basis.
-3- The stocks – I will only purchase anything if items 1 and 2 are positive. In fact, I use different set-ups in my stock picking model depending on the conditions of item 1 and 2. I can go from value to growth to momentum and typically will have six (6) types of trades that I will look at: Deep Value – Value – Short Term trend Reversal – Momentum – Short Term Reversal and Value combined – Value and Momentum combined.

Note: Once a day, I show the various stocks attributes that I am considering for trading in my workbook.

Stock Selection.

This week-end, we have identified only three potential trades for Monday but our level of confidence is quite low on these.

Risk.


Please “click” on the image for a larger view

This market is at a level of valuation that has not been seen in this chart’s previous past. A level of 84% is quite high and I don’t believe buying at these levels. I think one needs to be bullish over the longer term but current valuations and risk levels do not justify any entry in the near term. Patience is the order of the day.

Have a good week

Pierre Brodeur (The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

I will be back January 18 2009

We have entered the period where trading activity and opportunities are well below average. I will be on vacation from December 20th 2009 to January 17th, 2010 inclusive. I will be experiencing coconut trees and salted water rather than shoveling snow and freezing every time I go out with the dogs.

The updates on the blog, twitter and the google workbook will be few if any and I will definately resume the research machine Monday morning January 18, 2009.

In the meantime may I wish you and your family



and a

The Canadian market – Quick Comment December 7, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

Monday December 7th, 2009 is an interesting day for the short term trader as one can observe the battle between supply and demand and its impact on the future.

I try to update the intraday chart as necessary which is typically once a day during normal days. But today is not a normal day because the trend could threatened and on those days I follow the market’s progress like a hawk.

Here is that evolution as it is going on:

The TSX Short term intraday Point and Figure chart December 4th 2009 Close


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The TSX Short term intraday Point and Figure chart 10:15 AM


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The TSX Short term intraday Point and Figure chart 11:10 AM


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The TSX Short term intraday Point and Figure chart 13:15 PM


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The TSX Short term intraday 60 minutes chart 14:50 PM


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The TSX daily 3 months chart 16:00 PM


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So what now? Today's action did not resolve anything as buying and selling appears to be mostly in equilibrium. The buying was in low beta sectors and stocks while the selling was in the more cyclical sectors. If you did your homework on sector's relative strenght this week-end, you saw that todays trading was just an extension of the past week or two relative strenght trend. Money is shifting towards more conservative assets and since it is the institutions that are doing this, it must follow that they expect some kind of correction and they are positionned for their typical relative strenght game. When in doubt, they mumble...! But they can also evaluate the risks very well, and we are in a high risk zone right now with a risk reward ratio which is higher than -3.

The confirmation of a trend change to down has shifted from a double bottom breakdown of 11,400 to a double breakdown of 11,425. That's all what today's activity did. I am 41.5% long, unhedged and waiting for the market to tell me what to do...

But I was not totally inactive as I converted my short market position into a longer term value play XIT, the Technology iShares. The reasons for that trade are, as always, explained in my Google workbook.

I hope this piece gave you a window on the day of a swing trader.

Pierre Brodeur ( The Word)
therealword@gmail.com

The Canadian market – Weekly Comment December 6, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

Living through a consolidation period is always difficult for a trader or an investor because there is always enough evidence for the bull or the bear case and making the right choice is far from being simple.

A trading range is a period when the market is in general equilibrium. The Bulls will buy near the bottom of the range while the Bears will sell near the top and that will go on until one side decides to flex its muscles and make a major statement usually based on the expectation of better or worse times ahead.

If you follow my daily updates of my TSX intraday chart on the blog web site, you can monitor the evolution of the “thinking” of short term traders and follow the critical variables that make up the risk and return template that will have an influence on your very short term trading. This week I will show you what the market looked like at the close Thursday and what I had to say then and how it looks like now.

The TSX Short term intraday Point and Figure chart December 3rd 2009


Please “click” on the image for a larger view

For the past two weeks now, we have been somewhat cautious about the short term potential of this market especially as the market was reaching the top of the range. Like the pro-traders of this world, I adopted the same behavior of tightening my trailing stops when the market broke out of the broadening formation on a third channel breakout [FG-85]. When the market failed to breakout from the double top at 11,800, I received a -1 signal at [FI-72] on the reversal to a double bottom of 11,725 [FJ-86]. When the breakdown came at [FJ-87] with a score of -2, it was clear to me that risk management was the key for the next few days at least. I let my stop loss methodology take over and from a 80% long position Thursday morning, I ended up with a 41.5% long position which is fully hedged as of Thursday night.

Why am I not 0% long and 100% cash will you ask? Because this is based on a very short term view of the market and thus my “Trading portfolio” is affected by this signal and not my “Investing portfolio”. Furthermore, no bullish support line has been broken yet!

The major clue that the market gave me Thursday was a disequilibrium warning (orange rectangle) which is always (75% of the time is almost always) resolved in the direction of the trend. But what is the trend? At that point, we should expect the trend to be positive because the bullish support line is the trend and the risk return ratio based on the thrust of the bulls and the bears is 10 to 1 at the close.

Now we go to Friday’s close chart and we need to figure out our strategy for next week. We shall look at the intraday chart first and then the longer term view.

The TSX Short term intraday Point and Figure chart December 4th 2009


Please “click” on the image for a larger view

The first thing to notice is that the market bounced off the bullish support line at 11,425 for the second time at FJ-99 (the first time was at 11,300 [FD-103]). We now have three observations on that line and the more we will have, the more significant this support line will become. There are a few comments I want to make on the status of the market based on this chart:

-1- BUY LOW means taking a position near the bottom of the range which is near 11,300 or in this case at the first significant support level which is the bullish support line at 11,425. In terms of trading, this means that I sold one half of my downside protection and increased my low beta holdings ( low volatility and generally high current yield ) with the expectation that if support does not hold, the relative strength of these holdings will be positive in a downtrend. By the way, you should never average down and always average up. In other words, all my additional high yielding positions were bought at the beginning of this bull market, are in a confirmed uptrend and have a positive relative strength. I never add to losing positions which by definition evolved into a downtrend. I always get rid of my mistakes.

-2- The market broke out above my channel resistance at 11,500 [FK-95] generating a +1 signal which is not enough to become positive on this reversal which only has a potential of 11,725 (vertical projection of +9) at this time. That’s because there is still the risk that we experience a breakdown next week with a reversal back to support at 11,425 and then a breakdown which would be a confirmation of a new short term downtrend. In this case, we should add the ½ hedging position + select sectorial short bets based on the industries which are experiencing the worst short term relative strength. You should be prepared for such a scenario and your “Sunday Research” should be to investigate the relative strength of Canadian sectors over the past one to two weeks…!

-3- On the other hand, there are two other scenarios which must be evaluated.:

-a- The continuation of the current upswing back up does not do anything for me because I will only make money on what I own currently as I will not add any positions based on a +1 breakout signal based on this chart. In order to come back into the market, I need more evidence, and that is provided by the long term chart which we will evaluate later. Just remember that I will “solve” the opportunity to buy more positions based on the LT chart later.
-b- The ideal scenario from a trader’s perspective is a reversal back to a column of “O” without a double bottom breakdown at 11,400 and then a double top breakout. That would convert the channel support of 11,150 [FL-109] into a +2 bullish signal and the subsequent breakout would change the trend and resolve the market disequilibrium that was still present at Friday’s close.

So there is still hope that this uptrend will be sustained in the near term. However the risks have increased: The vertical price projection based on the downswing to a low of 11,425 is currently 10,675 [FJ-128].

We have a rising Wedge formation

http://en.wikipedia.org/wiki/Wedge_pattern

which has negative price implications if broken.

My trend indicator is still suggesting that the probabilities are for a market that will stay in a trading range at least until the end of 2009.

Volatility as measured by the average true range of the TSX has been increasing during down days and decreasing during up days which says that fear has been increasing on the margin.

All in all, I believe the balance of the evidence is bullish until the market tells me otherwise. The rising 50 days moving average and the Fibonacci 50% retracement level should do their job of arresting this downtrend and keeping this market in a trading range. If they do not, look out below…

Now let us look at the longer term chart.

The TSX Long term traditional Point and Figure chart


Please “click” on the image for a larger view

That chart does not look too bad at all. It provides hope…

-1- Obviously, level 11,300 which is in the middle of the trading range is the key especially since the 50 days moving average and the Fibonacci 50% retracement level are its neighbor.

-2- We are currently under a +1 channel signal [FB-79] and on a reversal into a column of “X” in column FD, the channel support at [FC-82] would be converted into a +2 signal which would signal a new uptrend ( higher highs followed by new higher lows), which is enough to build new long positions or add to existing winners. So the key level to watch this week is 11,600 if the market does not print another “O”.
A new “O” at 11,400 would make 11,550 the key level. A subsequent “O” at 11,350 would provide a -1 channel signal, and lower the vertical price projection to a level were the risk return tradeoff would be unattractive and suggesting the management of risk rather than the pursuit of higher return.

If you have read all the way to this point, you are patient and courageous and should send me an e-mail as you are really a student of trading with point and figure charts. Trading is really quite simple if you think about it. It just requires a lot of dedication to research, scenario building and discipline.

A word about stock picking.

One of the criticism of Point and Figure analysis and charting is that it only looks at price and not volume. I have mentioned numerous times that it is the best tool to develop strategies and today’s report is a good example of that. But I don’t live in a vacuum. I have my own set of indicators which provide me with the information that I need to develop the tactics once my mind is set on the goals to achieve. As many of you know, I have used and adapted J. Welles Wilder Jr’s work ("New Concepts in technical trading systems") to support my research in the P&F world. Average True Range, The Relative Strenght Index (RSI) not to be confused with relative strength, and the Directional Movement index (ADX) are indicators that I have improved and use daily for my stock picking and market timing process. I also use Accumulation/Distribution in a 60 minutes timeframe and On Balance Volume for Daily and Weekly Timeframes.

One book that I read a long time ago was Stan Weinstein’s “Secrets for Profiting in Bull and Bear Markets". There are a few nuggets in that book which have had an influence on the way I view stock opportunities and manage my risk. Many times in the past I have mentioned that I don’t touch stocks in a Bull market that are under the influence of a bearish resistance line. The stock that comes to mind right now is Reasearch in Motion. But there are others and from my stock universe, here is a list of stocks to avoid as of Friday December 4th 2009:


Please “click” on the image for a larger view

If you are going to touch any of these stocks perhaps because you see value, be aware that the risks overwhelm the potential rewards of the trade and thus a serious and tight stop loss is required especially if the stock is not very liquid.

Have a good week

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.