We must keep in mind THE TREND ... always

We are all aware that the market drew a double top in March and April at 14,300 and since then we had two bearish resistance lines with the current one at 13,650 and a brief bullish support line in between. The Point and Figure approach clearly says that the larger trend is DOWN and as of today, this trend can only be reversed with a clear breakout above 13,650 and some convincing technical evolution after that breakout. It's that simple. The chart below shows where we are in the process ...


Please click on the picture for a larger chart

... and there is no doubt that we have been experiencing some sort of summer rally with a shorter term trend that consists of higher highs and lows. Over the past few days however, the market has not been able to move to the next box at 13,500 (a natural resistance area Fib 78.6%) after trading above the 50 and 200 days moving averages. This is because the sectorial rotation has been extremely high during the past week or said another way the hidden internal volatility has been very high. This is not shown by traditional measures of volatility like standard deviation or Average True Range. But it is there. Also, the short term price objective is situated at 13,500 as well. On the surface, all appears to be well except perhaps for measurements of overbought being somewhat high at the security by security level.
We are under the signal of a channel resistance breakout for a score of +3 which is very good but we have become cautious and here is why:


Please click on the picture for a larger chart

This chart may appear somewhat strange at first glance because the price activity of the market (daily candlestick bars) have dissapeared. I have done that because I want you to focus on "the flow" or the swing movements of the market which can be seen by the red and green bands of the ichimoku clouds. This is a hourly chart of the market which you can compare to the earlier chart. At this stage, given that I like to trade the swings of the market (up or down), I would argue that the probabilities favor a resumption of the intermediary down trend. However, my highest probability scenario favors a higher low (higher that the previous low of 12,850 - see P&F chart above) creating a favorable stepping stone for another attempt at breaking that downtrend.

Therefore, we are still in some sort of trading range but we are probably building a strong base before the bulls can think of finally taking over the momentum from the bears.


Pierre Brodeur