Technically Speaking

September 22, 2015

Inside this Report

Highlights

S&P/TSX Composite Index: Additional Consolidation

before Late-Year Rally................................................2

S&P 500: Breaks Down From Long-Term Uptrend ....3

Dow Jones Industrials and Transports: Dow Theory
Sell Signal Triggered on Recent Sell-off ..................4
Gold Price: A Higher Low but Needs to Break Above
Its Downtrend .............................................................5

Canadian Dollar: Looking For a Bounce .....................6

S&P/TSX Capped Telecommunications Services
Index: At Key Resistance ...........................................7

S&P/TSX Capped Energy Index: Remains In A Longterm Downtrend ..........................................................8

Glossary .....................................................................9
Important Investor Disclosures .................................11

Ryan Lewenza, CMT, CFA

SVP, Private Client Strategist

While our belief is that the S&P/TSX Composite Index (S&P/TSX) will stage a late-year rally with seasonality
turning bullish in October, the price action for the S&P/TSX remains negative, and as such, we maintain our nearterm cautious view. For us to get more bullish on the Canadian equity markets we believe the S&P/TSX needs to
break above the 13,800 to 14,000 range.
Looking at the S&P 500 Index (S&P 500) from a longer-term perspective, we note that the S&P 500 has broken
down from its long-term uptrend, and is trading below its 40-week MA. Clearly, S&P 500s technical profile has
deteriorated, which has us on high alert of a potential trend change. Our base case view remains that the recent
weakness is simply an overdue correction rather than the start of a new bear market.
Another important technical development following the steep August decline is the recently registered sell
signal according to Dow Theory. Like our Chief Investment Strategist, Jeff Saut, we are giving the equity market
the benefit of the doubt, believing the equity markets will re-accelerate, thus providing a false sell signal,
similar to what was experienced in the flash crash of 2010. However, should the Dow Jones Industrials and
Transports break below their August lows of 15,666.44 and 7,466.97, respectively, we will then change course,
honoring the sell signal and likely adjust our technical view.
The technical profile of gold has recently improved with the commodity experiencing a higher low and is
trading above its 50-day MA. However, gold remains in a long-term downtrend, and below its declining 200-day
MA. For us to get more bullish on gold we would need to see it trade above US$1,150/oz (short-term
downtrend) and US$1,181/oz (200-day MA).
We have been consistently bearish on the Canadian dollar for some time due to its weak technical profile and
our cautious view of commodities. However, in the short term we see the potential for a countertrend rally.
After a short-term bounce however, we expect the long-term downtrend to continue, and we see the potential
for the CAD dollar to decline to low $0.70s.
The technical profile for the S&P/TSX Capped Telecommunications Index continues to improve, with the sector
outperforming the broader Canadian market since May. Given the continued improvement in the sector we
recommend investors add to or establish a position in Telus Corp. (T-T).
The technical profile of the S&P/TSX Capped Energy Index remains negative with the sector below key MAs and
in a relative downtrend. For us to get more constructive on the sector we need to see the sector break above
180 to 190 and break above its long-term relative downtrend.

Technically Speaking

September 22, 2015 | Page 2 of 11

S&P/TSX Composite Index: Additional Consolidation before Late-Year Rally

Source: Stockcharts.com, Raymond James Ltd.

Following the S&P/TSXs sell-off in late August, the index has been consolidating in a short-term trading range of roughly 13,400 to 13,850.
While our belief is that the S&P/TSX will stage a late-year rally with seasonality turning bullish in October (October to May is the strongest seasonal period for equities), the
price action for the S&P/TSX remains negative, and as such, we maintain our near-term cautious view.
For us to get more bullish on the Canadian equity markets we believe the S&P/TSX needs to break above the 13,800 to 14,000 range. This range represents the convergence
of: 1) the 50-day MA (14,023); 2) the intermediate downtrend; and 3) the top end of the Ichimoku cloud.
The Ichimoku cloud is a trend following technical indicator which currently confirms that the S&P/TSX is in a downtrend. The S&P/TSX would need to rise above this cloud
(13,726) for the trend to change from a downtrend to an uptrend.
Overall, our expectation is for further range bound trading through September and early October, before rallying in November/December. A break below the August low
(12,705) would negate our year-end rally thesis.

Technically Speaking

September 22, 2015 | Page 3 of 11

S&P 500: Breaks Down From Long-Term Uptrend

Source: Stockcharts.com, Raymond James Ltd.

Looking at the S&P 500 from a longer-term perspective, we note that the S&P 500 has broken down from its long-term uptrend, and is trading below its 40-week MA.
Clearly, S&P 500s technical profile has deteriorated, which has us on high alert of a potential trend change.
Our base case view remains that the recent weakness is simply an overdue correction rather than the start of a new bear market. Supporting this view is our Elliot Wave
interpretation. Elliot Wave, a branch of technical analysis, posits that markets trade in consistent, five wave patterns, with wave 3 always being the longest. As indicated on
the chart, we believe we are currently in wave 4 (a corrective pattern), which if correct, suggests another move higher, representing wave 5. Additionally, we note that
seasonality will soon turn positive into year-end.
We view 1,820.66 as a key technical level. This represents the October 2014 lows, and should the S&P 500 fail to hold this level in the coming weeks and months, then this
would result in a lower low which would likely cause us to re-evaluate our bullish long-term technical view.
Finally, we note that the S&P 500 continues to outperform the S&P/TSX (lower panel), which validates our continued preference for US stocks over Canadian stocks.

Technically Speaking

September 22, 2015 | Page 4 of 11

Dow Jones Industrials and Transports: Dow Theory Sell Signal Triggered on Recent Sell-off

Source: Stockcharts.com, Raymond James Ltd.

Another important technical development following the steep August decline is the recently registered sell signal according to Dow Theory.
Dow Theory posits that the Dow Jones Transports need to confirm the Industrials and when both the Transports and Industrials make new lows (in this case below the
October 2014 lows), then a sell signal is triggered, signaling a change in the primary trend of the market. This occurred in August, which has us on alert.
Like our Chief Investment Strategist, Jeff Saut, we are giving the equity market the benefit of the doubt, believing the equity markets will re-accelerate, thus providing a
false sell signal, similar to what was experienced in the flash crash of 2010.
However, should the Industrials and Transports break below their August lows of 15,666.44 and 7,466.97, respectively, we will then change course, honoring the sell
signal and likely adjust our technical view.

Technically Speaking

September 22, 2015 | Page 5 of 11

Gold Price: A Higher Low but Needs to Break Above Its Downtrend

Source: Stockcharts.com, Raymond James Ltd.

The technical profile of gold has recently improved with the commodity experiencing a higher low and is trading above its 50-day MA.
However, as we discussed in our last technical report, gold remains in a long-term downtrend, and below its declining 200-day MA.
For us to get more bullish on gold we would need to see it trade above US$1,150/oz (short-term downtrend) and US$1,181/oz (200-day MA).

Technically Speaking

September 22, 2015 | Page 6 of 11

Canadian Dollar: Looking For a Bounce

Source: Stockcharts.com, Raymond James Ltd.

We have been consistently bearish on the Canadian dollar for some time due to its weak technical profile and our cautious view of commodities. However, in the shortterm we see the potential for a countertrend rally.
Since August there has been a developing momentum divergence. Momentum divergences refer to a divergence in price and momentum, where momentum continues to
improve (i.e. higher highs on the momentum indicator) while price continues to weaken. Often these divergences precede changes in trend.
We see the potential for the CAD dollar to rally in the short term, possibly back up to $0.79/US to $0.80/US, which represents the convergence of the 100-day MA
($.7881/US) and the long-term downtrend.
After a short-term bounce however, we expect the long-term downtrend to continue, and we see the potential for the CAD dollar to decline to low $0.70s.

Technically Speaking

September 22, 2015 | Page 7 of 11

S&P/TSX Capped Telecommunications Services Index: At Key Resistance

Source: Stockcharts.com, Raymond James Ltd.

The technical profile for the S&P/TSX Capped Telecommunications Index continues to improve, with the sector outperforming the broader Canadian market (lower panel)
since May.
The sector however continues to face stiff price resistance in the 132 to 135 range. With momentum improving, and the sector showing strong relative strength, we believe
the sector could soon break above this price resistance zone, and go on to make new highs.
Another positive we see for the sector was the strong volume on Friday September 18, which occurred on the same day that the S&P/TSX posted its largest volume on a
down day in months. This suggests to us a rotation into the more defensive telecom sector.
Given the continued improvement in the sector we recommend investors add to or establish a position in Telus Corp. (T-T).

Technically Speaking

September 22, 2015 | Page 8 of 11

S&P/TSX Capped Energy Index: Remains In A Long-term Downtrend

Source: Stockcharts.com, Raymond James Ltd.

The technical profile of the S&P/TSX Capped Energy Index remains negative with the sector below key MAs and in a relative downtrend (lower panel).
For us to get more constructive on the sector we need to see the sector break above 180 to 190 and above its long-term relative downtrend.

Technically Speaking

September 22, 2015 | Page 9 of 11

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.

Technically Speaking

September 22, 2015 | Page 10 of 11

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).

Technically Speaking

September 22, 2015 | Page 11 of 11

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
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 short 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 future
performance. 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.
RJL is a member of Canadian Investor Protection Fund. 2015 Raymond James Ltd.