In our discussion about warning bars, we did not have a look at the TSX composite index. Though the TSX composite has moved higher generally in sync with the popular U.S. market averages, its performance has been held back by the heavy exposure to resource issues such as metals and oils. The chart below by the stockcharts.com people shows this clearly.
Surprisingly, while the TSX has lagged recently, it has still managed to outperform the NYSE composite. We’ve shown that the Dow, S&P and Nasdaq indices have printed potentially bearish bars last week, or at least point to some kind of pause in the long uptrend. The Friday closing bar on the TSX chart shows something a bit more ominous. From the chart we note that the downward direction of the black line points distinctly weaker than that of the other indices.
While the index did manage to peek above the highs established about 3 years ago, the follow through left lots of uncertainty as to the conviction of the breakout. More specifically, our famous purple ellipse shows a classic bearish engulfing candle. We can see that on the last bar, prices start off strong continuing the previous bar but closes below the low of the previous bar. This has distinct bearish implications and accordingly, we expect that the TSX will move lower over the coming weeks.
It’s important to re-iterate that this set of bars is a warning flag only. The other momentum indicators still have yet to turn forcefully bearish. But, like Tesla discussed earlier, when prices press against an area of obvious resistance (or support), the behavior of price bars at those areas are of increased significance and bear watching closely for a possible trend change.