Ryan Lewenza: Technically Speaking (April 21, 2016)

Technically Speaking (April 21, 2016)

by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James

Highlights

§ The S&P 500 Index (S&P 500) is approaching its all-time highs around the 2,130 level, which we believe could provide stiff technical resistance. Adding in the fact that the S&P 500 is technically overbought with an RSI reading of 67, and the percentage of stocks in the S&P 500 above their 50-day MAs at 91%, we believe the S&P 500 is overdue for a short-term pause/pullback.

§ Market breadth, which refers to the level of market participation, has significantly improved since the February market lows. For example, we have seen a marked improvement in the number of new highs to new lows and the Advance/Decline (A/D) line for the NYSE has improved significantly. In fact, the NYSE A/D line has made a new high, which is a bullish confirmation of this recent rally.

§ Since breaking out from its year-long downtrend in March, the S&P/TSX Composite Index (S&P/TSX) has continued to trend higher in an upward channel. With the 18% rally since the January lows, the S&P/TSX has become overbought with an RSI reading of 72. Additionally, the S&P/TSX is now trading at an important technical resistance level of roughly 14,000. Given that the S&P/TSX is overbought and at an important technical level, we see the potential for a near-term pause/pullback.

§ The CRB Commodity Index has broken out from this long-term downtrend. Given this important technical development we have become more constructive on commodities, with the improving technicals being one factor in in our upgrade of the S&P/TSX Materials sector on March 18.

§ In the short term, oil prices are technically overbought and we note a “momentum divergence” which suggests the potential for some near-term weakness. On the expected pullback, WTI needs to hold the important support range of US$36/bl to US$37/bl, or the rally could be at risk. Overall, we are getting more bullish on oil prices, but see the potential for some near-term profit taking.

§ The US Dollar Index (DXY) has fallen from 98.60 in March to 94.47 currently. It is now trading at key technical support around the 93 to 94 level. As a result of the weakness the DXY is now oversold. With the DXY oversold and at support, we see the potential for a move higher.

§ The S&P/TSX Capped Energy Index broke above its downtrend in early March. In recent days it has broken above its 200-day MA. In the near term we see the potential for some profit taking given the recent rally, but we would use weakness to increase exposure. We believe the worst is behind the sector.

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Technically Speaking - April 21, 2016

Copyright © Raymond James

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