For this weeks SIA Equity Leaders Weekly, we are going to relook at the U.S. Equity market and the USD/CAD relationship. Taking a look at a Point and Figure chart of the S&P 500 can give us some more insight into what we might expect moving forward with the U.S. Equity markets and the potential impact of the relationship between the U.S. Dollar and the Canadian Dollar.
S&P 500 Index (SPX.I)
The first two trading days of this week saw the S&P 500 Index move on to new all-time highs. With many forecasts out there for what direction the U.S. Equity markets are moving or will move, the key level to keep an eye on is 6% above the current level at 2027.35, which is the next resistance level on a 2% Point and Figure chart. To the downside, support is found at 1730.33 and around the 1600 level.
Two weeks ago, we looked at the TSX.I (S&P/TSX Composite Index) which has a key resistance level at 15178.32, its prior high from July of 2008. Comparing the two equity markets. the TSX.I has a 2-3% potential move until its next key resistance level while the SPX.I has ~6% move until its next key resistance level. Looking at the history of the S&P 500 Index on a point and figure chart, the SPX.I hasn't had a reversal in a year and a half on a 2% scale making it the longest period of continued strength since 2004 and only matched in March of 2009 where it also had 16 box move to the upside.
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United States Dollar/Canadian Dollar (USDCAD)
In January we mentioned the importance of the USDCAD breaking through its 10 year downtrend line in late 2013, then breaking through key resistance at the 1.0639-1.0745 level early in 2014. In our opinion this is a significant trend change between the USDCAD relationship that saw the USD underperform the CAD for over 10 years, except for a brief period during the 2008-2009 global financial crisis. Looking at this chart today we can see that the USDCAD reached the 1.1294 level before experiencing a 3 box reversal in May. This is the first 3 box reversal for the USDCAD on a 1% chart since Sept 2013. It is currently sitting at its first level of support at 1.0745. Should this weakness continue its next level of support can be found at 1.0534. To the upside, resistance can be found at 1.1294 and again at 1.1521. Over the long term, the continued strength of the USD vs the CAD will have important implications for both the U.S. Equity market and CAD Equity market by adding a tailwind to U.S. Equities and therefore should be monitored closely.
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Feel free to contact the SIA Team at siateam@siacharts.com or 1-877-668-1332 if you would like more information on this analysis.
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