Here is the latest instalment, Volume 18, TD Wealth's Technical Take, prepared by Ryan Lewenza, CFA, CMT, Vice President, and North American Equity Analyst.
Volume 18 Highlights
• The S&P/TSX Composite Index (S&P/TSX) has broken above an important resistance level of roughly 14,300, and is quickly approaching its all-time high around 15,000. Given the strong yearto- date (YTD) gain for the S&P/TSX, it is technically overbought on a weekly basis with a Relative Strength Index (RSI) reading of 69. With the index technically overbought (on a weekly basis) and it approaching key technical resistance, we believe the S&P/TSX is likely to encounter a period of consolidation in the coming months.
• The Canadian industrials sector has underperformed YTD, but we believe the technical profile of the sector has improved of late. The sector continues to trend higher in a short-term upward channel, and is trading above its important 50- and 200-day MAs. More importantly, the sector has recently broken above its short-term relative downtrend, which has been in place since December 2013.
• The intermediate- and long-term trends remain firmly bullish for major U.S. indices. As such, we maintain our constructive long-term view of the U.S. equity markets. In the short term, however, some concerning technical trends have started to emerge. These trends, if they persist, could be early warning signs of a potential pullback over the seasonally weak summer period. First, U.S. government bond yields continue to trend lower. Second, the consumer discretionary sector continues to underperform versus the consumer staples sector, a sign of "risk off". And third, the higher beta indices, such as the Nasdaq and Russell 2000 continue to underperform, which points to a clear divergence in the U.S. equity markets.
• In this week’s report, we highlight Cenovus Energy Inc. (CVE-N) and as an attractive buy candidate, and recommend investors trim/sell AT&T Inc. (T-N) and CBS Corp. (CBS-N). Chart of the Week: Bonds continue to rally while higher beta indices continue to trend lower. Does the bond market know something that the stock market does not?
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