Sunday, January 20, 2008

Charts of the TSX, Oil Stocks, Gold ,and Silver.

Just like every other stock market, the TSX Composite Index was pummeled this last week. I mentioned last weekend that the TSX was being compressed into an area clearly defined by support and resistance. This compressed energy exploded to the downside, which was an event accurately predicted in this blog. Here is a daily chart outlining the damage:

I think that for next week, there is a strong probability of a relief rally. That is generally what happens when the TSX is oversold, and as an added piece of evidence, the index is at potential support. Furthermore, this recent wave down is the same length as the first wave down which commenced at the beginning of November.

I also think that oil stocks could be due for a rally. Here is a chart of the same ETF I mentioned last weekend. These ETFs are so much fun to analyze, since they seem to show human emotion to a greater degree than regular ETFs, due to their 200% exposure:

However, despite a high chance of a bounce this next week or two, one must not ignore the serious chart damage that occurred in this correction. In my opinion, this correction was deeper than usual, and it could be a harbinger of things to come. The following chart is a weekly chart of the TSX. It goes back more than 8 years:

I spent quite a bit of time annotating this chart, so I'll leave it to you to figure it out. I will say that the TSX has always found support at around the 50 week moving average. This did not happen during this recent correction. The indicator at the bottom measures how far the TSX is trading from moving average support on a percentage basis, and is divided into bear and bull zones.

If global equity markets are in fact going into a bear market, then that means that it is a good time to explore alternate asset classes besides stocks. For 2008, the asset class that I think will do the best is physical resources. Not resources stocks, but the actual resources, in your possession.

I have been long term bullish on gold and silver, since I started this blog back in June 2007. Gold has risen more than $250.00 an ounce from that time. And it has a lot further to go. Gold is also finally starting to heat up in terms of the Canadian Dollar. This means that gold's rise is not just a US Dollar story. Silver is also now starting to out-pace gold, which is another sign of a healthy precious metals market:

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