The Technical Analysis Continues

I think it has been 3 weeks since there was a post to this site. The reason for this is that I have moved into a new apartment, and it took some time to get settled in, and to get an internet connection reestablished. Going forward, there will be posts every weekend on this site, at a very minimum.

I left off saying in the previous post that the bearish momentum was being lost, and it looked like demand was starting exceed supply in the gold stocks sector. Here is a daily chart of the HUI that I found interesting:


There were a few posts in December that discussed a potential bearish head and shoulders pattern forming in the gold stocks charts. The above chart shows that interpretation never did come to fruition. However, when the HUI started forming hammers right at a strong support area, I think there was ample warning to cover any short positions, and consider possibly going long.

Furthermore, when gold broke out of the triangle mentioned in the previous post, you knew that going long was the better bet. To be honest though, I did not anticipate such a quick rally in gold. The fact that the triangle unfolded just like everybody suspected it would surprised me, since gold rarely does what everybody is thinking it will, which is why I am always leery of breakouts.

The only area that I played since the last post was the Canadian Energy Sector. I bought shares of an ETF that does twice the daily performance of this sector. The ticker symbol is HEU.to. Here is a daily chart of it:


There are so many great technical patterns that formed in the above chart. I am sure if you just click on the chart, you will see most of them, but what I felt was the strongest piece of evidence, evidence that the bulls were in control of this market, was the island reversal that formed in December. Your cue to exit was the red resistance area and overbought condition formed near the beginning of January.

In terms of where the markets are going to head in the next week, let's have a look at a daily chart of the TSX:


As you can see, the TSX is presently being compressed into an area defined by clear support and resistance. A break below the blue line would be very bearish, but a break above the red zone would be quite bullish. The odds favour a breakout to the upside, in my opinion anyway.

Finally, I think some of the impetus for a TSX breakout will be a resurgence of a beaten down banking sector. Although I never talk about financial stocks on this site, I still think this following chart is interesting:


The above chart is a weekly candle chart of an ETF that follows the Canadian Financial Sector. Although the TSX is heavily commodity driven, in order for the TSX to muster enough strength for a rally, it will still need help from this sector. And by the looks of it, that help might be in the cards for the next couple weeks. I am predicting that this ETF will hold the green support area indicated, which will help the TSX bounce off its support area.