Technically Speaking - July 16, 2015

8/20/2019 Technically Speaking - July 16, 2015

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Technically SpeakingJuly 16, 2015

Inside this ReportS&P/TSX Composite Index: Range Bound Throughthe Weak Summer Period ..........................................2

S&P 500: Back at Short-term Resistance ............... ....3

STOXX Europe 50: Found Support at 200-day MA.Increase Exposure .....................................................4

Gold Price: At a Critical Technical Level.....................5

Lumber Price: Add on Weakness ................ ...............6

S&P/TSX Capped Energy Index: At an ImportantTechnical Support Level ................ ................. ............7

S&P/TSX Capped Telecommunications ServicesIndex: Overbought and Due for a Pause ....................8

Glossary .....................................................................9

Important Investor Disclosures ................. ................ 11

Ryan Lewenza, CMT, CFA

SVP, Private Client Strategist

Highlights The S&P/TSX Composite Index (S&P/TSX) is trading in a short-term downtrend and is approaching both the 50-

and 200-day moving averages (MA), which we expect to provide technical resistance. With weak momentum,

stiff overhead resistance and negative seasonality through the summer we are not expecting much upside in the

near-term. Overall, we expect the S&P/TSX to trade range bound between 13,700 and 15,500 through the weak

seasonal summer period.

The S&P 500 Index (S&P 500) rallied off the 200-day MA following news of a possible Greek bailout deal and isapproaching short-term resistance around the 2,130 level. Since February, the S&P 500 has traded in a tight

range of 2,045 to 2,130. For us to get more bullish in the short term we would need to see the S&P 500 break

above 2,134.72 (May high), thus breaking out of this well-defined trading range.

European stocks significantly outperformed in Q1/15, but then succumbed to selling pressure in Q2/15 due tofears of a Greece debt default. With the STOXX Europe 50 Index remaining above its 200-day MA, and seemingly

a Greek deal being finalized, we believe investors should look to increase exposure to European equities.

Despite the recent negative headlines of a potential debt default in Greece and Puerto Rico, the price of gold hasfailed to rally and is now testing a critical support level at US$1,140/oz. We believe gold needs to hold the critical

level of US$1,130/oz to US$1,140/oz, or it risks falling significantly from here, with the next technical support

level coming in around US$1,000/oz.

In our June 18 report we correctly called for lumber prices to pull back in the short-term given the overboughtcondition. With the lumber price down 5% since that recommendation we would look to add exposure to the

industry on this weakness.

The S&P/TSX energy sector has pulled back since its oversold bounce in Q1/15. It is now approaching theDecember 2015 lows around the 190 level. With the sector oversold and at technical support we expect atrading bounce in the short term. However, the longer term technical profile remains negative and we note that

on a relative basis (versus the S&P/TSX) that the sector recently made a new relative low.

The S&P/TSX Capped Telecommunications Services Index has outperformed the S&P/TSX since early May.However, with the recent gains, the sector is now trading back at technical resistance around the 132 to 134

level. With the sector technically overbought (RSI at 68.47) and at resistance we expect some short-term backing

and filling.


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Technically Speaking July 16, 2015 | Page 2 of 11

S&P/TSX Composite Index: Range Bound Through the Weak Summer Period

Source: Stockcharts.com, Raymond James Ltd.

The S&P/TSX is trading in a short-term downtrend and is approaching both the 50- and 200-day MAs, which we expect to provide technical resistance. Additionally, we notethat the 50-day MA is nearing the 200-day MA and could result in a “death cross” if the S&P/TSX is unable to break above resistance around the 14,800 to 14,900 range.

With weak momentum (lower panel), stiff overhead resistance and negative seasonality through the summer we are not expecting much upside in the near term. Overall, we expect the S&P/TSX to trade range bound between 13,700 and 15,500 through the weak seasonal summer period.


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S&P 500: Back at Short-term Resistance


Following news of a potential Greek bailout deal, the S&P 500 rallied off the 200-day MA and is approaching short-term resistance around the 2,130 level. Since Februarythe S&P 500 has traded in a tight range of 2,045 to 2,130.

For us to get more bullish in the short term we would need to see the S&P 500 break above 2,134.72 (May high), thus breaking out of this well-defined trading range. Longer term, we remain bullish on the US equity markets with the S&P 500 in a long-term uptrend and with the index above its rising 200-day MA. Finally, one trend that we are monitoring closely is the recent deterioration in market breadth, with the percentage of stocks in the S&P 500 above the 50-day MA declining

steadily since March (lower panel). For example, in February when the S&P 500 was at 2,119, 78% of stocks in the S&P 500 were above their 50-day MAs. Currently, with the

S&P 500 at 2,108, there are only 51% of stocks in the S&P 500 above their 50-day MAs. For now it’s just something to monitor, and with the S&P 500 still in a long -term

uptrend, this outweighs any negative readings from secondary indicators such as the percentage of stocks above their 50-day MAs.


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STOXX Europe 50: Found Support at 200-day MA. Increase Exposure


European stocks significantly outperformed in Q1/15, but then succumbed to selling pressure in Q2/15 due to fears of a Greece debt default and Eurozone exit. However, on news of a potential resolution to the Greek crisis, European stocks rallied and have since broken above its short-term downtrend. Interestingly the news of a Greek deal came at a fortuitous time as the STOXX Europe Index 50 was trading right at its 200-day MA (green circle). With the index remaining above its 200-day MA, and seemingly a Greek deal being finalized, we believe investors should look to increase exposure to European equities.


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Gold Price: At a Critical Technical Level


Despite the recent negative headlines of a potential debt default in Greece and Puerto Rico, the price of gold has failed to rally and is now testing a critical support level atUS$1,140/oz. This level marks the November 2014 and March 2015 lows.

The strong US dollar continues to be a headwind for the precious metal as captured by the negative correlation between the two (lower panel). We believe gold needs to hold the critical level of US$1,130/oz to US$1,140/oz, or it risks falling significantly from here, with the next technical support level coming in

around US$1,000/oz.


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Lumber Price: Add on Weakness


In our June 18 report we correctly called for lumber prices to pull back in the short term given the overbought condition. With the lumber price down 5% since that recommendation we would look to add exposure to the industry on this weakness. From a technical perspective lumber prices are now trading in a short-term uptrend and above the rising 50-day MA. The 200-day MA continues to provide technical

resistance, however, we ultimately see the lumber price breaking above this level.

Investors looking to add exposure should consider Canfor Corp. (CFP-T) and Interfor Corp. (IFP-T) which are rated Strong Buys from our Forest Products analyst and havebullish technical profiles.


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S&P/TSX Capped Energy Index: At an Important Technical Support Level


The S&P/TSX energy sector has pulled back since its oversold bounce in Q1/15. It is now approaching the December 2015 lows around the 190 level. With the sector oversold and at technical support we expect a trading bounce in the short term. However, the longer term technical profile of the sector remains negative and we note that on a relative basis (versus the S&P/TSX) that the sector recently made a new

relative low (lower panel). For us to become more constructive on energy stocks we would need to see a new relative high for the sector.


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S&P/TSX Capped Telecommunications Services Index: Overbought and Due for a Pause


The S&P/TSX Capped Telecommunications Services Index has outperformed the S&P/TSX since early May (lower panel). However, with the recent gains, the sector is now trading back at technical resistance around the 132 to 134 level. With the sector technically overbought (

RSI at 68.47) and at resistance we expect some short-term backing and filling.

We upgraded the sector earlier this year and therefore are happy to see the improved performance. We would use any short-term weakness to increase exposure to thesector, with Telus Corp. (T-T) being our preferred name.


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Glossary

Ascending Triangle

A continuation pattern where the period of consolidation takes the shape of an upward sloping triangle with an ascending lower trendline. A break down through the support trendline

can sometimes mark a reversal pattern.

Bollinger Bands

Bollinger bands gauge a security’s trading activity and trend by showing a range of normal price swings.

Candlestick Chart

A graphical representation of prices where opening and closing prices are connected to form coloured boxes. Generally, a series of dark candlesticks suggest downside momentum and

light candlesticks upside momentum.

Continuation Pattern

A chart formation that signals the continuation of the prevailing trend. Continuation patterns often occur after a period of brief consolidation.

Descending Triangle

A continuation pattern where the period of consolidation takes the shape of a downward sloping triangle with a declining upper resistance trendline. A break up through the resistance

trendline can sometimes mark a reversal pattern.

Double Bottom

Chart formation that normally occurs after an extended downtrend and resembles a W. Double bottoms signal potential price reversals.

Double Top

Chart formation that normally occurs after an extended uptrend and resembles an M. Double tops signal potential price reversals.

Fibonacci Sequences

Mathematical relationships that help predict points of support or resistance. The key Fibonacci ratio is 61.8% also referred to as "the golden ratio" or "the golden mean".

Flag

A chart formation in which prices move sharply to create a near vertical line (the flag pole) followed by a small move in the opposite direction (the flag). Flags are often continuation

patterns.

Gap

An open space on a chart. A gap is created when the low of one time period is above the high of the previous period, or the high of one time period is below the low of the previous

period. Gaps can signal breakouts or continuations of up or down trends.

Head-and-Shoulders Formation


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A reversal chart formation that looks like a head and shoulders (with both a defined left and right shoulder). Head-and-shoulders formations can occur at both the bottom and top of a

trend.

MACD

The moving average convergence/divergence determines turning points in a trend by differencing two exponential moving averages of specific periods. The trendline of the MACD can

also signal continuation or reversal trends for share prices.

Moving Average

A statistical tool that plots smoothed prices to signal future price trends. 50-day and 200-day moving averages are the most common indicators.

On Balance Volume (OBV)

A cumulative indicator that adds volume on up days and subtracts volume on down days. OBV shows buying or selling pressure. An upward sloping OBV confirms an uptrend, while a

downward sloping OBV confirms a downtrend.

Resistance Level

A technical level that prices may have trouble rising above (i.e., where the price may experience selling pressure).

Rounded BottomA bullish reversal pattern taking the shape of a U. Ideally, the rounded bottom should be accompanied by a similar volume pattern.

RSI

The relative strength index measures the velocity of directional price movements with extreme values indicating overbought and oversold conditions. The trendline of the RSI can also

signal continuation or reversal trends for share prices.

Support Level

A technical level that prices may have trouble falling below (i.e., where the price should have buying support).

Trendline

A line connecting a series of ascending lows (in the case of an up trendline) or descending highs (in the case of a down trendline).


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Important Investor Disclosures

Complete disclosures for companies covered by Raymond James can be viewed at: www.raymondjames.ca/researchdisclosures.

This newsletter is prepared by the Private Client Services team (PCS) of Raymond James Ltd. (RJL) for distribution to RJL’s r etail clients. It is not a product of the Research

Department of RJL.All opinions and recommendations reflect the judgement of the author at this date and are subject to change. The author’s rec ommendations may be based on technical

analysis and may or may not take into account information contained in fundamental research reports published by RJL or its affiliates. Information is from sources believed to

be reliable but accuracy cannot be guaranteed. It is for informational purposes only. It is not meant to provide legal or tax advice; as each situation is different, individuals should

seek advice based on their circumstances. Nor is it an offer to sell or the solicitation of an offer to buy any securities. It is intended for distribution only in those jurisdictions

where RJL is registered. RJL, its officers, directors, agents, employees and families may from time to time hold long or short positions in the securities mentioned herein and may

engage in transactions contrary to the conclusions in this newsletter. RJL may perform investment banking or other services f or, or solicit investment banking business from, any

company mentioned in this newsletter. Securities offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance products & services offered

through Raymond James Financial Planning Ltd., not a Member-Canadian Investor Protection Fund.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the pros pectus before investing. Mutual funds are not

guaranteed, their values change frequently and past performance may not be repeated. The results presented should not and cannot be viewed as an indicator of fut ure

performance. Individual results will vary and transaction costs relating to investing in these stocks will affect overall performance.

Information regarding High, Medium, and Low risk securities is available from your Financial Advisor.

A member of the PCS team responsible for preparation of this newsletter or a member of his/her household has a long position in the securities of BRP Inc. (DOO-T).

RJL is a member of Canadian Investor Protection Fund. ©2014 Raymond James Ltd.
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Technically Speaking - July 16, 2015