A big day and week for the Canadian stock market! The TSX was not following global markets as I discussed in February in my global tour of world stock market indices. One word: oil. And the oil markets will be important for what the TSX (and also the Norwegian OBX!) does here next.
Let’s keep in mind what is pressuring world markets. Geopolitical uncertainties are still there. We saw headlines of positive peace talks last week which really got the markets moving. But a week later, there seems to be no constructive peace talks. I advise readers to also keep their eyes and ears on Asia. China and the Solomon Islands security deal has ramifications for the Pacific, and what just happened in Pakistan is not something to ignore.
And then of course there is the Federal Reserve. We have had Fed President’s unleash hawkish statements on the balance sheet tapering to the tune of $95 billion per month. The 10 year yield continues to spike. If you are someone who believes this whole move in stock markets is due to cheap money and Fed balance sheet ballooning, then you will be expecting a massive sell off.
Above is the chart of the TSX. The CA60 is another chart which looks similar. If you are like me and trade market indices through CFDs, your broker might have CA60 as a product. Just a more convenient way to trade indices in my opinion.
The Canadian markets were in a broad range from November 2021 to mid March 2022. As I mentioned earlier, in my global market piece, I noted that the TSX and the Norwegian OBX were acting very differently to other market indices in North America, Asia and Europe. It was due to oil prices breaking out. Since the Canadian stock market has a lot of energy stocks, higher oil prices kept the overall index higher.
The TSX and the Norwegian markets actually printed record all time highs in 2022! Not something US markets can boast about. The breakout occurred on March 18th 2022, and in the past few days, we have pulled back to retest the breakout zone.
I know I have said this hundreds of times, but for new readers let me go over breakout structure. Whenever we see a breakout on a chart, we should expect prices to pullback to retest the breakout zone. It gives the opportunity for buyers to jump in who missed the initial breakout. If we fail the retest, meaning we close BELOW the breakout zone acting as support, then we have a false breakout or fakeout. For the bulls, we want to see signs of buying indicating the retest is successful and we will continue to make new highs to the upside.
The TSX actually has a pretty supportive candle on the retest. April 7th 2022 daily candle was a very nice hammer candle. The large wick indicates that there are a lot of buyers stepping in around this zone. For retest traders, that candle alone is good enough to go long with stop losses placed below it.
The safer way is to wait for the new highs to be printed. This would mean a close above 22,110. It means the retest has officially been successful and you can ride the new momentum on the breakout.
The oil markets are what Canadian traders should be watching. Oil has taken a plunge recently due to the Biden administration releasing reserves but also due to lower demand because of lockdowns in China.
WTI is testing a huge support zone again. We did bounce above this zone previously on March 17th 2022. As long as the daily candle holds above this $95 zone, then oil has a chance to reclaim $100 and head higher. Note the triangle pattern I have drawn.
So there you have it, the TSX is retesting the breakout zone just as oil tests major support. I’ll be watching that oil chart to see if we can remain above $95. A close below this support might mean the TSX fails the retest and breaks down.