On July 16, in the midst of a lot of fear in the markets, we posted one of our most important articles of the year: “Hopeful Sign: 2010 CDNX Chart Looks Like Repeat of 2004″ (“A fascinating chart comparison between the CDNX in 2004 and 2010 suggests the weakness over the last 2-and-a-half months is drawing to a close and a strong market from August through the remainder of the year could be upon us.”)
Tonight, John (BMR’s technical analyst) reiterates his bullish position with an updated CDNX chart and analysis (“We have seen a powerful reversal in the Index“):
We have seen a powerful reversal in the Index with all chart patterns and indicators pointing to a continuance of this rally if the volume can overcome the resistance.
John: The Venture Exchange (CDNX) found a bottom early in July at the 1343 level, rallied for 6 days and then declined to 1354 on July 20 to test the previous bottom. That was also the Reversal Day. For the past 4 trading sessions the CDNX has demonstrated upside strength to end the week at a major resistance level.
Let us look at the chart and analyze what the CDNX has been doing in detail during the month of July to warrant the belief that the bottom has been reached.
On the chart I have shown the two low levels previously mentioned (horizontal green lines) which form a major support band. Also shown are two major resistance levels (horizontal blue lines).
The low of 1343 occurred on July 5 and is shown on the chart and indicators by a thin blue vertical line.
Looking at the indicators on July 5: The RSI shows an inverted head and shoulders pattern (mauve circle) – yes, chart patterns can occur on indicators, and looking further we see the RSI increase immediately afterward by an expected amount. This is a powerful reversal pattern.
The Slow Stochastics shows the %K (black line) crossing up over the %D (red line) at a very low level below 20%. This is a powerful reversal signal.
The ADX trend indicator has the -DI (red line) peaking – this also is a powerful reversal sign.
What was needed was a rally and then a test of the low which occurred on July 20 to verify the low. The Index rallied for 7 days, then declined for 3 days to form the second low. Together, the chart and the indicators give a strong signal that a low for the CDNX was reached and tested.
Where does the Index stand at the close of today? As you can see from the chart, the close today is at a major resistance level. For the present rally to continue, increasing volume is required to break this resistance.
The Bollinger Bands have both bands pointing up and the SMA-13 (blue dotted line) has turned upward – bullish.
The RSI has broken above the 50% level – bullish.
The Slow Stochastics %K (black line) has moved up over the %D (red line) with both heading up – bullish.
The ADX trend indicator has the -DI (red line) pointing down and the +DI (green line) pointing up. The ADX trend strength black line has turned down, showing the downtrend is weakening – bullish.
The average volume has increased over the last 4 days and indicates a change of philosophy and psychology in the market – a very bullish sign.
Outlook: We have seen a powerful reversal in the Index with all chart patterns and indicators pointing to a continuance of this rally if the volume can overcome the resistance. If not, we will probably see a period of consolidation but I believe the support will hold. The next 2 weeks will be interesting.
