The CDNX has likely not yet hit bottom but there are signs of a rally on the horizon as John explains in this Wednesday pre-market CDNX chart update:
John: The bears were feasting on the CDNX again yesterday, sending the Index lower by nearly 9 points after a modest early advance. The CDNX has been hit hard in recent days by both the general weakness in all North American markets and the slide in the price of Gold from above $1,260 to below $1,200. However, as we will see from the chart and the indicators there is a glimmer of hope in the near future.
Looking at the 9-month daily chart of the CDNX we see the Symmetrical Triangle (sloping blue lines) that was drawn on a previous chart and the target (horizontal blue line) where we expected to see resistance to the decline. The bears were too strong, however, and the Index continued to drop. I have drawn a resistance band (horizontal green lines) starting at 1347. The Index reached this band at the end of yesterday’s trading. This appears to be a source of strong support going back to October, 2009.
I have also drawn the EMA(20) and as you can see, the Index has moved a long way from the EMA (exponential moving average) and when this occurs the market will usually attempt to lessen that distance with a rally. We saw this happen in May when the CDNX fell to around 1,400.
Looking at the indicators:
The RSI(7) is deep in the oversold region at 13.39 – this is almost at an extreme level. Probably bearish for the immediate future but the relative strength should soon begin to increase.
The Slow Stochastics has the %K (black line) at 4.35 and flat, and the %D (red line) at 12.74 and plunging further down in the oversold area. Probably bearish in the immediate future but could rally quite soon.
The ADX trend indicator has the -DI (red line) above the +DI (black line) and the ADX trend strength (black line) is pointing up and increasing, indicating the bearish trend is getting stronger. However, we see that the -DI is rather high, over 50, and is pointing down. It’s possible this has reached a peak and is about to move lower. This could give us the first sign that the bulls are providing support and that there will either be a consolidation around these levels or a rally similar to the one in May.
Outlook: There will likely be more bearish movement in the CDNX over the next day or two but it appears we can soon expect a rally or consolidation. Watch the -DI indicator carefully as it may give the first sign of a turnaround.
