One of the benefits of being a technical analyst is the ability to find very pivotal places to get involved in a stock or avoid. The current setups on the major indexes are finely balanced. The Russell 2000 is making new 4 week lows and money has been migrating to the safety of the large-caps.
BC is a chart that we would normally expect money to rotate into for stability. This week, the chart sits just below a breakout, but just barely above a break down. The next few weeks should tell us where we are heading to resolve this tension.
Technicians are always cautious as a stock is testing a trend line or prior high. It is important to watch the price action to see if it has the strength to push through. Momentum is an important concept for pushing through. Momentum is shown on the Percentage Price Oscillator (PPO) indicator. Currently, the RY chart has the momentum rolling over at zero. If the stock continues to roll over, usually the stock price falls hard with negative momentum. On the bullish side, if the stock could break the downward trend in momentum and break through the price trend line starting a new uptrend, this would be very encouraging.
Unfortunately, when we compare the stock to the $SPX, the price is performing worse than the $SPX and the trend line on the purple chart has broken. This suggests that the stock is more likely to break down rather than up, but this is a clear inflection point. My read on it is there is a growing likelihood that the stock will break lower, similar to 2015 or July 2018.
TD bank is another chart that worries me. The chart is rolling over below both moving averages. The relative strength in purple is breaking to new annual lows. That means this ticker symbol is dramatically underperforming the average large cap stock. Notice how the momentum at the highest price in September 2018 was lower than the momentum at the January 2018 peak. Currently the stock is rolling over and the momentum is making a lower high and this time the roll over is occurring at zero. This usually marks a very weak stock.
CIBC (CM) is in a more advanced breakdown. The stock doubled topped in September 2018. This is a good example of watching price action as the stock tries to go through a prior high. Notice the weak momentum on the September high compared to the January momentum while price was similar. Now the price has rolled over and former support is no longer holding the price up. With the weak momentum rolling over below zero, this chart looks un-investable for now.
All of these are large Canadian banks but they are in varying stages of breaking down with weak momentum. As Canada is expected to be in recession very soon, these charts are suggesting lower prices. While the Canadian bank stocks are weak, this seems to be a global view with almost all the big banks in the world having significantly lower momentum now.
Using the indicator discussed above for measuring momentum, we can see the Russell 2000 looks very weak as well. This is a pivotal point for the small cap index. Any further breakdown would probably accelerate to the downside in a bigger move.
I am very cautious here recommending long stock picks. The market is at an important level and investors should be aware of the difficulty as the market has spent a few weeks trying to get through this level without succeeding.