John: On Friday the CDNX gapped up at the open from Thursday’s close at 2342, dropped only as low as 2340, and then powered higher to close at its high of the day at 2376. It gained 47 points (2.02%) for the best percentage gain of any North American market Friday. Despite the weakness Tuesday through Thursday which rattled some investors, the CDNX is about to enter March on an extremely solid technical footing.
Looking at the 3-month daily chart, we see that Friday’s trading was a strong white candle erasing Thursday’s drop. The candle formation of the last 2 days is similar to that of January 25 & 26 and constitutes a reversal pattern. After the Jan. reversal the CDNX climbed for the next 9 sessions before unwinding an overbought condition in 2 sessions and then climbed again to become very overbought by February 18. This was completely unwound over the next 3 sessions leading to Friday’s reversal.
Notice that since the Jan. reversal the average daily volume declined during the “cleansing” processes but increased during uptrends. This is very bullish. The Bollinger Bands are both flat, similar to the Jan. reversal. This also indicates that this is a true turnaround. Both the daily SMA(50) and SMA(100) moving averages (not shown here) are pointing up and supporting the uptrend. There is certainly immense technical support on the CDNX around the 2300 level as we have mentioned repeatedly.
Looking at the indicators:
The RSI(5) is in a “W” formation at 52% and pointing up. The reversal is similar to that of the previous month – very bullish.
The Slow Stochastics (SS) has the %K (black line) flat at 28% and the %D (red line) pointing down at 39%. It appears that a reversal crossover is imminent – bullish.
The Chaikin Money Flow (CMF) indicator shows the buying pressure is quite strong and bullish at 0.334. It increased Friday on slightly reduced volume – very bullish.
The weekly ADX trend indicator (not shown here) confirms that the long- term trend is very strong with the +DI at 42, the -DI at 10 and the ADX trend strength indicator high at 56 and pointing up – very bullish.
Outlook: Following a healthy 3-day pullback, a reversal to the upside is underway with the CDNX. February should finish strong Monday and we’re expecting a bullish March.
