The CDNX seems to have curiously disconnected recently from the price of Gold, as we mentioned in our Week In Review, but we’ll need more time to see if this pattern continues and what the significance of it might be.
The Index made a nice move today, however, confirming our analysis that a reversal was likely in the works. John, BMR’s technical analyst, gives us his assessment after today’s impressive 41-point move:
John: Today the CDNX rebounded 2.67% and finished at its high of the day, 1591. The trading pattern of the next few days could provide a good indication of the direction of its next major move.
Looking at the chart we see that the white candle provided confirmation of Friday’s hammer candle to signify a reversal from the five-day plunge of last week. The combination of Thursday’s, Friday’s and today’s candle is called a “morning star” and is recognized as a bullish “reversal candle pattern”.
One of the main reasons for posting this chart is to allow our readers to follow each day’s moves with respect to the Fibonacci retracement levels shown as blue bars.
Today’s candle finished strongly so we can reasonably expect the move up to continue for at least tomorrow morning. Keep an eye on the CDNX level and compare it to the Fib. levels. If the retracement stops at the 38.2% level and reverses, then the retracement (recovery) is weak. If it moves up to the 50% and reverses, then it will probably consolidate. And if it moves up to the 61.8% (resistance level), then it is a strong retracement and probably will move up to its previous high (resistance level).
Having the Fibonacci levels on a chart provides a reliable reference.
What do the indicators tell us?
The RSI, which at the end of last week was deep into the oversold region, has moved up to the 39% level due to the strength of the move today which was very strong.
The Slow Stochastics has the %K (black line) crossing up over the %D (red line) below the 20% level – a very bullish sign.
The ADX trend indicator is showing confusion at this time. The ADX (black line) trend strength is flat because there is no trend. The -DI (red line) has turned down sharply and the +DI (green line) has turned sharply up due to this sudden reversal.
Today, every market in Asia, in Europe and in North America experienced sudden reversals in response to Europe’s attempt to solve the financial problems in Greece and elsewhere in the EU. Today, as it did last week, the CDNX responded to market psychology rather than to Gold or any market sector.
The outlook for the CDNX is bullish for the immediate future but the next two weeks could be critical in determining where its intermediate and long term trend will be.