Globe editors have posted this research report with permission of Canaccord Genuity. This should not be construed as an endorsement of the report’s recommendations. For more on The Globe’s disclaimers please read here. The following is excerpted from the report:
Two negative breadth observations and a technical target on the TSX:
- The TSX Advance/Decline line has been trending lower since October and trading below its 20-day moving average.
- Percentage of stocks above the 50-day moving average has been trending lower since October and broken a key upward trend line.
- Technically, the TSX looks to be appoaching 13,000 and potentially 12,700 on a spike lower.
What is causing the sell-off?
- Sectors that have led the rally, Banks/Industrials, have started to sell off
- Year-end profit taking
- QE tapering expectations increasing, thus expectations of higher interest rates in the coming months
When does the selling end?
- We would suspect that as we approach next week’s Fed meeting on Dec. 18, the FED may offer some level of comfort with respect to interest rates and potentially help fuel a "modest" rally into year-end.
But what stocks to buy? What looks good technically?
- Switch into CM from BMO. Relative to BMO, CM trades above 50/100/200-day moving averages, a strong technical sign
- Poor action in the MACD/RSI has not corresponded to poor price action in CM versus BMO, another strong technical sign
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- S&P/TSX Composite15,183.13-81.51(-0.53%)
- Magna International Inc$59.71-1.73(-2.82%)
- Canadian National Railway Co$102.86-0.36(-0.35%)
- Canadian Pacific Railway Ltd$203.28-1.42(-0.69%)
- Bank of Montreal$96.32-0.39(-0.40%)
- Canadian Imperial Bank of Commerce$108.24-0.95(-0.87%)
- Manulife Financial Corp$25.25-0.06(-0.24%)
- Sun Life Financial Inc$47.11-0.39(-0.82%)
- Canadian Natural Resources Ltd$37.25-0.93(-2.44%)
- Crescent Point Energy Corp$9.21-0.19(-2.02%)
- Updated July 21 4:00 PM EDT. Delayed by at least 15 minutes.