As every trader knows already, the Dow tanked 1,000 points (about 9%) in like 15 minutes today. But what's more amazing is that all the indices made their way back just as quickly. Figure 1 below is today's chart of TSX Composite (blue) and S&P 500 (red). So what does this mean for TSX?
Let's zoom out to take a look at the big picture. Figure 2 is a weekly chart of TSX. The top indicator is the percentage of TSX traded issues above their 200 day moving average. The overlay indicator is the percentage of TSX traded issues above their 50 day moving average. The lower indicator is the percentage of issues above 200 MA divided by the percentage above their 50 MA.
[caption id="" align="aligncenter" width="570" caption="TSX Composite"][/caption]
The TSX index is an aggregate of prices from a handful of companies. But there are over three thousand issues trading on the TSX. This view of Figure 2 provides another perspective of where the market stands.
The question to be answered is this, how much technical damage did today's sell-off produce?
Not much apparently.
Coincidentally, both the 200 and 50 numbers are at their respective support after the close. This is as low as we have been in the past 9 months or so. However, they are still hanging high above according to the 200 percentage. There are still 56.5% of companies above their 200 day moving average.
On the shorter term though, the 50 number is pretty low at 30%. Only 30% of companies are above their 50 day moving average.
Referring to the historical pattern as shown on Figure 2. Typically numbers 30 or below means that the down move is exhausting. Since most (70%) companies are trading low already, so there's not much room for big dives until the market can reload. It is interesting that we touched 30% this week yet the TSX index is still not down that much in the big picture.
Don't get me wrong, I am still bearish on the market in the long run. But I don't think today's move is the beginning of the dive. Since volatility has contracted to a recent record low, this move is just a shake-out of the bulls. Is this the end of this down move? I don't know. But I expect to see at least an opposite shake-out of the bears soon before any real move can materialize. Control your risks in expectation of big ups and downs in the near future.
It's just too good to be true for the bears that the market makes a U-turn and head straight down after congesting below a support level for weeks.
In terms of my trading, I'm all cash today. So it was fun to watch the move with no strings attached. I covered my CVE.TO shorts yesterday at a decent price. CVE.TO broke down further today during the panic but ended up closing slightly higher. So my exit was good as I couldn't have covered during that rapid breakdown.
P.S. Mish offers a good brief on today's extraordinary move.