The action in the CDNX over the past few weeks has been extremely encouraging and our technical analyst is convinced that the early July low of 1343 was indeed the bottom of a 2-month slide that knocked the Index down 20%. Historically with the CDNX, this was a very normal correction within an ongoing bull market. A reversal in the CDNX has been validated as John explains in detail below.
As of 11:30 Pacific this morning, at the time of this posting, the CDNX is up 2 more points to 1424. John’s chart update and analysis below is based on yesterday’s close of 1422:
John: Yesterday the CDNX gapped to 1413 at the open, closed the gap down to 1410, and then climbed steadily through the day to close at 1422, its high for the day. For 7 of the past 8 trading sessions the CDNX has demonstrated upside strength to provide further proof that a bottom was reached during the first week of July.
Looking at the 6-month daily chart, we see the support (green line) at 1347 and the next major resistance level (blue line) at 1445. We can also see the “M” formation which is a bearish pattern after which the Index fell to form a bottom.
The bottoming pattern was a “W” formation and this bottom was validated when the level broke above the middle of the “W” (short horizontal green line) and continued to climb.
The SMA-13 (dotted blue line) has turned up after being in decline since the beginning of May. The Index is now trading above the SMA-13 in the upper half of the Bollinger Bands which is very bullish.
The SMA-50 (red line) is still declining and the CDNX is just below and may encounter a little resistance when they meet.
Looking at the indicators:
We see that the RSI(7) has just entered the overbought region but this is nothing to worry about as it can stay above 70 for a considerable time. On one previous occasion (see thin green vertical line) the RSI went above 70 at the beginning of the bullish rally and stayed there until the Index started to decline. The RSI shows increasing strength – bullish.
The volume has been declining until yesterday but the Index was rising. This is a bullish sign when coming off a bottom but note that when approaching a high, a bullish rally will fail unless the volume continues to increase.
The MACD Histogram is above the zero line and is increasing, and the MACD line and its signal line are both just below zero but are climbing – bullish.
The ADX trend indicator shows the +DI (green line) has just crossed above the -DI (red line). This makes the strong statement that the trend is now bullish for the first time since the beginning of May. The trend strength indicator is lowish at 28 and points down but this will change as the trend strengthens – bullish.
Outlook: The reversal of the CDNX has taken place and has been validated. I expect we will see continuing strength for the remainder of the year. This is a very bullish scenario.