July Commentary

Although we are late in the month, let's take a look at the Canadian Index (TSX) and it's bullish behaviour. From an Elliott's perspective, this pattern is in its fifth wave, the last impulse before the corrective phase. We are coming from 5978.66, a long haul from the severe correction that the year 2000 bubble inflicted to the market. The ascent is a very clean 5 wave pattern. The chart below shows the last seven months with the fourth wave ending and the fifth wave beginning. As we all know, it is not prudent to rely solely on one method/indicator in technical analysis. So let's look at the support and resistance to see how they fit in the wave picture. The first yellow highlight shows the support level around 9250, our wave iv end or the base of the wave v. The price touched 3 times the support before moving to the first resistance level, our second yellow highlight as we move in time. Again we see perfect congruence between Elliott and support & resitance level. In addition, the Fibonacci projections cluster at the peak level of wave iii.

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From that point on, we are on our own, why? Because the TSX Index was modified after the Nortel disaster to make it more representative of the maket. So past resistance level such as year 2000 are no longer accurate although they are still a precious indication. A second cluster can be observed at 10400, a familiar level for the old version of TSX. This resistance is rapidly penetrated and the question we must ask now is: is the trend going to take us to the next cluster or is there a correction in view? We must seek as well the type of correction, is it the end of wave v to be followed by an ABC correction or the end of a sub-wave (3) to be followed by a small correction (4) and finally a wave (5)?

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The chart above is a squashed view of the TSX since its modification. The Elliott Oscillator gives an unusual clue, its level is tha same as for the previous wave iii. Normally a wave v should not peak at that level. This adds to the dilemma rather than clearing it. The solution is to look at smaller patterns to establish key levels that will warn us about the direction of the trend. If price moves past 10690, it is likely to continue to the last cluster steadily. If it retraces to 10000 or lower, it will be the start of the correction. While it is in between, we assume it is bullish despite the oversold signals. The fork is rather large but the volatility is rather high.