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Combining
Fundamental & Technical Analysis
Combining
Fundamental & Technical Analysis
Larry M. Berman CFA, CMT, CTA
Sid Mokhtari
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Technical FundamentalsTechnical Fundamentals
1. All fundamentals are reflected inprice, volume & trend.
2. Monitoring momentum, breadth & sentiment are essential inunderstanding when (the trendcould change).
3. If no one is buying it, it’s not going
to go up!4. RISK vs. REWARD: Lose your
opinion, not your money!
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Macro Economic vs.
Macro Technical
Macro Economic vs.
Macro Technical
1. Dow: Averages are an economicbarometer.
2. Cyclical: GDP & Inflation.3. Cyclical: Long-term trend,
momentum, breadth & sentiment.
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Larry M. Berman CFA, CMT, CTA * Sid Mokhtari
Trend Analysis - Support/Resistance The NASDAQ and the 200-day average (Fibonacci retracement)
Last
SPX 1031 1055 1095 1137 1163
TSX 8000 8422 8478 8631 8886
NDQ 1755 1886 1910 1991 2048
DJIA 9479 9799 10065 10327 10509
MID 543 578 580 596 618
Will the 200-day average hold?
There is little doubt the major US averages are going to test their own 200
day averages in what is clearly the biggest correction in over one year
(the 10%'er that many have been looking for). The key question is will
these support areas hold or will a break of them lead to accelerated selling
by investors? It has been evident for months in technology that the tape
has been weak. Investors have failed on several attempts to take tech
stocks higher and on each decline we have seen lower lows. Breadth has
deteriorated evidenced by the weakness that has spread to a broad group
of stocks including financials and even some traditional defensive sectors.
In many cases we have seen increased volume on the trade lower (Arms
index is very high), which is a bad sign. The economy still appears to be in
OK shape to suggest this is still an overbought corrective process opposed
to the beginning of a major decline. However, the tape is painting a
slightly more bearish picture in that most of the technical readings we
monitor on the following pages that are at their worst levels in the pastyear.
March 23, 2004
»» There has been a broad based decay in most of
our technical indicators pushing many to their worst
readings in almost 1 year. Though, there are some
short-term oversold indications, there is no strong
evidence that support levels will hold.
»» We have seen some bleeding (modest breaks of
200-day averages) on many key stocks and sectors,
but this is primarily evident in semiconductors.
Typically, it's a sign of weakness and suggests
further downside price action is likely.
»» The first major index to test its 200-day
average the NASDAQ (1886). The next important
support level is at the 200-day average for the S&P
500 (1055). Below these points the 38.2%
Fibonacci levels become important targets. For the
NASDAQ, the 1755 area, close to 20% below the
recent peak.
»» Gold has held a key test of support in the $390
area that we've been looking for. It should be the
early stages of a new base for many gold stocks.
We are watching this development closely, as it
should lead to another rally for the sector this year.
Support Resistance
Many academic studies confirm that weakness in the stock market
portends a pending soft patch for the economy, which is clearly on the
radar screen. Beyond the lingering tax cut stimulus in Q2, it's hard to find
a strong fundamental to lean on--now that it looks like it isn’t more than
"just the economy stupid!" The fact that investors are beginning to think
domestic concerns are more important than the new Iraqi constitution,
puts the “protectionist and slash spending” redirect from the Kerry
campaign at odds with what Bush would like to see heading intoNovember--and what the economy needs in the second half. It should,
therefore, be little surprise that consumer confidence is taking it on the
chin in the face of the poor performance on the labor front. The markets
will likely be saddled with this heavy burden unless Q1 earnings can blow
the doors out. At this point, we have not seen a bottom for the decline and
we are in the cross your fingers mode because, frankly, the price action is
bad and deteriorating.
Equity Technical
Market Analysis
AUDIO
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Larry M. Berman CFA, CMT, CTA * Sid Mokhtari
S&P 500 --- 4-wk ROC ---13-wk ROC --- 52-wk ROC
ROC 4-W 13-W 52-W
SPX Neu Neu Neu
TSX Neu Neu Neu
NDQ Neu Neu Neu
DJIA Neu Neu NeuMID Neu Neu Neu
SML Neu Neu Neu
NYSE -- 10-Day Arms -- 55-Day Arms -- OS -- OB
UVol DVol TVol
NYSE 682 793 Av
NDQ 373 421 Av
NYSE -- % of stocks above their 200-day -- 200-day MA
%MC >50 >200
SPX 24(32) 69(77)
TSX 46(47) 85(85)
NDQ 18(21) 46(48)
Relative Strength
»» Despite the neutral readings,
we observe a downward shift in all
timeframes of the ROC indicators.
We expect this loss of bullish
momentum to be with us a littlelonger, until we see the next
catalyst emerges i.e. a confirmation
of continued growth as we approach
the earnings season.
»» We have seen a sharp swing
higher in downside volume relative
to upside volume in the past few
weeks (a bearish development).
We also note that the 10-day Arms
index is near last year’s Marchbottom readings, though, a small
mitigating factor is that overall
volume has not been too heavy.
This is a short-term oversold
indication.
Momentum Analysis
Volume Analysis
Breadth Analysis
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Larry M. Berman CFA, CMT, CTA * Sid Mokhtari
SPX Volatility Index --- NDX Volatility Index ----
Rank
SPX Av
NDQ Av
TSX Av
CBOE -- 5-Day Put/Call Ratio -- OS -- OB
Ratio 5-day Rank Vol
CBOE .77(.84) High Av
AAII % Bullish vs. S&P 500
%-Bull RankMkt Vn Abv Av
AAII Av
Cons Av
Volatility Analysis
Options Analysis
Sentiment Analysis
Relative Strength
Level
21.6(21.1)
14.9(15.3)
27.2(27.1)
Level
»» We observed a bottoming
pattern in the VIX and VXN a few
weeks ago. Investors are showing
that they are becoming very nervous
about the current market, more so
than at any point in the past year. Itlikely means that this could develop
into more than just a dip.
»» We have not seen a sharp spike
in put volume like this since the
index corrections last summer. Much
like the market in general, overall
volume is average, though it has
been skewed to the bearish side. It
is important that support levels hold
given the combination of what this
indicator and the VIX are suggesting.
»» The continued decline in the
63(-5)
38.6(-2.7)
53(4)
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Relative Strength Larry M. Berman CFA, CMT, CTA * Sid Mokhtari
Advance-Decline Lines NYSE-NASDAQ Cumulative Advance-Decline Line
Trend
NYSE Neutral
NDQ Down
TSX Neutral
New 52 Week Highs - Lows 52 Week New Highs-Lows ---- Oversold ---- Overbought
Highs Lows Rank
All US 329 (442) 111 (84) Avg
Momentum
Weak
Weak
»» The A-D lines, for all major equity
indices, have rolled over and suggest
further weakness. In the case for the
NASDAQ, lower-lows and lower-highs have
been established, hence a bearish trend is
developing. Investors should use periods of
strength to raise cash in the technology
sector until we see strong evidence of anew base.
Bearish
»» The number of stocks making newhighs is way down and the number of
stocks making new lows is up modestly.
The decay in this indicator to its worst
level in almost 1 year reminds us that this
correction is deeper and broader than any
of the dips we've seen. We'll need a major
catalyst to turn the tides here. Until then
we look for further deterioration.
Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i)
the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all
other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
Conflicts of Interest: CIBC World Markets' research analysts and economists are compensated from revenues generated by various CIBC World Markets businesses, including CIBC
World Markets' Investment Banking Department. CIBC World Markets may have a long or short position or deal as principal in the securities discussed herein, related securities or in
options, futures or other derivative instruments based thereon. The reader should not rely solely on this report in evaluating whether or not to buy or sell the securities of the subject
company.
Legal Matters: This report is issued and approved for distribution by (i) in Canada by CIBC World Markets Inc., a member of the IDA and CIPF, (ii) in the UK, CIBC World Markets plc,
which is regulated by the FSA, and (iii) in Australia, CIBC World Markets Australia Limited, a member of the Australian Stock Exchange and regulated by the ASIC (collectively, "CIBC
World Markets"). This report has not been reviewed or approved by CIBC World Markets Corp., a member of the NYSE and SIPC, and is intended for distribution in the United States
only to Major Institutional Investors (as such term is defined in SEC Rule 15a-6 and Section 15 of the Securities Act of 1934, as amended). This document and any of the products and
information contained herein are not intended for the use of private investors in the UK. Such investors will not be able to enter into agreements or purchase products mentioned herein
from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of clients of CIBC World Markets Australia Limited. This report is
provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation
would be prohibited.
The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or income they produce may fluctuate and/or be adversely affected by
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Micro Metrics vs.
Swing Indicators& price patterns
Micro Metrics vs.
Swing Indicators& price patterns
1. P/E, P/CF, GARP, P/Sales etc…
2. MACD, RSI, Stochastic.3. Double bottoms, tops, bases &
breakouts.
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Bottom-Up Stock SelectionBottom-Up Stock Selection
1. Value: Swing indicators, cycles,bottoming patterns (bases)
2. Growth: Relative Strength,Momentum indicators, breakouts
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Technical Value
Characteristics
Technical ValueCharacteristics
1. Oversold: Swing indicators, cycles,bottoming patterns (bases)
2. Under Owned: Sentiment
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Market Trading CyclesMarket Trading Cycles
Bearish Basing Bullish Consolidation
Unique characteristics.
Systematically classified into phases by index weight
Where are we in cycle?
One part of an Elliott Wave.
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All assets don’t have same cycle.
Based on assets own volatility.
Multiple time-frame perspective important.
Periodicity and volatility (delta).
Period and AmplitudePeriod and Amplitude
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TranslationTranslationBull market cycles are right translated.
Bear market cycles are left translated.
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Multiple Time FrameMultiple Time Frame
Short: days to weeks (5 & 20-day avg.)
Intermediate: weeks to months (20 & 50-day avg.)
Lon : 3-12 months 50 & 200-da av .
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Weighted Trading CyclesWeighted Trading Cycles
Unique cyclesbased onasset ownmovement.
Classify eachby tradingcycle and rollup to sectorsby market cap
High (>90%)Low (<10%)offers an edgefor buy-sell
decisions.
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Trading Cycles and RSITrading Cycles and RSI
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Tkr Name Cycle RSI RS S&P TSX 60 Large Cap - Trading Cycles (Relative Strength) As of: March, 23, 2004
A Abitibi-Consolidated Inc Bear 19 D
ABX Barrick Gold Corp Bull 64 A
AGU Agrium Inc Bear 38 D
AL Alcan Inc Bull 38 D
ATY Ati Technologies Inc Cons 37 D
BBD.B Bombardier Inc 'B' Bull 36 D
BCB Cott Corporation Bull 30 C
BCE Bce Inc Bear 29 C
BMO Bank Of Montreal Cons 49 CBNN.A Brascan Corporation Bull 51 B
BNS Bank Of Nova Scotia Bull 66 B
BVF Biovail Corporation Bear 28 D
CAE Cae Inc Bull 38 D
CCO Cameco Corp Cons 61 A
CLS Celestica Inc Bear 29 D
CM Can Imperial Bk Of Commerce Bull 62 A
CNQ Canadian Natural Resources Bull 59 A
CNR Canadian Natl Railway Co Cons 34 D
CP Canadian Pacific Railway Ltd Bear 38 C
CSN Cognos Inc Bear 32 D
CTR.A Canadian Tire Corp -Cl A Bull 61 ADFS Dofasco Inc Bull 56 B
DTC Domtar Inc Bear 31 D
ECA Encana Corp Bull 51 B
ENB Enbridge Inc Bull 64 A
FHR Fairmont Hotels & Resorts Bear 40 C
HSE Husky Energy Inc Bull 49 A
IMO Imperial Oil Ltd Bull 33 C
IQW Quebecor World Inc Cons 36 C
K Kinross Gold Corp Base 53 B
L Loblaw Companies Ltd Cons 45 C
MDS Mds Inc Bull 58 A
MFC Manulife Financial Corp Bull 41 CMG.A Magna International Inc-Cl A Cons 52 B
MOL.A Molson Inc-A Shs Base 70 B
N Inco Ltd Cons 40 D
NA National Bank Of Canada Bull 62 B
NCX Nova Chemicals Corp Cons 29 D
NRD Noranda Inc Bull 56 A
NT Nortel Networks Corp Cons 25 D
NXY Nexen Inc Bull 51 A
PCA Petro-Canada Cons 37 C
PD Precision Drilling Corp Bull 42 B
PDG Placer Dome Inc Bull 64 A
POT Potash Corp Of Saskatchewan Cons 36 CRCI.B Rogers Communications -Cl B Cons 31 C
RY Royal Bank Of Canada Cons 44 C
RYG Royal Group Technologies Ltd Bull 48 D
SJR.B Shaw Communications Inc-B Bull 37 C
SLF Sun Life Financial Inc Cons 38 C
SU Suncor Energy Inc Bull 51 A
T Telus Corp Bear 29 D
TA Transalta Corp Bull 67 B
TD Toronto-Dominion Bank Bull 64 A
TEK.B Teck Cominco Ltd-Cl B Bull 49 B
TEU Cp Ships Ltd Bear 28 D
TLM Talisman Energy Inc Bull 53 A
TOC Thomson Corp Bear 38 C
TRP Transcanada Corp Bull 68 A Extended
WN Weston (George) Ltd Base 53 B
( 0 . 6
% )
O V E R B O U G
H T
( 1 3
. 5 % )
O V E R S O L D
9 - D A Y R E L A T I V E S T R E N G T H I N D E X
RSI = Wilder's 9-Day Relative Strength Index RS - Weighted Relative Strength vs. S&PTSX A-1st Quartile B-2nd Quartile C-3rd Quartile D-4th Quartile
Bearish Basing ConsolidationBullish
11.7% 1.9% 32.7%53.6%
WN (B)
TRP (A)
TOC (C)
TLM (A)
TEU (D)
TEK.B (B)
TD (A)
TA (B)
T (D)
SU (A)
SLF (C)SJR.B (C)
RYG (D)
RY (C)
RCI.B (C)
POT (C)
PDG (A)
PD (B)
PCA (C)
NXY (A)
NT (D)
NRD (A)
NCX (D)
NA (B)
N (D)
MOL.A (B)
MG.A (B)
MFC (C)
MDS (A)
L (C)
K (B)
IQW (C)
IMO (C)
HSE (A)
FHR (C)
ENB (A)
ECA (B)
DTC (D)
DFS (B)
CTR.A (A)
CSN (D)
CP (C)
CNR (D)
CNQ (A)
CM (A)
CLS (D)
CCO (A)
CAE (D)
BVF (D)
BNS (B)
BNN.A (B)
BMO (C)
BCE (C)BCB (C)
BBD.B (D)
ATY (D)AL (D)AGU (D)
ABX (A)
A (D)
10
20
30
40
50
60
70
80
90
0.00 2.00 4.00 6.00 8.00 10.00TRADING CYCLE
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BCE C T C $ 2 7 . 7 4 -.26 T 2 7 . 7 4 / 2 7 . 7 7 2 8 x 3 E q u i t y G At 1 6 : 3 0 Vol 2,476,105 Op 27.98 T Hi 28.02 T Lo 27.72 T ValTrd 6 8 9 8 8 6 4 0
Worksheet List Edit Options G 70 - DAILY INDICATORS
BCE CT: BCE Inc G70 Daily 3/23/01 to 3/23/04
25
30
35
40
20
40
60
80
A M J J A S O N D
2001
J F M A M J J A S O N D
2002
J F M A M J J A S O N D
2003
J F M A
2004
Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410
Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2004 Bloomberg L.P.
G781-398-1 23-Mar-04 18:49:11
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MOL/A C T C $ 3 1 . 8 5 -.15 T 3 1 . 8 5 / 3 1 . 9 0 3 9 x 1 0 E q u i t y G At 1 6 : 3 5 Vol 616,418 Op 31.99 T Hi 32.05 T Lo 31.62 T ValTrd 1 9 6 3 9 0 5 2
Worksheet List Edit Options G 70 - DAILY INDICATORS
MOL/A CT: Molson Inc G70 Daily 3/26/01 to 3/23/04
26.00
28.00
30.00
32.00
34.00
36.00
38.00
20
40
60
80
Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2002
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2003
Jan Feb Mar Apr
2004
Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410
Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2004 Bloomberg L.P.
G781-398-1 23-Mar-04 18:51:16
h i l G hT h i l G th
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Technical GrowthCharacteristics
Technical GrowthCharacteristics
1. Strong Relative Strength2. Strong Momentum
3. Price Gaps-breakouts
4. Support levels hold/resistance
levels break
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Picking stocks with technical analysis using relative strengthOutperform-Best Outperform-Neutral Outperform-Worst
Market perform-Best Market perform-Neutral Market perform-Worst
Underperform-Best Underperform-Neutral Underperform-Worst
4042
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
01
2
3
4
5
6
7
8
9
10Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
2
3
4
5
67
8
9
10
Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
23
4
5
6
7
8
9
10
Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
2
3
4
5
67
8
9
10
Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
2
3
4
5
67
8
9
10
Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
23
4
5
6
7
8
9
10
Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
23
4
5
6
7
8
9
10
Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
2
3
4
5
6
7
8
9
10Price Rel. Strength
40
42
44
46
48
50
52
54
1/1/01 1/8/01 1/15/01 1/22/01
0
1
2
3
4
5
6
7
8
9
10Price Rel. Strength
Tkr Name Cycle RSI RS S&P TSX 60 Large Cap - Trading Cycles (Relative Strength) As of: March 23 2004
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Tkr Name Cycle RSI RS S&P TSX 60 Large Cap Trading Cycles (Relative Strength) As of: March, 23, 2004
A Abitibi-Consolidated Inc Bear 19 D
ABX Barrick Gold Corp Bull 64 A
AGU Agrium Inc Bear 38 D
AL Alcan Inc Bull 38 D
ATY Ati Technologies Inc Cons 37 D
BBD.B Bombardier Inc 'B' Bull 36 D
BCB Cott Corporation Bull 30 C
BCE Bce Inc Bear 29 C
BMO Bank Of Montreal Cons 49 CBNN.A Brascan Corporation Bull 51 B
BNS Bank Of Nova Scotia Bull 66 B
BVF Biovail Corporation Bear 28 D
CAE Cae Inc Bull 38 D
CCO Cameco Corp Cons 61 A
CLS Celestica Inc Bear 29 D
CM Can Imperial Bk Of Commerce Bull 62 A
CNQ Canadian Natural Resources Bull 59 A
CNR Canadian Natl Railway Co Cons 34 D
CP Canadian Pacific Railway Ltd Bear 38 C
CSN Cognos Inc Bear 32 D
CTR.A Canadian Tire Corp -Cl A Bull 61 ADFS Dofasco Inc Bull 56 B
DTC Domtar Inc Bear 31 D
ECA Encana Corp Bull 51 B
ENB Enbridge Inc Bull 64 A
FHR Fairmont Hotels & Resorts Bear 40 C
HSE Husky Energy Inc Bull 49 A
IMO Imperial Oil Ltd Bull 33 C
IQW Quebecor World Inc Cons 36 C
K Kinross Gold Corp Base 53 B
L Loblaw Companies Ltd Cons 45 C
MDS Mds Inc Bull 58 A
MFC Manulife Financial Corp Bull 41 CMG.A Magna International Inc-Cl A Cons 52 B
MOL.A Molson Inc-A Shs Base 70 B
N Inco Ltd Cons 40 D
NA National Bank Of Canada Bull 62 B
NCX Nova Chemicals Corp Cons 29 D
NRD Noranda Inc Bull 56 A
NT Nortel Networks Corp Cons 25 D
NXY Nexen Inc Bull 51 A
PCA Petro-Canada Cons 37 C
PD Precision Drilling Corp Bull 42 B
PDG Placer Dome Inc Bull 64 A
POT Potash Corp Of Saskatchewan Cons 36 CRCI.B Rogers Communications -Cl B Cons 31 C
RY Royal Bank Of Canada Cons 44 C
RYG Royal Group Technologies Ltd Bull 48 D
SJR.B Shaw Communications Inc-B Bull 37 C
SLF Sun Life Financial Inc Cons 38 C
SU Suncor Energy Inc Bull 51 A
T Telus Corp Bear 29 D
TA Transalta Corp Bull 67 B
TD Toronto-Dominion Bank Bull 64 A
TEK.B Teck Cominco Ltd-Cl B Bull 49 B
TEU Cp Ships Ltd Bear 28 D
TLM Talisman Energy Inc Bull 53 ATOC Thomson Corp Bear 38 C
TRP Transcanada Corp Bull 68 A Extended
WN Weston (George) Ltd Base 53 B
( 0 . 6
% )
O V E R B O U G
H T
( 1 3 . 5
% )
O V E R S O L D
9 - D A Y R
E L A T I V E S T R E N G T H I N D E X
RSI = Wilder's 9-Day Relative Strength Index RS - Weighted Relative Strength vs. S&PTSX A-1st Quartile B-2nd Quartile C-3rd Quartile D-4th Quartile
Bearish Basing ConsolidationBullish
11.7% 1.9% 32.7%53.6%
WN (B)
TRP (A)
TOC (C)
TLM (A)
TEU (D)
TEK.B (B)
TD (A)
TA (B)
T (D)
SU (A)
SLF (C)SJR.B (C)
RYG (D)
RY (C)
RCI.B (C)
POT (C)
PDG (A)
PD (B)
PCA (C)
NXY (A)
NT (D)
NRD (A)
NCX (D)
NA (B)
N (D)
MOL.A (B)
MG.A (B)
MFC (C)
MDS (A)
L (C)
K (B)
IQW (C)
IMO (C)
HSE (A)
FHR (C)
ENB (A)
ECA (B)
DTC (D)
DFS (B)
CTR.A (A)
CSN (D)
CP (C)
CNR (D)
CNQ (A)
CM (A)
CLS (D)
CCO (A)
CAE (D)
BVF (D)
BNS (B)
BNN.A (B)
BMO (C)
BCE (C)BCB (C)
BBD.B (D)
ATY (D)AL (D)AGU (D)
ABX (A)
A (D)
10
20
30
40
50
60
70
80
90
0.00 2.00 4.00 6.00 8.00 10.00TRADING CYCLE
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