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From its highs to its lows, the Toronto stock exchange index was down a whopping 45 per cent for the year, but only finished down a staggering 35 per cent due to the 677 point year-end rally. It appears that the worst is behind us and it's time to get back in the game or add to portfolio positions.
The month of December saw the TSX stem its decline and it appears to have put in the bottom that everyone has been looking for. The weekly chart is certainly encouraging as the index completed a bullish falling wedge the first week of December and then traded sideways. The monthly chart confirms the optimism as a bullish monthly dragonfly doji candlestick signal, which is a reversal signal, confirms a bottom is at hand. The moving averages and the MACD are turning positive so any near-term weakness, if it materializes, should be bought. If the first day is an example with a 246 point gain then we're off to a great start and we may be looking at exploding markets in January as investors return from their holidays.
The year starts out at 9234.11 and a rally to about 10,250 over the next two months is quite possible.
One way to play the rally in the index is to purchase an exchange traded fund (ETF) such as the XIU, as it is commonly known. XIU is the call symbol for the iShares Canadian S&P/TSX large Cap 60 Index fund. The fund is sponsored by Barclays Global Investors Canada Ltd. and according to Barclays "the investment seeks to replicate the performance, net of expenses, of the S&P/TSX 60 Index. The index is comprised of 60 of the largest (by market capitalization) and most liquid securities listed on the TSX, selected by S&P using its industrial classifications and guidelines for evaluating issuer capitalization, liquidity and fundamentals." As of Nov. 20, 2008 the top ten holdings were: Royal Bank of Canada, Encana, Toronto-Dominion Bank, Bank of Nova Scotia, Manulife Financial Corporation, Barrack Gold Corporation, Canadian Natural Resources Ltd., Research in Motion Ltd, Suncor Energy Inc. and Goldcorp Inc.
A technical review of the ETF's chart indicates the share price found long-term support dating back to February 2004 when it dropped to a low of $11.60. The daily chart indicates a saucer shape bottom appears to have been forming over the past two months. Underlying strength and higher prices are indicated as the share price has rallying above the upper overbought Bollinger band and a four month downtrend line. Additionally, the daily MACD is issuing a preliminary buy signal and the weekly MACD appears close to issuing one as well. Short-term however, the stock is trading at a resistance level at about $14 and a pullback to retest the breakout at $13.30 would offer a buying opportunity. Then the ETF should rally to the 41-week MA to about $15.60 where it will encounter further resistance. A close above $16.29 though would signal a potential rally to the 200-week MA of about $17.60 over the ensuing month.
Though the road to recovery while be a winding one it appears that appears that the light at the end of the tunnel is near.
Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.