Technicals add to bull case for the market, says Paradigm

Paradigm Capital delivered a technical analysis on Sunday of overall market conditions, with analyst Aazan Habib saying a noticeable market rotation out of consumer staples shows an improving appetite for risk among investors, adding to a bull case for the market.

Habib said the S&P 500 continues to face trendline and moving average resistance at around the 4,000 level, while global equity benchmarks have been breaking out through key levels as leadership rotates away from US equities. 

“We note 28 country ETFs outside of the US that stand out to us as having bullish price/trend structures which reflects the strong global breadth expansion taking place in a weaker Dollar environment,” Habib said.

Another note of optimism comes from the Consumer Staples/S&P 500 ratio (XLP/SPY), which Habib said is breaking down through its 200-day moving average, resulting in the first bearish trend signal since a December 2021 breakout that marked the peak in global equities. Habib said the last time we saw a bearish trend signal in this ratio was in May 2020, which confirmed the bottoming process in equities following the COVID-19 crash. 

Habib said the bottoming thesis gains support from a recent breadth expansion in the bond market.

“Our scans have been flagging breakouts in the bond market on multiple timeframes across issuers, credit quality and duration while trend indicators have been giving their strongest bullish readings in over a year,” he said.

On the Canadian front, the analyst said the TSX Venture Composite is in the process of resolving higher from a falling wedge pattern, as underlying breadth and momentum indicators continue to improve. 

“We continue to look for a close above 680 to confirm a bullish trend reversal in the TSX Venture. Underlying breadth and momentum indicators have been showing improvement and we have been seeing more and more Venture names in the process of breaking two-year downtrends,” he said.

As for the broader TSX Composite, Habib said it’s testing resistance at the 20,500 level but is showing “strong underlying breadth expansion” with over 68 per cent of issues trading above the 200-day averages.