I would like to start out by looking at the $CDNX, Canadian Venture Composite Index, which blasted higher last week and is following through this week. The reason this index is so important is because it not only has many junior precious metals stocks but also many small-cap energy related stocks as well as other speculative venture capital stocks from other sectors. This is a very good sign for the overall stock markets and commodities in general, as it shows risk capital is finding a home in which to park. This is another important clue that there is no top in the stock markets yet because the risk on trade is still healthy.
This first chart for the CDNX is a daily look which shows an eight month H&S bottom in place. This chart shows the principal of Chartology at work. Remember a stock does one of three things. It is either building out a reversal pattern, a consolidation pattern or is in an impulse move. After eight months of base building, you can see what happens when all the energy is released. There was no way anyone could have predicted that the current impulse move would start out like this one, but we did know that an impulse move would take place once the neckline was broken to the upside.
I have shown you many examples of how a big pattern can be made up of smaller patterns before a pattern is completed. Below is another daily chart for the CDNX that you should be familiar with which shows the nearly one and a half year flat top expanding triangle consolidation pattern. Not only did the price action breakout above the neckline, but also the top rail of the large triangle consolidation pattern. The bears were so exhausted they couldn’t defend the neckline, let alone the top rail of the flat top expanding triangle. A backtest, if we get one, would come into play around the 850 area.
This next chart for the CDNX is a long term weekly look which helped me find the top, back in late 2007. At the time, I called that huge trading range anything you wanted, because there were several patterns that could work out. The bottom line was, whichever way the price action broke out, a big move would follow. Keep in mind that was at the height of the bull market up until that point, and no one wanted to believe that big trading range could be a top.
