INK Canadian Insider Index seeks bottom around 900 level

Mon, 01/18/2016 - 1:38 am Nicholas Winton, High on the Hog

Technical Overview by Nicholas Winton, Hedgehog Trader and @HedgehogTrader on Twitter

Thank you for joining us in a technical look at the mid-cap oriented INK Canadian Insider (CIN) Index. It's been a gruelling few weeks for stock markets worldwide, and Canadian stocks were no exception. The INK CIN Index has fallen 9% since running into resistance once again at the 1000 level in late December.

In our last update, we thought the Index had a good shot at rebounding since its RSI had previously not dropped below 30 and as the Index had dropped below the Bollinger band, an event that frequently triggers a reversal to the upside. What happened since then is that the correction that was already underway quickly snowballed as investors became more and more fearful, selling virtually every sector in the market - and that's how we end up with such exaggerated moves to the downside.

Our momentum indicators are not surprisingly quite negative - with the Index's RSI now at a multi-month low of 24.44 and MACD at -15.7. For comparison's sake, at their summer lows, RSI hit a low of 18 and MACD fell to -20. So we're now in the same ballpark as August, as far as how oversold stocks are and how close we might be to a rebound. The Index again finds itself below its lower Bollinger band (and already stretched quite far below its 20-day moving average) and it will be interesting to see if these low levels are enough to incite a rebound or if a further pullback is needed to bring back buyers in size.

Resistance is now around 950-960 where support previously existed. While there are no guarantees, support should be substantial around the 900 level since that is where the CIN Index consolidated for a number of months in 2013, before embarking on a 20% rise.

If there's a silver lining in such a pessimistic environment, it's that such huge emotionally-charged market declines are often followed by equally powerful rebounds - such as we saw following the late August sell-off. That's when we saw the INK CIN Index drop as low as 926 before rallying to 1020 for a 10.1% gain from its lows within a few weeks time.

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