Canada Market Round-Up

Last week, the benchmark S&P/TSX Composite Index (TSX: ^TSX) started on a negative note but maintained a bullish momentum for the entire week. The S&P/TSX composite index gain by 177.01 points (0.89%) to 20029.19 for the week ending June 04, 2021, registering the third straight week of gains. The market reacted positively to the Canada real gross domestic product (GDP) number, up 1.1% in March, following 0.4% growth in February, according to the data published by Statistics Canada. The benchmark index made a new all-time high of 20067.19 on June 07, 2021, and settled at 20035.30. Healthcare, Technology, Real Estate and Energy were the leading sectors, while Academic & Educational Services, Consumer Cyclicals, Industrials, and Basic Materials were the laggards on Monday. The weekly chart indicates that the index prices are continuously sustaining above the rising trendline and taking support of the same. The immediate resistance level for the index is 20650, while the immediate support exists at 19570. On the weekly time frame, RSI is trading at ~73.53 levels, which supports the strong bullish momentum in the index.

The upcoming major economic events that may impact the Canadian market sentiment include Trade Balance C$, BoC Rate Decision and Manufacturing Sales monthly.

Global Markets Wrap-Up 

For the week ending June 04, 2021, S&P 500 closed at 4229.89, up by ~0.61%. Dow Jones Industrial Average settled at 34756.39 with an overall gain of ~0.66 %, while the Nasdaq composite added 65.75 points and closed at 13814.49 (up ~0.48%). Russell 2000 settled at 2286.41, reflecting an increase of ~0.77%. Last week, the major global indices reacted positively to the data published by the US Labor Department. The US claims for jobless benefits were dropped to 385,000 last week compared with 405,000 in the prior week. The claims dropped below 400,000 1^st time since March 2020.

Having understood the US market’s performance over the past one week, taking cues from major global news, and based on our technical analysis of the S&P/TSX Composite Index, now let us look at the two TSX listed stocks from the technical standpoint. Noted below are our recommendations based on generic insights, entry price, target prices, and stop-loss for Air Canada (TSX: AC) and Enerflex Ltd. (TSX: EFX) for the next 2-4 weeks duration.

Air Canada 

Air Canada (TSX: AC) is a Canada-based airline company. The Company is a provider of scheduled passenger services in the Canadian market, the Canada-United States transborder market and in the international market from Canada.

Price Action Analysis (on the Weekly Chart)

On the weekly chart, AC stock prices are trading in a rising channel pattern and sustaining above the lower band of the pattern. In addition, prices are also trading above the rising trendline support level at CAD 25.30. Moreover, stock prices are forming higher tops and higher bottoms, which indicates bulls are still in action. Now, the next resistance level appears to be at CAD 30.90, and the stock may test that level in the short term (2-4 weeks).

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, the momentum oscillator RSI (14-Period) is trading at ~58.58 level, which supports the upside move in the stock price. Volumes are also supporting the current price action. Furthermore, the stock is trading above 21-period and 50-period SMA, indicating a positive trend.

Financial Summary:

General Recommendation:

As per the above-mentioned price action and technical analysis, we can conclude that Air Canada is looking technically well-placed on the chart, and we recommend a ‘Buy’ rating on the stock. Investment decision should be made depending on the investor’s appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. Below is the summary of our recommendation.

Enerflex Ltd. 

Enerflex Ltd. (TSX: EFX) is a Canada-based oil and gas company. The Company engineers, designs, manufactures and provides aftermarket support for equipment, systems and turnkey facilities used to process and move natural gas from the wellhead to the pipeline.

Price Action Analysis (on the Weekly Chart)

On the weekly chart, EFX stock price witnessed a breakout of the horizontal channel pattern at CAD 7.53 level (on February 19, 2021). Prices registered a decisive break out of the sideways pattern that suggests a change in the trend from sideways to upward. Since the breakout, prices are sustaining above the upper band of the pattern. Prices have retested the breakout level (on May 20, 2021) and bounced from that level. Now, the next resistance level appears to be at CAD 9.75, and the stock may test that level in the short term (2-4 weeks).

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, the momentum oscillator RSI (14-Period) is trading at ~57.50 levels, indicating bullish momentum. Moreover, the stock is trading above 21-period and 50-period SMA, which may act as a crucial support level for the prices. The volume in the stock is showing an upward trend, which indicates higher participation from the investors.

Financial Summary:

General Recommendation:

As per the above-mentioned price action and technical analysis, we can conclude that Enerflex Ltd. is looking technically well-placed on the chart, and we recommend a ‘Speculative Buy’ rating on the stock. Investment decision should be made depending on the investor’s appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. Below is the summary of our recommendation.

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include update on employment, inflation, GDP, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the S&P/TSX Composite Index and listed stocks’ prices.

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00); however, returns are generated within 2-4 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within a short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, and social and political instability risks etc.

Entry Price: For the given recommendation(s), the Entry Price is assumed to be at or above a certain level. However, a slight deviation on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

Note: How to Read the Charts?

The Green color line reflects the 21-period moving average, while the Red color line indicates the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black color line in the chart’s lower segment reflects the Relative Strength Index (14-Period), which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status, while a reading of 30 or below suggests an oversold status.

The Blue color bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume, and we consider stocks with greater than or equal to 200,000 volumes as more liquid. Liquidity in stocks helps in easier and faster execution of the order.

The Orange color lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Risk Reward Ratio: The risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~60% Stop Loss of the Target 1 from the entry point.

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. We suggest Investors to Trail the Stop-Loss as per the aforementioned levels if the stock price achieves more than 50% of the Target 1. Investors should consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 50% of the Target 1.

The reference date for all price data, volumes, technical indicators, support, and resistance levels is June 07, 2021. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

CAD: Canadian Dollar

RSI: Relative Strength Index 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.