Canada Market Round-Up

The benchmark S&P/TSX Composite Index (TSX: ^TSX) opened the last week on a positive note but could not maintain the momentum for the entire week. The S&P/TSX composite index declined 251.79 points (1.23%) to 20150.87 for the week ending October 01, 2021 and posted fourth straight week of decline. The market reacted negatively to the building permits in Canada, which decreased 2.1% to CAD 9.7 billion in August and domestic product (GDP), which edged down 0.1% in July following a 0.6% increase in June. On Monday, the index closed at 20052.25, down by 98.62 points or ~0.49% as the inflation fears persisted and expectations grew that the U.S. Federal Reserve would start tapering in the coming months. Energy, Basic Materials, Consumer Non-Cyclicals, and utilities were the leading sectors, while Healthcare, Technology, Academic & Educational Services and Real Estate were the laggards. The weekly chart indicates that the index price witnessed a breakout of the lower band of the rising channel pattern at 20355 level. The immediate resistance level of the index is 20540, while the immediate support exists at 19590. On the weekly time frame, RSI is trading at ~53.55 levels. We expect volatility to remain high, whereas the index may consolidate within the broad range of 19590 to 20540 levels in the coming trading sessions. 

The upcoming major economic events that may impact the Canadian market sentiment include Trade Balance C$, Ivey PMI SA and Employment Change monthly.

Global Markets Wrap-Up 

For the week ending October 01, 2021, S&P 500 closed at 4357.04, down by ~2.21%, while Dow Jones Industrial Average settled at 34327.45 with a loss of ~1.35%. Moreover, the Nasdaq composite dropped 481 points and settled at 14566.70, while Russell 2000 ended the week at 2241.63, reflecting a decrease of ~0.29%. According to the weekly data published by the US Bureau of Labor Statistics, the seasonally adjusted initial US unemployment claims data increased by 11,000 to 362,000 for the week ending 25 September 2021, against the initial claims at 351,000 in the prior week. 

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 Canacol Energy Ltd. (TSX: CNE) and CubicFarm Systems Corp. (TSX: CUB) for the next 2-4 weeks’ duration.

Canacol Energy Ltd.  

Canacol Energy Ltd. (TSX: CNE) is a Canada-based oil and gas exploration and production company. The Company is engaged in petroleum and natural gas exploration and development activities in Colombia and Ecuador.

Price Action Analysis (on the Weekly Chart)

On the weekly chart, CNE stock price broke out the downward sloping trend line resistance at CAD 3.55 level on October 04, 2021. Now, the next resistance level appears to be at CAD 4.15, 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 ~60.69 level, which indicates positive momentum in the price. The weekly volume in the stock is showing an upward trend, which indicates higher participation from the investors. Moreover, the stock is trading above 21-period SMA & 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 Canacol Energy Ltd. is looking technically well-placed on the chart, and we recommend a ‘Speculative Buy’ rating on the stock. Investment decisions 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.

CubicFarm Systems Corp. 

CubicFarm Systems Corp. (TSX: CUB) is a Canada-based agriculture technology and vertical farming company. The Company develops and employs technology to provide predictable crop yields. It also provides a seed to store shelf solution, including design, installation, training, packaging, marketing, and branding support.

Price Action Analysis (on the Weekly Chart)

On the weekly chart, CUB stock price broke out the falling trend line resistance at CAD 1.37 level on October 01, 2021, and prices are sustaining above the downward sloping trend line. Prices are also getting support of the upward sloping trend line that further supports our bullish stance. Now, the next resistance level appears to be at CAD 1.69, 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 ~58.86 levels, indicating positive momentum. The weekly volumes also seem supportive for the upside movement. Moreover, the stock is trading above 21-period and 50-period SMA, which may act as a crucial support level for the prices.

Financial Summary:

General Recommendation:

As per the above-mentioned price action and technical analysis, we can conclude that CubicFarm Systems Corp. is looking technically well-placed on the chart, and we recommend a ‘Speculative Buy’ rating on the stock. Investment decisions 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 in the ‘Entry Price’ can be considered depending upon the upside potential expected and also taking into consideration the Target 1 and trailing stop-loss levels indicated. For example: - An Investor can consider entering the stock at or above a certain range (3%-5%) from the Entry Levels recommended depending upon the potential upside expected and difference from the Target 1 and Trailing-Stop Loss Levels indicated for the stock.

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.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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 October 04, 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.

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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.