From the desk of Tom Bruni @BruniCharting
The TSX Composite Index is attempting to hold above its 2018 highs after breaking out earlier this month.
In early August we wrote a Canada Update for Premium Members outlining ideas (and another post 2 weeks ago), many of which are working well, however, we’re following up on this post today with a stock on our watchlist that’s become actionable.
Here’s Gildan Activewear listed on the TSX retracing roughly 38.2% of its July 2018-August 2019 rally, which corresponds with its 2015 highs. Through this correction, prices have worked off their bearish momentum divergence and more importantly created a well-defined entry on the long side of this structural uptrend. As long as prices are above 45.50 and momentum is in a bullish regime, we can be long with a long-term upside objective near 55.
Click on chart to enlarge view.
On the NYSE Gildan Activewear undercut its 2015 highs and quickly reversed, suggesting that as long as prices are above 35 we need to be erring on the long side with a long-term upside target near 43. What could potentially add fuel to this fire is this failed “head and shoulders” topping pattern if prices start to squeeze from here.
As always, this trade is not without risks.
If the TSX Composite Index confirms a failed breakout by closing back below 16,650, then Canadian equities as a group are likely to continue weakening as the index settles back into its 20-month + range.
And if Canadian equities are struggling, the sector Gilan Activewear belongs to, Consumer Discretionary, is likely to struggle as it’s been a serial underperformer and remains rangebound between 198-212 at best.
So if Canadian equities and the Consumer Discretionary sector are struggling, we’re likely to see Gildan Activewear succumb to that weakness and break to the downside.
But for now, the reward/risk in the stock is skewed in our favor and our risk is well-defined on the long side.
Thanks for reading and let us know if you have any questions!
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