TSX – Monthly Analysis

CANDLES

If we look at the annual close of the TSX, especially in light of recent studies on gold and silver, the concern becomes clear. Statistics apply to everyone. Based on the annual frame, TSX should find support sometime this year either at the upper Bollinger Band or at the 8 EMA. A deeper move is possible, but it is too early to discuss extreme scenarios. Even these two levels would imply drawdowns of roughly 12% and 27%, respectively. The quarterly and semiannual frames also closed in a stretched condition and would normally require a reset.

Turning to the monthly chart, the message is clearer. TSX printed nine consecutive green candles, with the last three forming an Advance Block. That combination strongly suggests a pullback is due and may already be underway. The weekly formed a bearish engulfing over the prior three candles, and the daily is now pressing against the 50 DMA.

Overall, TSX is bearish until signaled otherwise, with a realistic downside window of roughly 12–27%. This was the candlestick view. Now let’s see whether Elliott Waves add clarity or refine this outlook.

ELLIOTT WAVES

Long Term

We recently discussed Dow Jones and noted that its technical signals did not support the idea of a wave three, only wave 1 or wave 5. In the case of the TSX, the picture is different. Here, the indicators are quite clear in supporting a wave three of some degree. Based on my work on a larger structure, there is a strong case that the entire advance from the October 2022 lows has completed and that it was a wave of a meaningful degree, likely intermediate.

In a more typical scenario, this wave should have ended much earlier, sometime around mid-2025. That would have allowed for a healthy impulse, followed by a moderate pullback, and then another rally. Instead, the wave extended well beyond normal Fibonacci proportions, with wave 5 of (3) becoming the longest segment. We remember what one of Elliott’s postulates says:
“Fifth wave extensions, truncated fifths and ending diagonal triangles all imply the same thing: dramatic reversal ahead.”
This suggests the index may now be paying the price for pushing the structure into abnormal territory.

Identifying a retracement zone for wave (4) is relatively straightforward. Wave (4) often finds support near the area of wave 4 of a lower degree, marked by the red rectangle, where a 27% drawdown—near the 8-year EMA—would sit roughly in the middle. In some cases, pullbacks are shallower, around 0.236–0.382 of wave (3), shown by the green rectangle, with a 12% decline near its center. Given how stretched this advance has been, a deeper 0.382–0.5 retracement, shown by the blue rectangle, appears more realistic. The most probable outcome may be the overlap between the red and blue zones, pointing to a drawdown of roughly 22%. Finally, considering alternation, if wave (2) lasted about six months, wave (4) could unfold faster—possibly over just a few months or even weeks.

Now, let’s shift focus to the index at the micro level.

Short Term

The TSX printed one of the cleanest impulsive moves down I have seen in a long time. Bulls appeared to recognize the structural risk and made a two-day attempt to reverse it, pushing the index to just under the prior all-time high, but they ran out of fuel less than a point below it. The subsequent move down was also clearly impulsive, most likely wave iii of a larger impulse (a), as shown in blue. There is a red alternative on the table, but patience is required until we can confirm that the first wave down is complete. At this stage, the potential size of this impulse is concerning—bordering on scary.

It is also worth noting that, compared to the U.S. indices, TSX currently shows the cleanest downward structure. Because of that, it may be useful to monitor its development closely as a potential leading indicator. That said, as always, each index will be assessed on its own merits.

SUMMARY:

TSX is flashing some of the clearest warning signals we have seen in a long time. The index moved lower in a clearly impulsive manner, a type of structure that rarely appears by accident. Bulls sensed the danger and made a two-day attempt to reverse the move, pushing price to within a single point of the all-time high, but momentum faded at the worst possible moment. That failure alone speaks volumes about the current balance of power.

The follow-up decline unfolded in an impulsive fashion, most likely as part of a larger impulsive sequence now developing. While an alternative scenario remains possible, the magnitude and clarity of the move already suggest that the downside risk is meaningful. This is not the kind of structure that typically resolves with a shallow pullback.

And there is a broader context worth keeping in mind. Markets often joke that when the U.S. economy sneezes, the Canadian economy comes down with the flu. If that saying holds even partially true, the clean and aggressive structure now visible on TSX could be an early warning of deeper stress ahead. Compared to U.S. indices, TSX currently shows the cleanest downward pattern, making it a chart worth watching closely. As always, each market will be judged on its own merits—but this one is sending a message that should not be ignored.