Eoin Treacy's view The S&P/TSX posted a key day reversal earlier this week and followed through to form a weekly key reversal which probably marks a peak of at least near-term significance. When one looks at how overextended relative to the 200-day MA, the index has become then the likelihood of a reversion has increased. This is a similar condition to a number of the better performing indices in recent months and is a symptom of the heightened sense of anxiety that has permeated markets over the last month as well as the impressive run many of these indices have had to reach such heights.

Canada's market is heavily weighted by banks, energy and basic resources companies. The knock-on effect of the surge in oil prices helped to support the energy sector and push the Index to a new recovery high earlier this week. Oil shares, generally, have performed spectacularly well over the last month but a number, globally, have become overextended relative to their 200-day MAs and this week's pullback suggests that a reversion towards the mean has begun.

The shape of any reversion is likely to rely on the performance of crude oil. Brent crude has also become overextended relative to its MA and has paused below $120 since February 24th. An additional political deterioration in the Middle East is likely required to support another surge to the upside. In the absence of such a development, the most likely possibility is for a ranging reversion which allows the MA to catch with the price action. A sustained move below $100 for Brent crude would likely prove a headwind for many of the more overextended oil shares.

The Canadian Financials Index encountered resistance near 1800 last week and some consolidation of recent gains appears likely. However, a sustained move below 1600 would be required to question medium-term potential for additional higher to lateral ranging. Toronto Dominion Bank remains a leader and hit a new all time a month ago. It is now somewhat overextended relative to the MA and susceptible to a reversion, but a sustained move below C$75 would be required to question the consistency of the medium-term uptrend.

Once the Index has completed a reversion towards the mean, it is likely to offer a favourable entry point for medium to longer-term investors.