While the dog days of August are traditionally a slow period for trading activity, today’s trading action suggests that with North American equities unable to build on Friday’s rally, bulls and bears still seem to be at an impasse. There are a number of data reports due this week including housing data for the U.S. and GDP numbers on both sides of the border that have the potential to move markets, but unless there is a major surprise in any of the numbers, continued consolidation appears to be the order of the week. Current trading ranges include 11,300 to 1,800 for the Dow Industrials (US30 CFD), 1,250 to 1,300 for the S&P 500 (SPX500 CFD), and 780-820 for the S&P/TSX 60 (Toronto60 CFD). 

This week could also provide investors an opportunity to consider the outlook for the global economy and corporate earnings ahead of what could be a more volatile September. Note that in recent calendar quarters, there has tended to be some pressure on equities toward the end of a quarter on concerns over the health of the banking system and worries about the next round of earnings. This opens the possibility that the July lows near 10,800 for the Dow and 1,200 for the S&P could be retested. Investors should also note, however, that traditional seasonal trading patterns suggest that equities, particularly in resource areas, tend to reach their low points of the calendar year in September or October. This suggests that there is a possibility of a rebound heading into what could be an active political season with a U.S. election scheduled and the possibility of one in Canada as well.   

Recent trading in commodities, meanwhile, suggests that the worst of the recent correction appears to have passed and a recovery in some areas may have commenced. This turn seems to be led by the grains group where corn and soybeans have posed gains of over 2.0% today. In recent sessions, corn has broken through $6.00/bushel, wheat has advanced to test $9.00/bushel, and soybeans have advanced through $13.50/bushel. Crude oil, meanwhile, appears to have stabilized in the $115/bbl-$120/bbl area. Natural gas appears to be drifting in the $7.50-$8.50 range in what is usually a seasonally weak period, but this level appears to be significantly higher than recent years. A significant potential issue, however, may be continued softness in copper, which is considered to be one of the most economically sensitive commodities. Copper broke down through $3.50/lb once again today, suggesting some investors remain concerned over the growth outlook for the global economy.   

Canadian and U.S. share update: Maple Leaf’s meltdown, Precision’s purchase, Canadian bank earnings preview 

Maple Leaf Foods (TSX: T.MFI, Stock Forum) dropped 7.8% this morning and broke down to a new low after the company expanded the recall of products from its Toronto facility (Establishment Code 97B) after an outbreak of Listeria bacteria that was traced to the plant. With the $9.50 support level having failed, the next measured downside objective does not appear until closer to the $8.00 level. Note that concerns over this outbreak and the potential impact on the company going forward could weigh on MFI for some time to come, with the possibility that the old $9.50 support level could become a resistance point. 

Precision Drilling (TSX: T.PD.UN, Stock Forum) has declined 5.1% this morning after the company announced a friendly deal to take over Grey Wolf (TSX: T.GWE, Stock Forum), apparently bringing an extended takeover battle to a close. Precision has agreed to pay approximately $2 billion in cash and units for the driller, a move that is expected to increase its fleet to 371 drilling rigs, 229 service rigs and other equipment, and pro-forma annual revenues of $1.8 billion. Although the purchase price represents only a 4.5% premium to Friday’s close, Precision has been under pressure today, as is normal for purchasers, likely due to the usual concerns over whether the price may be too high and increased integration risks. Precision, to this point, however, has held above potential support levels of $20.50 and $19.50. 

Investors should note that this is Canadian bank earnings week for this quarter with Bank of Montreal (TSX: T.BMO, Stock Forum) and Bank of Nova Scotia (TSX: T.BNS, Stock Forum) scheduled to report Tuesday, CIBC (TSX: T.CM, Stock Forum) on Wednesday, and National Bank (TSX: T.NA, Stock Forum), Royal Bank (TSX: T.RY, Stock Forum), and TD Bank (TSX: T.TD, Stock Forum) due on Thursday. Some of the themes investors may be watching from Canadian banks this week may include whether there are any further writedowns related to U.S. sub-prime exposure, if there has been any change to Canadian economic conditions and loan loss provisions, and any developments related to the Canadian ABCP problem. For most of the last year, Canadian banks have generally been declining but it appears that some banks, like Bank of Montreal, may have completed double bottoms in July and could be stabilizing. Canadian banks have been soft today with National down 1.6% and CIBC down 1.1%, which suggests that investors’ expectations seem to be low, which could potentially open the door for upside surprises.  

This commentary is based upon technical analysis. Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.  

This commentary is provided for informational and educational purposes only. Nothing contained in this commentary is intended as investment advice or a recommendation or solicitation to buy or sell. All opinions expressed are current as of the date of publication and subject to change without notice. 

CFDs and FX are highly speculative and can involve a high degree of risk. Investors in CFDs and FX should be prepared for the risk of losing their entire investment and losing further amounts. Trading accounts are available to Accredited Investors only. CMC Markets will not open accounts except in jurisdictions in which it is registered or exempt from registration. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their investment decisions. CMC Markets will not determine an investor’s general investment needs and objectives or the suitability of a proposed purchase or sale of a security. CFDs are distributed in Canada by CMC Markets Canada Inc. as dealer and agent of CMC Markets UK plc. CMC Markets Canada Inc. is a Member of the Investment Industry Regulatory Organization of Canada and Member CIPF. Contact us for further details. 

Note that any references to CFD prices or price changes are sourced from CMC Markets' proprietary trading system Marketmaker™. CFD and FX Accounts are available to accredited investors only. 

 Copyright 2008, CMC Markets. All rights reserved.