For the third time this month, what appeared to be a possible equity rally in the U.S. has been unable to sustain momentum. After picking up yesterday on lower commodity prices and interest rate news, today U.S. equities have turned lower once again after failing to break through significant resistance levels such as 11,600 for the Dow Industrials (US30 CFD) and 1,300 for the S&P 500 (SPX500 CFD). This suggests that some investors may be concerned that falling commodity prices and Fed comments may indicate that economic conditions could remain difficult for some time to come, which could have a negative impact on investors’ expectations for corporate earnings and equity market sentiment.

So far this year, a distinct quarterly trading trend has emerged, with markets sliding through confession season on anticipation of poor quarterly results, rebounding through earnings season partly due to results turning out to be not as bad as feared, and then steady declines through the latter part of the quarter. With equities failing to rebound significantly through the earnings season that essentially ends next week, there appears to be a growing risk that U.S. equities could resume their primary dowtrends later this month and into September and possibly retest last month’s lows, such as near 10,800 for the Dow and 1,200 for the S&P. This quarterly trading pattern still leaves open, however, the possibility of a trading bounce heading into autumn and the U.S. election.

Commodities have been rebounding moderately, with crude oil retesting resistance near $120/bbl even though U.S. inventories increased by 1.6 million barrels, well above the 0.2 million barrel decline investors had expected. Gasoline has been gaining at a quicker pace today, rising to test the $3 per gallon level after inventories fell by 4.3 million barrels, more than the 1.5 million barrel decline expected. Note that based on this data, gasoline prices could outperform crude prices in the short term. This may boost crack spreads, which could favour sectors in the energy group with downstream assets such as integrateds and refiners over upstream producers in the near term.  

Rebounding commodity prices and takeover activity in the metals sector appears to be improving sentiment in Canadian equity markets today with the S&P/TSX Composite rising within its 13,150 to 13,750 trading range and the S&P/TSX 60 Index (Toronto60 CFD) advancing within its 780-8290 trading zone.   

Canadian share update: Precious metals glitter on takeover news, earnings boost Gerdau and Agrium

Earlier today, Xstrata (OTO: XSRAF, Stock Forum) launched a GBP33 per share takeover bid for Lonmin (OTO: LNMIF, Stock Forum) one of the world’s largest platinum producers, valuing the company at GBP5 billion, a 42% premium to Monday’s close. This appears to have sparked a round of takeover speculation in the precious metals sector, where significant gains have been seen that cannot really be attributed to commodity prices, which have been flat today. For example, silver producers have been leading the charge today with Silver Wheaton (TSX: T.SLW, Stock Forum) up 7.8%, Pan American Silver (TSX: T.PAA, Stock Forum) up 7.3%, and Silvercorp (TSX: T.SVM, Stock Forum) up 5.6%. Meanwhile, diamond producer Harry Winston (TSX: T.HW, Stock Forum) has moved up 5.8% and platinum producer Eastern Platinum (TSX: T.ELR, Stock Forum) has gained 1.9%

Agrium (TSX: T.AGU, Stock Forum) has gained 5.4% today after the fertilizer producer announced that it earned $4 per share last quarter, which management attributed to strong fertilizer demand and the UAP acquisition. Agrium had been sliding in recent weeks but appears to have completed a double bottom near the $80 level. With a rebound underway, an $80 to $95 consolidation range may be emerging.

Gerdau Ameristeel (TSX: T.GNA, Stock Forum) jumped 4.3% this morning after the steelmaker posted Q2 earnings of 60 cents per share, well above the 50 cent Street estimate. It appears that a positive MACD divergence has emerged. This suggests that recent downward momentum may be easing and a rebound to retest resistance in the $17 to $18 range may be underway.

Sentiment toward the long depressed forest products sector also appears to be continuing to improve with West Fraser Timber (TSX: T.WFT, Stock Forum) up 6.5% and Canfor (TSX: T.CFP, Stock Forum) up 6.7%. Both shares appear to be trending higher within established trading ranges of $29 to $35 for West Fraser and $7 to $9 for Canfor.   

Upcoming educational webinars

In the coming months, Colin Cieszynski will be presenting a series of free webinars on trading for accredited investors from coast to coast. 

Date                Time                Topic                                      

August 12         7:30 pm ET      Developing a Trading Strategy 3: Developing
                                                a Trading Plan (for CMC Markets clients only)

For more information on these and additional CMC Markets seminars, please go to CMC Markets Seminar Registration Page at http://www.cmcmarkets.ca/en/content/education/free_seminars.do

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.

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