Canadian and U.S. coal producers attract renewed interest.
For the second straight session, crude oil appears to have suddenly come under pressure in the late morning. While yesterday’s drop could be attributed to concerns over the health of the U.S. economy and demand, today’s decline appears to be due to inventory data, which showed a 2.95 million barrel increase when a 2.2 million barrel decline had been expected.
What this action suggests primarily, however, is that with crude oil having staged significant gains in recent months, investors may have been looking for an excuse to take profits off the table. Don’t forget that over the long term, bull markets tend to be characterized by steady advances broken by the occasional sharp downward correction, while long-term bear markets tend to consist of steady declines with the occasional sharp upward correction.
With a recent negative MACD divergence having suggested that upward momentum may be slowing for now, at this point, it appears that crude oil has moved into an extended period of consolidation. The problem for investors at the moment seems to be that the potential boundaries of an emerging trading channel have yet to be defined and are still being explored. This morning, for example, a near-term support line and level failed on the break through $135/bbl but support has held at $131.50 for now. Should a breakdown through $131.50 occur, however, the next zone of support does not appear until the $120/bbl–$122/bbl zone.
With U.S. equities rebounding from depressed conditions, led by the financial services sector, it appears that some of the recent buying in crude oil and other commodities may have part of a defensive flight of capital over concerns about the health of the banking sector. If financial fears start to dissipate and capital starts to rotate back into equities, commodities could enter a period of consolidation as the precious metals did through the spring.
These moves of capital, however, have not changed longer-term equity market trends as of yet. Although the Dow Industrials (US30 CFD) and the S&P 500 (SPX500 CFD) have managed to get back above the 11,000 and 1,223 levels, respectively, they have been unable to move back through their key 11,650 or 1,250 resistance levels, which suggests that longer-term bearish trends remain intact. Similarly, gold and silver have remained above their recent respective breakout points of $950/oz and $18.00/oz, suggesting their recent bullish trends remain intact. As such, at this point, recent moves appear to be part of a market correction than a significant trend change.
Canadian share update: Coal producers and CGI Group climb
Coal producers in both Canada and the U.S. have attracted renewed interest today, apparently in response to the news that Cleveland Cliffs (NYSE: CLF, Stock Forum) has agreed to purchase Alpha Natural Resources (NYSE: ANR, Stock Forum) for $10 billion, or $128/share, a 34.9% premium to last night’s close. Fording (TSX: T.FDG.UN, Stock Forum) has advanced 3.3% on this news and appears to be advancing toward a retest or resistance in the $90 to $95 range. Massey Energy (NYSE: MEE, Stock Forum) has gained 5.7%.
CGI Group (TSX: T.GIB.A, Stock Forum) appears to have successfully completed a test of support at $9, the low end of a long-term trading channel. The IT service company announced this morning that it has been selected as a bidder for U.S. Navy work under its new Seaport-e area, which is to manage future engineering, technical, logistics, and other support services, a potential $5.3 billion annual market. Initial upside appears in place near $10.50, with $12 having provided a cap over the longer term.
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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.
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