Equities, commodities stabilize toward end of volatile week

Following a series of dramatic swings in investor sentiment, particularly toward the energy and financial sectors, equity and commodity markets appear to be settling down this morning, with crude oil rebounding moderately and U.S. equity indices dropping slightly. Recent rebounds in the Dow Industrials (US30 CFD) and S&P 500 (SPX500 CFD) appear to have stalled near 11,500 and 1,255, respectively, just below and above their January lows. Meanwhile, the NASDAQ Composite has dropped 1.4% today, suggesting that interest in the technology sector seems to be fading.

Canadian equity indices, on the other hand, with their higher weighting in resource and financial sectors, have been climbing today. The S&P/TSX Composite, which appears to have found support near 13,200 earlier this week, seems to be moving toward a test of its 200-day average near 13,845. The S&P/TSX 60 Index (Toronto60 CFD) has been climbing up from a successful test of 780 and is currently testing its 200-day average at 814, with next resistance closer to 845.

Energy commodities have been rebounding somewhat from this week’s steep declines, suggesting that some of the selling pressure may be easing and short covering could be underway. Note, however, that crude oil remains below its $131.50/bbl breakdown point and natural gas remains below $11.20/mcf, which suggests that these commodities may still be vulnerable, particularly as the late summer has traditionally been a seasonally weaker period for natural gas. Note that the next significant downside support levels appear near $122/bbl for crude oil and $10 for natural gas.

Precious metals have been drifting lower toward significant support tests of their own. Earlier this month, gold and silver had overcome resistance at $950/oz and $18/oz, respectively. Currently, gold and silver are testing these levels for potential support. Should these levels hold, it would suggest that these metals remain in an uptrend, but a failure at these levels could be viewed as a portent that the previous trading range may be re-asserting itself.

Canadian share update: Energy stock action suggests commodity correction may have run its course for now

Over the long-term, equities of resource producers have tended to lead their related commodity prices as equities tend to include investors’ expectations not only of future earnings but also of future commodity prices. In recent sessions, commodities have been under pressure, particularly in the energy area, but today’s trading action suggests that sentiment toward energy may be stabilizing.

In both Canada and the United States, senior energy producers and services companies have started to rebound, which suggests that some investors are starting to take a renewed interest in the group.

Leading energy gainers in Canada include Trinidad (TSX: T.TDG, Stock Forum) up 5.1%, Connacher (TSX: T.CLL, Stock Forum) up 4.1%, Precision Drilling (TSX: T.PD.UN, Stock Forum) up 3.7%, and EnCana (TSX: T.ECA, Stock Forum) up 3.0%. Meanwhile, leading advancers in the U.S. include BJ Services (NYSE: BJS, Stock Forum) up 4.1%, Schlumberger (NYSE: SLB, Stock Forum) up 3.5%, Occidental Pete (NYSE: OXY, Stock Forum) up 2.6%, and EOG Resources (NYSE: EOG, Stock Forum) up 2.3%.

In particular, technical action suggests natural gas producers may be ready for a rebound. EOG recently tested the $100 level and completed a common 61.8% retracement of its February to June advance. Possible upside resistance for EOG appears near $111, $120, and $135. Similarly, EnCana dipped into the 50% to 61.8% retracement area yesterday and has since rebounded back above the $80 level. Possible technical upside resistance for EnCana appears near $81, $87, and $95.

Investors also may note that Great Canadian Gaming (TSX: T.GC, Stock Forum) broke out to the upside today on no news. The casino operator had been steadily declining in recent months, but had stabilized in the $8.70 to $9.20 zone over the last few weeks. Today, Great Canadian has gained 4.1% and broken through the $9.50 level. Potential near-term technical upside resistance levels appear near $10, $10.60, and $11.

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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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ABOUT THE AUTHOR

Colin Cieszynski, CMC Markets

Colin Cieszynski,CFA, CMT is a Market Analyst and Manager of Education with CMC Markets Canada. Currently, Colin provides daily technical commentary on North American equity markets and selected commodities. Colin joined CMC Markets from Canaccord Capital, where he provided market commentary to individual investors for the last ten years and daily technical notes since 2001.

Colin has completed both the Chartered Financial Analyst and Chartered Market Technician programs. He is a member of the Market Technicians Association, the Canadian Society of Technical Analysts, the CFA Institute, the Toronto CFA Society and the Prospectors and Developers Association of Canada.

About CMC Markets

CMC Markets is Canada’s only online CFD provider and its affiliate, CMC Markets UK plc, was the first company in the world to offer online FX trading. CMC Markets UK plc has been offering CFDs and FX to Canadian traders through the services of CMC Markets since 2005.

Founded in 1989, CMC Group has 22 offices worldwide, including Toronto and Vancouver, employs in excess of 1,000 staff and represents clients in over 70 countries. Between November 2006 and October 2007, CMC Group handled over 16.2 million trades with a total value of over US $1.1 trillion, across the full product range. In December 2007, Goldman Sachs acquired a 10% stake in the CMC Group.

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