Equity indices in North America appear to be building on yesterday’s upward momentum and advancing toward significant resistance tests near 11.650 for the Dow Industrials (US30 CFD), 1,300 for the S&P 500 (SPX500 CFD), and 825 for the S&P/TSX 60 Index (Toronto60 CFD). These advances suggest that a higher low may now be in place, a sign that negative market sentiment may be easing and a significant rebound from the declines of early July may now be underway. In particular, note that both U.S. equities and resource-weighted Canadian markets have been rising, which suggests that this move may be related to renewed interest in equities and improved sentiment toward corporate earnings prospects and not just a reaction to softening commodity prices.

Commodity trading has been mixed this morning with natural gas dropping through $9/mbtu, a key long-term support/resistance level, gold dipping below $900/oz, and silver falling below $17/oz before all three commodities rebounded back above these levels. Closing prices today may give investors an indication of whether these dips may be bear traps signaling the end of their recent pullbacks may be near, or if another downdraft may be about to begin. Next downside support levels appear near $8/mbtu to $8.40/mbtu for natural gas, $885/oz for gold, and $16.50/zo for silver. Crude oil, meanwhile, continues to hold in the $120/bbl to $122/bbl range, suggesting that the worst of the drop for oil may be over for now and that a period of consolidation may have commenced.      

Canadian share update: Mixed capital flows in resource sectors

Over the longer term, equities of resource producers tend to lead their respective commodity prices. Capital rotation in Canadian markets today suggests that investor sentiment appears mixed toward commodity prices at the moment.

Gold and precious metal producers have been under pressure today, which suggests that investors may be anticipating that the precious metal correction may continue for some time yet. Leading decliners in the group include Silver Wheaton (TSX: T.SLW, Stock Forum) down 6.4% after reporting earnings last night, Agnico-Eagle (TSX: T.AEM, Stock Forum) and Goldcorp (TSX: T.G, Stock Forum) both down 4.4%, and Eastern Platinum (TSX: T.ELR, Stock Forum) down 3.7%.

On the other hand, base metal producers have been advancing today. Teck Cominco (TSX: T.TCK.B, Stock Forum)  has been leading the group higher, rising 11%, which suggests that investors continue to have a favourable view on its bid for Fording Canadian Coal Trust (TSX: T.FDG.UN, Stock Forum). Other significant gainers include HudBay (TSX: T.HBM, Stock Forum) up 6.7%, Breakwater (TSX: T.BWR, Stock Forum) up 8.6%, and Thomson Creek (TSX: T.TCM, Stock Forum) up 5.8%. In addition to possible takeover speculation in the group, it is possible that because base metals did not really participate in the commodity rally earlier this month, investors may be anticipating that the group might lower downside risk relative to other commodity areas.

Meanwhile, energy producers have also been advancing, with leaders including Addax (TSX: T.AXC, Stock Forum) up 6.9%, Suncor (TSX: T.SU, Stock Forum) up 4.2%, and Canadian Oil Sands (TSX: T.COS.UN, Stock Forum) up 3.5%. This suggests that some investors believe that energy prices may be starting to stabilize at what are still historically high levels.  

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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