Equity investors in the U.S. appear to have returned from their long weekend in a positive mood, with markets rebounding moderately this morning. In the last ten days, the RSI indicators for both the Dow Industrials (US30 CFD) and S&P 500 (SPX500 CFD) had been in oversold territory (below 30) a sign that tends to suggest oversold markets due for a bounce.

With these indices trading well below their January/March lows, however, these gains appear to be more of a relief rally within a bear trend rather than the start of a significant recovery. To signal a positive turn, resistance would need to be overcome near 11,750 for the Dow Industrials, or 1,325 for the S&P 500. With quarterly earnings season approaching, at this point, there remains a risk that U.S. markets could decline over the coming months to retest their 2006 lows near 10,680 for the Dow Industrials and 1,225 for the S&P 500.

It is possible that some of the lift in equities may be due to a correction in energy and agricultural commodity prices, which could be easing inflationary expectations a bit. Crude oil and natural gas, for example, have declined by 2.8% and 3.2%, respectively, while corn has fallen 3.8%, wheat has declined 2.9%, soybeans have dipped 2.4%, and rough rice has dropped 1.7%. With crude oil holding above $140/bbl, natural gas still above $13/mcf, corn just under $7.50/bushel and wheat still well above $8.50/bushel, this decline appears to be more of a normal correction on profit taking within the context of longer-term uptrends. Note that a previous measured objective near $147.50 for crude oil remains intact.

These short-term commodity price declines, however, appear to be impacting resource-weighted Canadian equity markets. Today, the S&P/TSX Composite appears to be testing 14,000, a key technical level, with additional support possible at its 200-day average of 13,865, or closer to 13,800. The S&P/TSX 60 Index (Toronto60 CFD), meanwhile, appears to be holding well above the key 815 level following a successful test of that and the 200-day average near 814 last week.     

Canadian share update: Equinox sinks on a setback

Equinox Minerals (TSX: T.EQN, Stock Forum) fell 10.7% this morning after the company announced that a fire at its Lumwana Project in Zambia caused damage to a power transformer and a substation. Because of this, the company now expects the completion and handover of the project to be delayed. While this may be viewed by some investors as a significant setback, investors should note that once the uncertainties surrounding the timing and cost of the delay are resolved, this event could be quickly discounted by the Street. 

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                                      

July 22             7:30 pm ET      Developing a Trading Strategy 1:
                                                What Kind of Trader Are You?

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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