U.S. equity markets have started off on a positive note today, suggesting that despite yesterday’s late declines, overall sentiment appears to be steadily improving. In yesterday’s pullback, indices held above key short-term technical levels, such as 1,910 for the NASDAQ 100 (NDAQ 100 CFD), 1,380 for the S&P 500 (SPX500 CFD), and 12,800 for the Dow Industrials (US30 CFD), suggesting that underlying support seems to still be intact. Today, U.S. markets appear to be reacting favourably to economic and industry data, particularly the technology-weighted NASDAQ 100 Index, which appears to be responding to semiconductor data.

Earlier today, the Semiconductor Industry Association reported that although semiconductor sales fell by 5.1% over quarter in Q1 as part of a normal seasonal decline, March chip sales of $21.1 billion were up 3.4% over month and 3.8% over year. The association suggested that despite falling memory prices, industry sales trends appear positive, particularly NAND flash sales, which were up 45.9%. 

The remaining U.S. economic data seems to be mixed so far. Jobless claims for last week were 380,000, worse than the 365,000 expected. Personal income grew by 0.3% in March, below the 0.4% expected, while personal spending grew by 0.4%, above the 0.2% expected. The April Manufacturing Purchasing Managers Index came in at 48.6, indicating a slowing economy, but above the 48.0 reading expected. Prices paid, however, came in at 84.5, worse than the 83.5 expected.  

Resource-weighted Canadian markets, meanwhile, have declined this morning, which could be due to falling energy and precious metal commodity prices or increased political risk in the resource sector.

Precious metals still seem to be under pressure today, with gold down 3.2% and silver down 2.7%. Gold broke down through $870/oz, a significant support level, while silver has been testing support at $16.25. It appears that some of the capital that had moved into precious metals in an apparent flight to safety last winter may still be moving out into other areas, with investor confidence in equities and the global financial system apparently improving. Note that the 200-day moving averages for gold and silver appear near $820/oz and $15.30/oz, respectively.

This capital rotation may also be spilling over into energy commodities. Since failing to break through the $120/bbl level earlier this week, crude oil has been declining as the risk of supply disruptions from strikes faded. Today, crude has fallen 1.4% and has been trading near $112/bbl, making a retest of the key $110/bbl support/resistance level possible in the near term. Natural gas, meanwhile, also appears to be backing off from recent highs, dropping back under $11.00/mcf yesterday and an additional 2.3% so far today. In a correction, natural gas could retreat to retest a key support/resistance area in the $10.40 to $10.50 range.   

Canadian share update: InterOil makes a gas discovery, changing sentiment toward some large caps

InterOil Corp. (TSX: T.IOL, Bullboard) soared 18.5% in early trading today after the international energy explorer announced a significant natural gas discovery in Papua New Guinea. The Elk-4 well penetrated the target Antelope formation and encountered natural gas and related liquids. Management noted that this success has the potential to augment the Elk-1 discovery well. Today InterOil broke through resistance at $21.00 and could advance to test resistance at the $23.00 or $26.00 levels on trend.

Sentiment toward two senior companies that had been trending lower for some time appears to be changing following the release of earnings news.

In its first earnings release since completing its merger last month, Thomson Reuters Corp. (TSX: T.TRI, Bullboard) announced that pro-forma revenues were up 12% over year, driven by 8% organic growth, with increases seen at both the Markets and Professional divisions. Management indicated that it expects sales to grow 6% to 8% this year organically. Most significantly, the company also indicated that it is accelerating its integration plan and increasing its synergy targets. With transaction-closing risk now gone and integration risk seemingly fading, some of the concerns that may have been overhanging the stock appear to be fading. So far today, Thomson has advanced 3.5%. Initial upside resistance levels for Thomson appear near $40.00 and $45.50 with support near $35.00.

Loblaw Companies Ltd. (TSX: T.L, Bullboard) has gained 3.7% and its parent George Weston Ltd. (TSX: T.WN, Bullboard) has climbed 4.5% in a second straight day of advances following the release of the grocer’s latest earnings report. Early Tuesday, Loblaw announced that EPS for Q1 F2008 were up 15% over year and that its new management team intends to launch a major program of service and store improvements to accelerate its planned turnaround strategy. Since December, a bullish reverse head and shoulders pattern appears to have been forming, and today’s move seems to have broken the falling neckline of the pattern. In the near term, a move to test resistance near $35.00 appears possible, where a breakout may provide an additional indication of improving sentiment.

Political and contractual uncertainty also appears to be overhanging mineral exploration companies operating in Venezuela. Gold Reserve Inc. (TSX: T.GRZ, Bullboard) has dropped 27.1%, while Crystallex International Corp. (TSX: T.KRY, Bullboard) has declined another 10.8% so far today as another shoe fell on the industry. Last night, Gold Reserve announced that the Government of Venezuela has decided to rescind the mine construction permit for its Brisas project that it had issued in March of 2007, citing environmental concerns. Recall that yesterday it blocked Crystallex from conducting additional exploration or development activities at the Las Christinas project. This and other similar developments around the world appear to be adding an additional layer of political risk on to the resource exploration sector. That is, not only is there a risk that a project may not receive approval but also that even if approved, there seems to be an increasing risk that governments may go back and rip up approvals or contracts later on. 

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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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