Corrections and consolidation in equities and commodities

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Corrections and consolidation in equities and commodities

5/13/2008 12:40:47 PM | Colin Cieszynski, CMC Markets

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Oil explorer overcomes financial difficulties but stock price doesn’t yet reflect the news.

Equity markets in North America appear to be in a holding pattern today with major indices trading near key technical levels including 2,000 for the NASDAQ 100 (NDAQ100 CFD), 1,400 for the S&P 500 (SPX500 CFD), 12,800 for the Dow Industrials (US30 CFD), and 870 for the S&P/TSX 60 (TORONTO60 CFD). It appears that in the U.S. bullish and bearish investors may be at a stalemate, with the recent round of earnings reports seemingly giving bulls the ability to lift equities off their winter bottoms, but likely not enough information to maintain recovery momentum. With earnings reports slowing down again, it appears that markets may consolidate near current levels and economic or commodity price data may become the key drivers of investor sentiment for the time being.

Commodities appear to be giving back some of their recent gains today in what appears to be a normal trading correction. Crude oil, for example, has drifted back below the $124/bbl level, while silver has approached $16.50/oz once again. Gold has declined significantly today, dropping back through the $875/oz level to retest support closer to $860/oz. Meanwhile, natural gas appears to be supported, trading in the $11.40–$11.50/mcf range. Note that were there to be a significant pullback in commodity prices, the resource- and energy-weighted Canadian indices could be vulnerable.

Canadian share update: Sino-Forest surges, InterOil refinances

Sino-Forest (TSX: T.TRE, Bullboard) jumped 2.3% this morning after reporting that it earned nine cents per share from continuing operations last quarter, up 2.3% over year, while revenue rose by 20.7% to $136.1 million. Investors appear to be responding to comments that suggested the first quarter is usually slower seasonally but that it still expects to have a strong year in 2008. Upside resistance levels for TRE appear near $18 and $20 with support at $15 having recently been successfully retested.

InterOil (TSX: T.IOL, Bullboard) appears to have sorted out its financial difficulties. Last night, the international energy explorer announced a $95 million private placement of subordinated convertible debentures with a $25 conversion price. This debt is to be used to repay the remaining $70 million of its previous credit facility and to continue drilling for oil and gas in Papua New Guinea.

InterOil declined initially off this news, possibly over dilution concerns or transaction risk, but it is possible that, should this deal close, investors may be able to focus solely on the company’s exploration prospects and recent discoveries.

Upcoming free seminars

In the coming weeks, Colin Cieszynski will be making a number of free presentations for accredited investors across Canada.

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

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.

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.

CFDs and FX are highly speculative and can involve a high degree of risk. Investors in CFDs and FX should be prepared for the risk of losing their entire investment and losing further amounts. Trading accounts are available to Accredited Investors only. CMC Markets will not open accounts except in jurisdictions in which it is registered or exempt from registration. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their investment decisions. CMC Markets will not determine an investor’s general investment needs and objectives or the suitability of a proposed purchase or sale of a security. CFDs are distributed in Canada by CMC Markets Canada Inc. as dealer and agent of CMC Markets UK plc. CMC Markets Canada Inc. is a member of the Investment Dealers Association of Canada and member CIPF. Contact us for further details.

Note that any references to CFD prices or price changes are sourced from CMC Markets' proprietary trading system Marketmaker™. CFD and FX Accounts are available to accredited investors only.

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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