Earlier today, crude oil broke through the $130/bbl level, achieving an objective generated from previous trading ranges. Following the announcement of a decline in U.S. inventories, crude backed off a bit on what appears to have been some profit-taking but has since shrugged off weakness and may continue to test $130 resistance through the rest of today’s session. Meanwhile, other commodity prices continue to climb, with natural gas testing $11.50/mcf and gold climbing toward $925/oz.

This commodity price action appears to have propelled the resource-weighted S&P/TSX Composite higher again today. The Composite continues to trade above the key 15,000 level, which could emerge as a new support point. U.S. markets, on the other hand, picked up where they left off yesterday, with downward momentum appearing to build through the morning. The Dow Industrials (US30 CFD) broke down through the key 12,800 level and appear to have completed a short-term double top. The next significant support level for the US30 appears near 12,250.  

Canadian share update: sector rotation within resource groups, Penn West makes a significant purchase

With commodity prices continuing to advance this morning, resource producers have been leading the Canadian markets to new highs. Investors should note, however, that currently it seems to be the smaller producers and exploration companies leading the charge rather than the generals. This could be viewed as a sign that the current advance may be tiring and a period of consolidation or a correction could be pending for Canadian resource equities.

For example, in the Uranium group Fronteer (TSX: T.FRG, Stock Forum), up 9.8%, and UEX (TSX: T.UEX, Stock Forum), up 3.2%, have been leading the way, while Cameco (TSX: T.CCO, Stock Forum), down 0.4%, has been trailing. Similarly Connacher (TSX: T.CLL, Stock Forum), up 3.2%, and Oilexco (TSX: T.OIL, Stock Forum), up 2.7%, have been among the leading gainers among energy producers, while Talisman (TSX: T.TLM, Stock Forum) and Suncor (TSX: T.SU, Stock Forum) have declined today, dropping 1.3% and 0.9%, respectively. This trend can even be seen in gold producers where Gammon Gold (TSX: T.GAM, Stock Forum) and Eldorado Gold (TSX: T.ELD, Stock Forum) have advanced 2.8% and 2.3%, respectively, while Barrick Gold (TSX: T.ABX, Stock Forum) seems to be trailing, up only 1.9% so far. 

Penn West Energy Trust (TSX: T.PWE, Stock Forum) has agreed to acquire Endev Energy (TSX: T.ENE, Stock Forum) for approximately $170 million, an 18% premium to recent trading. The deal is expected to add 3,500 boe/d to Penn West’s production, weighted 78% natural gas, 22% oil and liquids.

Penn West has advanced 0.6% in early trading today. Considering that purchasers usually decline on acquisition news, this suggests that investors may view this as a positive deal for both parties. This deal also may have wider implications for the oilpatch. Prior to the income trust tax changes of November 2006, the purchase of junior producers by energy trusts had been commonplace. In the last eighteen months, however, deal activity slowed dramatically. This transaction may suggest to investors that a new round of consolidation in the oilpatch could be starting.

Upcoming free seminars

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

Location          Date                Time                Topic                                      

Vancouver        June 15            1:00 pm PT      Sector Rotation and Pairs Trading
                                                                        Strategies in Resource Markets

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. 

Date                Time                Topic                                      

June 10            7:30 pm ET      Developing a Trading Strategy 2: Risk Management
                                                Techniques (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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