The failure of equities to rebound from recent selling suggests a negative trend change is underway.
Equity markets in North America appear to be taking a breather today, trading essentially flat. Although this suggests that some of the short-term negative momentum may be easing for the moment, the lack of a rebound, combined with the technical damage already done, suggests that sellers may have gained the upper hand and a significant downswing may be underway.
For example, the Dow Industrials (US30 CFD) recently completed a double top where they also failed to break through their 200-day moving average and the 13,000 level, suggesting significant upside resistance remains in place. Yesterday, the Industrials broke down through 12,800, a key support resistance level, signaling that a significant downdraft may now be underway. Note that the next significant support levels appear near 12,250 and 12,000.
In Canada, meanwhile, the equity market rally driven by the resource-related sectors may have come to an end for now. Yesterday, both the S&P/TSX Composite and the S&P/TSX 60 Index (Toronto60 CFD) rallied to new highs in the morning and then dropped to close significantly lower. Key reversal days such as these often signal that a decisive change in investor sentiment may have occurred. Considering that this also coincided with breakdowns through key psychological levels such as 15,000 for the Composite and 900 for the 60, it appears that the recent rally may have become exhausted, and a correction may be possible. Note that a key initial test for the S&P/TSX Composite may occur in the 14,625-14,650 area, which had been a significant resistance zone for the last year, along with 860 for the S&P/TSX 60.
As resource equity prices tend to lead commodity prices over time, a pullback in Canadian equity indices could be a harbinger of a commodity market correction. Crude oil, for example, has started to give back some of its recent gains, falling back under $133/bbl after faltering near the $135/bbl level earlier today. Note that the first significant downside support levels for oil appear near $127/bbl and $120/bbl, both former resistance levels, although $130/bbl could by psychologically important as well.
Canadian share update: cable companies climb on takeover troubles at BCE
BCE (TSX: T.BCE, Stock Forum) fell 13.1% in early trading today after a Quebec appeals court ruled in favour of bondholders who had been attempting to block the privatization of BCE on concerns. The court noted that it believed BCE failed to prove that bondholders would not be adversely affected by the takeover. While BCE noted that it plans to take this matter to the Supreme Court of Canada, even if the Court decides to hear the case this process could take some time.
With rumours already circulating that the banks that were to provide financing for the takeover may be balking and demanding changes to the price or lending terms, it appears that BCE and the Teachers-led group may have to fight a war on two fronts to close this deal. Because of this uncertainty, it appears that transaction and legal risks may be increasing, which could impact sentiment toward BCE for some time to come. Note that prior to the deal announcement last year, BCE traded in the $29 to $32 range.
Some of the capital rotating out of BCE today appears to be moving into the cable sector, with Rogers Communications (TSX: T.RCI, Stock Forum) climbing 7.4% and Shaw Communications (TSX: T.SJR, Stock Forum) advancing 4.5%. Rogers appears to now have successfully tested support and seems to be moving toward a retest of resistance at $46. A breakthrough there may signal the start of a new rally phase in the current recovery trend where over the longer term Rogers could move toward $50 where prior resistance and a measured objective converge.
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.
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