The rebound in equity indices that started in March may be coming to an end.
In recent sessions, a number of signs have appeared to suggest that the rebound in equity indices that started back in March was coming to an end. For example, earlier this month, the Dow Industrials (US30 CFD) completed a double top, while the NASDAQ 100 (NDAQ100 CFD) completed a significant reversal. Earlier this week, a number of U.S. indices broke down through significant support levels such as 12,800 for the Dow Industrials, 1,400 for the S&P 500 (SPX500 CFD), and 2,000 for the NASDAQ 100.
Today, declines in U.S. markets have accelerated as the day has progressed, suggesting that investors may be concerned about holding positions heading into the American long weekend. With markets breaking down, it appears that a significant correction may now be underway. Initial support levels for U.S. markets include 12,250 for the Dow Industrials, 1,880 for the NASDAQ 100, and 1,325 for the S&P 500.
Canadian markets do not appear to have been immune to this change in sentiment. Earlier this week, the S&P/TSX Composite and the S&P/TSX 60 (Toronto60 CFD) Indices both completed key reversal days that also coincided with failures to break through the key 15,000 and 900 levels, respectively. Initial potential support levels to note for the Canadian markets include 14,650 for the Composite and 850 for the 60.
Canadian share update: an energy commodity and equity price correction may now be underway
Over the long term, resource equities have tended to act as a leading indicator of their related commodity prices. This week, we have seen an example of this in the energy sector. On Wednesday, the Canadian Energy Sector and the S&P/TSX Composite Indices staged key reversal days, breaking out to new highs before changing course and closing substantially lower. This was followed on Thursday by a key reversal day in the price of oil, which broke though $135/bbl briefly before reversing course. This type of day tends to indicate a significant change in sentiment and may be viewed as a sign that the previous uptrend may be exhausted.
This morning, the price of oil attempted to rebound while senior Canadian equities such as Talisman Energy (TSX: T.TLM, Stock Forum) and Suncor Energy (TSX: T.SU, Stock Forum) continued to trend lower, down 3.1% and 1.8%, respectively. This negative divergence suggested that the oil price rebound may be short-lived, and into the afternoon negative momentum in the oil price started to build once again.
With energy producers leading the group lower heading into the weekend, it appears that energy markets may now have entered a period of consolidation or correction that could persist for some time. Note that possible support levels for S&P/TSX Capped Energy Sector CFD appear near 107, 104, and 96 initially. For the oil price, meanwhile, $130/bbl appears to be a key initial psychological floor but if that were to be breached, a decline to retest $120/bbl once again could be possible.
Investors should note that hurricane season in the U.S. is approaching. Yesterday, the National Oceanic and Atmospheric Administration suggested that climate conditions appear to be pointing to a near or above normal hurricane season this year. Investors should note that in 2005, the last hurricane season that had severe impacts on energy production in the Gulf of Mexico, oil and natural gas prices behaved quite differently. Between August and December of 2005, in the wake of Hurricanes Katrina and Rita, the price of crude oil fell by 20.9%, while natural gas soared approximately 121%.
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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