Equities and commodities attempt to rebound

Colin Cieszynski, CMC Markets
0 Comments| February 19, 2009

Equity markets have been starting to climb a bit today as it appears that bears may be backing off having seen that the 7,500 level for the Dow Industrials (US30 CFD) appears to be very strongly defended at the moment. Economic data has been mixed today with a couple of positive indications. The U.S. leading indicator increased more than investors had been expecting (0.4% vs. street 0.1%) while Canada’s decline was only marginally worse than expectations (-0.8% vs. street -0.7). Meanwhile, U.S. producer prices grew more than expected (0.8% vs. street 0.3%) which may have helped to ease deflation concerns a bit although tomorrow’s CPI data for the U.S. and Canada may shed more light in that area. There were two data points that came in worse than expected, jobless claims (627k vs. street 620K) and particularly Philadelphia Fed (-41.3 vs. street -25.0) but these appear to have been shrugged off suggesting that recent market declines appear to have already priced in and discounted current soft conditions.

Other equity indices also have been rebounding today and appear to be testing key levels including the S&P 500 (SPX500 CFD) just below 800, the S&P/TSX 60 (Toronto60 CFD) just below 500 and the FTSE 100 (UK100 CFD) back above 4,000. The success of indices to get back through these levels may give an indication of whether a new upswing in beginning or if there is still a risk of a retest of the November lows in the short term.

Commodity price action also suggests that some of the fear that had gripped markets recently may be easing. Gold and silver, which had taken on a haven for capital role recently, have backed off a bit today. This suggests that some capital may be moving out into other areas of the market. At the same time, however, they remain at relatively high levels near $980/oz for gold and just below $14.00/oz for silver, suggesting that some capital appears to be sticking around and that longer-term trends remain intact.

Trading in other commodities, meanwhile, suggests that investor sentiment toward future demand conditions may be improving. In particular, U.S. crude oil has been soaring, recently up 7.1% and through $37.00/bbl after inventories fell by 138K barrels when a 3.2 million increase had been widely expected. Copper also has been attracting increased attention and has been moving toward a retest of $1.50/bb. Grains have also been climbing with wheat climbing well above $5.00/bushel, corn back above $3.50/bushel and soybeans climbing toward a test of $9.00/bushel.

One commodity that has seen significant pressure today has been natural gas, which has fallen 4.2% toward a test of the $4.00/mmbtu level. Storage levels fell by only 24 bcf last week when a 50 bcf drawdown had been expected. With the end of home heating season approaching and temperatures higher in consuming regions lately, investor concern over inventory levels heading into shoulder season may be increasing. 

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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. 

CMC Markets Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada and Member CIPF. CFDs are distributed in Canada by CMC Markets Canada Inc. dealer and agent of CMC Markets UK plc. Trading CFDs and FX involves a high degree of risk and investors should be prepared for the risk of losing their entire investment and losing further amounts. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. CFD and FX trading is available in jurisdictions in which CMC is registered or exempt from registration, and may be available to Accredited Investors only in certain jurisdictions.

Note that any references to CFD prices or price changes are sourced from CMC Markets' proprietary trading system Marketmaker™. 

 Copyright 2009, CMC Markets. All rights reserved.

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