Equity markets continue to have difficulties overcoming resistance near 12,800 for the Dow Industrials (US30 CFD), 1,400 for the S&P 500 (SPX500 CFD), and 1,900 for the NASDAQ 100. Although a number of corporate earnings reports exceeded expectations, mixed economic data appears to have cast a cloud over today’s trading.
U.S. durable goods orders declined by 0.3% in March, below the market forecast of a 0.1% increase, while new home sales of 526,000 fell well short of the 580,000 expected. Jobless claims, on the other hand, were better than expected at 342,000 versus the 375,000 feared.
While commodities across a number of groups have declined significantly today, including crude oil, gold, silver, copper, and wheat, commodity trends appear mixed at the moment.
For example, in energy, it appears that today’s declines may just be part of a normal trading correction. Both crude oil and natural gas had rallied to new highs in recent sessions, so today’s action could be attributed to profit-taking. Natural gas inventories grew by 24 BCF, below the 30 BCF forecasted, which may be providing some support as gas has declined 0.6% today, less than the 1.2% crude oil has dropped. For oil, key support levels to note include $115/bbl and $110/bbl, the previous breakout point. Note that a measured objective near $122/bbl for oil from previous consolidation remains intake. Natural gas continues to hold above $10.50/mcf, a key support/resistance level for now, and appears to be trending toward an $11.50 measured objective.
Precious metals, on the other hand, appear to be softer than energy commodities. Gold broke down through support at $900/oz this morning and appears to be moving toward a test of support near $875. Should that fail to hold, the next support level down appears closer to $800/oz, with upside resistance likely in the $925/oz to $950/oz range. Silver, meanwhile, broke down through support at $17.00/oz today, with the next support near $16.25 on trend.
In recent months, sentiment toward precious metals appears to have mirrored sentiment toward the global banking system. During the winter when there were major concerns over liquidity and the health of banks around the world, it appeared that investors may have viewed precious metals as safe haven financial instruments. In recent weeks, however, with confidence in the global banking systems increasing and investors possibly starting to believe that the worst of the storm in banking may have passed, some of this capital appears to be rotation back out into other areas of the financial markets.
Canadian share update: Celestica soars, Potash plummets
Trading action in two senior Canadian shares this morning highlights the importance of investor expectations in determining the market’s response to earnings news.
Celestica (TSX: T.CLS, Bullboard) reported that it earned 15 cents per share in Q1 F2008, beating its six to 11 cents guidance and the Street forecast, on revenue of $1.84 billion. Next quarter, the electronics manufacturing service provider expects to earn 13 to 19 cents per share, above the 11 cents Street forecast, on revenue of $1.8 to $2.0 billion.
Potash Corp (TSX: T.POT, Bullboard) earned $1.74 per share on revenue of $1.89 billion in Q1 F2008, both handily beating the respective Street estimates of $1.50 and $1.67 billion. In Q2, the fertilizer producer expects to earn $2.20 to $2.50. For the full year, Potash increased its guidance to $9.50-$10.50 from $6.25-$7.25.
While results from both companies exceeded expectations and guidance from both appears to be positive, investor reaction to these two developments has been quite different. Celestica has rallied 21.8% off this news, while Potash has declined 4.5%. Prior to these announcements, however, Potash had been in a long-term uptrend, while Celestica had been in a long-term downtrend. This suggests that investor expectations for Potash may have been higher and that some investors may have been waiting for the earnings news as a chance to take profits off the table, leaving Potash vulnerable. On the other hand, Celestica trading near all-time lows before the release seems to have left the door open for a positive surprise.
InterOil (TSX: T.IOL, Bullboard) has declined 9.4% this morning, which suggests that some investors may have been disappointed by the latest drilling news from the energy explorer. The ELK-4 has been stabilized and has reached the top of the target limestone formation. While drilling continues, it remains unknown whether this well in Papua New Guinea will encounter economic quantities of hydrocarbons or not.
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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