Although U.S. indices continue to post significant gains today, some of their upward momentum appears to have eased a bit as the morning has progressed. With the Dow Industrials (US30 CFD) still trading well above the key 7,000 barrier it broke through yesterday, however, it appears that this trading may be more related to investors taking trading profits and squaring positions ahead of the weekend rather than a bout of new selling pressure.
Since the beginning of the month, commodities have been climbing as it had appeared that sentiment toward global economic conditions was improving. Initially there had been a divergence between commodity and equity markets as it had appeared that bankruptcy fears were still overhanging stocks. Yesterday’s rally, however, suggests that these fears may be easing as buying accelerated dramatically yesterday after General Motors (NYSE: GM, Stock Forum) lowered its bailout request for March by $2 billion. With both Citibank (NYSE: C, Stock Forum) and Bank of America (NYSE: BAC, Stock Forum) indicating that they don’t need any additional government money, equity markets may continue to play catch-up. Don’t forget that not needing government cash can be viewed as a sign of strength or at least stabilization. Although ongoing risks to companies and the overall economy remain sentiment may improve if more anecdotal information appears to suggest that investors’ worst fears (which seem to have been priced into indices) may not be realized.
At the moment, it appears that following this week’s initial lift, equity indices may be consolidating at higher levels, which may represent the start of new step accumulation patterns like the ones that have appeared in gold and silver since precious metals bottomed out last fall. Currently, the Dow appears to be holding between 7,000 and 7,300, with the S&P 500 (SPX500 CFD) trading between 735 and 775, the NASDAQ 100 (NDAQ100 CFD) between 1,135 and 1,180, the FTSE (UK100 CFD) between 3,600 and 3,800, and the S&P/TSX 60 (Toronto60 CFD) between 480 and 515. Note that a retest of the lower end of these ranges (former resistance levels as new support levels) would be normal within the context of the apparently emerging new uptrends. Next upside resistance should indices break out again in time may appear near 7,750 for the Dow, 780 for the S&P, 1,200 for the NASDAQ, 4,000 for the FTSE and 550 for the 60.
Commodities had started out strong this morning but also appear to be faltering a bit in what appears to be normal consolidation. Copper has been the leading advancer, breaking through the $1.65/lb level once again. Precious metals have also been advancing with gold trading near $925/oz and silver moving back above $13.00/oz. Recall that the gold and silver seem to be climbing within their current trading channels of $900-$1,000/oz for gold and $12.50-$14.50/oz for silver.
Energy markets appear to be encountering some resistance with crude oil having difficulties getting above $48.00/bbl and natural gas still stuck trading below $4.00/mm btu. Over the weekend OPEC is holding a meeting and some speculation about a possible production cut may have been built into the crude price. This may leave crude vulnerable should expectations not materialize or to profit-taking against any news next week. Natural gas, meanwhile appears to have significant overhead resistance possibly due to seasonal concerns with the end of home heating season looming and shoulder season about to start.
The one area where energy demand potential may be having a positive effect today appears to be in corn. Corn had been trading near $3.50/bushel but today has been holding near $3.75-$3.80/bushel following rumours earlier in the week about the potential for increased ethanol requirements. In contrast, U.S. wheat still appears to be holding near the $5.00/bushel level.
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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.
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