Equities, energy commodities soar, precious metals pull back

Equity markets around the world have staged major rallies overnight and this morning as moves by the U.S. Treasury and securities regulators in the U.S. and U.K. to limit short selling and to attempt to stabilize the global banking system appear to have been well received by investors.

Following on from Thursday’s late-day surge and rallies in Asian and European markets overnight, the Dow Industrials have jumped back through 11,000 and run toward 11,350, while the S&P 500 (SPX500 CFD) has moved back above 1,200 and traded toward 1,240. Note that key initial resistance levels appear near 10,800 for the Dow and 1,310 for the S&P, but if these are overcome, measured moves from current trading channels suggest 11,800 and 1,420 may be attainable over time. Note that this rally also suggests that with the measured downside objectives from the head and shoulders tops that were completed earlier this year, and 50% retracements of the 2002-2007 bear market having been achieved, 10,700 and 1,175 may be emerging as significant support levels for the Dow and S&P, respectively.

This apparent change in equity market sentiment also appears to have given Canadian markets a boost today. Currently, the S&P/TSX Composite is trading back near 12,500, a former support level, with possible additional resistance near 12,750 and support near 12,250. The S&P/TSX 60 (Toronto60 CFD) recently staged a successful retest of support at the 700 level and appears to be climbing toward a resistance test in the 750-765 range.

While commodity trading has been mixed today, a number of technical signs suggest that the summer correction may have ended and a new broad-based commodity advance may be underway. Precious metals have declined today as it appears that some of the quick money that appeared to view gold and silver as a haven from financial market stresses earlier in the week may have started to move back out. Despite this rotation, the pullback in precious metals has been significantly less than the previous advance, suggesting that some investors may view the recent central bank liquidity measures as potentially inflationary for the longer term. Also note that both gold and silver have held above $847.50 and $12.00, their previous resistance levels, which suggests that a new uptrend may be underway with initial resistance near $925.00 and $13.10, respectively.

Crude oil has broken through its key $100.00/bbl level today, which, combined with an 11 cent jump in the copper price toward $3.20/lb, suggests that some investors may be starting to anticipate that recent central bank moves around the world may also help to shore up the global economy and demand for industrial commodities. Note that initial resistance for crude oil may appear in the $106.00 to $110.00/bbl zone. Natural gas, meanwhile, continues to consolidate in the $7.00-$8.00/mmbtu range, but appears to be steadily climbing toward another test of the $8.00 level.

Canadian and U.S. share update: Resurgence in financials leads markets higher

Financial services shares on both sides of the border have been leading equity markets higher this morning. In the U.S., gains have been led by some of the companies that had been pressured earlier in the week, such as Washington Mutual up 43.9% and Morgan Stanley up 26.4%, and large banks such as Wachovia up 32.1% and Citigroup up 21.6%.

Wachovia’s chart highlights the dramatic change in sentiment toward the group today. For most of the last year, Wachovia had been trending lower, but after an initial test of $10.00 in July, it had been consolidating in the $10.00 to $20.00 range. Earlier this week, Wachovia dipped just below $10.00 and then reversed higher, a classic bear trap reversal that coincided with a positive MACD divergence and completed a double bottom, all signs that suggest downward momentum was easing and support was coming in. Today Wachovia broke through $20.00, and while resistance may appear near $25.00, an old support level, a measured move from the base suggests Wachovia could trend toward a test of the $30.00 level over the longer term.

In Canada, gains in financials have been led by the brokerage and asset management sectors with GMP Capital up 17.4%, CI Financial up 11.6%, and Dundee Wealth, up 9.2%.

Resource sectors have been mixed today. While senior golds such as Goldcorp, down 2.7%, have backed off a bit with the gold price correcting, base metals have been rallying, led by First Quantum up 12.8%, Equinox up 9.8%, and HudBay up 9.1%. HudBay has been trending lower for most of the last year, but recently, when the price broke down to a new low, a positive MACD divergence suggested downward momentum may be slowing. This week, support emerged near the $6.00 level and with today’s rebound, an advance to retest $9.00, a significant support/resistance level, may have commenced.

Timminco an alternative energy company, has also attracted renewed interest, possibly with the resurgence of the oil price. Today, Timminco jumped 9.8% and broke out of a short-term downtrend, and could retest the upper boundary of a trading channel and the lower end of a previous gap near the $16.00 level.

Stockhouse Conflict and Disclosure Policy: Stockgroup Media Inc., owners and operators of Stockhouse.ca/com, has established rules to ensure that there is no appearance of impropriety on the part of any Stockhouse writers who discuss or name individual public companies in the content published on the Stockhouse websites.

(09/19/08)