Peter Cruddas

The recent rally may be running out of gas and a period of consolidation may be underway . Despite a better than expected U.S. jobless claims report (550k vs. street 580k), U.S. indices continue to trade near key levels such as 9,250 for the Dow Industrials (US30 CFD), 1,600 for the NASDAQ 100 (NDAQ100 CFD) and 1,000 for the S&P 500 (SPX500 CFD). This suggests that the recent rally may be running out of gas and that a period of consolidation may be underway, particularly as investors await tomorrow?s employment reports for the U.S. and Canada. Next support levels appear near 960 for the S&P, 9,000 for the Dow and 1,580 for the NASDAQ.

Commodity prices have also continued to climb . After a big rally to start the week in the U.S., American indices have been holding steady today while Canadian markets have played catch-up. Economic data was mixed with a disappointing personal income number (-1..3% vs. street -1.0%) offset by much better than expected pending home sales (3.6% vs. street 0.7%). This appears to have enabled indices to overcome recent resistance and continue to build on recent breakouts. For example, the Dow Industrials (US30 CFD) have broken through 9,300 today after taking out 9,250 resistance yesterday with next resistance near 9,400 and 9,700 on trend. Also, the NASDAQ 100 (NDAQ100 CFD) has moved above 1,625 after holding the 1,600 level with next resistance near 1,700. The S&P 500 (SPX500 CFD) meanwhile, continues to trade near the key 1,000 level that it broke through yesterday with next resistance near 1,050.

Disappointment over the long-awaited Yahoo/Microsoft search deal cast a cloud over the tech sector . Equity markets in the U.S. today has been trading marginally lower as generally mixed news developments failed to give either side the conviction to take charge. While corporate earnings were generally positive, numbers were mainly from second tier companies that tend to impact sector trading rather than the broad market impact of the big bellweathers who have already reported. Also, some of the better results came out of the health care group where sentiment may also be impacted by the shifting winds of political fortune as negotiations continue on reform legislation. Meanwhile, disappointment over the long-awaited Yahoo/Microsoft search deal cast a cloud over the technology sector, and mixed durable goods results failed to provide any spark.

At the same time, indices have held above recent breakout points . For a second straight day, signs have appeared that suggest the recent equity rally may be getting tired and a period of consolidation may be underway. Earnings and economic news was mixed today with consumer confidence (46.6 vs. street 49.0) falling short of expectations and the Richmond Fed manufacturing survey (14 vs. street 8) beating street estimates. Based on this, it appears that this week?s data has not been strong enough to help indices overcome resistance at key levels such as 1,600 for the NASDAQ 100 (NDAQ100 CFD), 980-1,000 for the S&P 500 (SPX500 CFD), and 9,150 for the Dow Industrials (US30 CFD).

As the trading day has progressed, equities have been running out of steam . Equity markets had started out the week on a positive note with the Hang Seng (HongKong33 CFD) breaking through 20,000 and the Nikkei (Japan225 CFD) breaking through 10,000. As the trading day has progressed, however, equities have been running out of steam as indices approach key levels without enough positive news to propel them through.

A weekly close above 9,000 would suggest that significant underlying support remains intact . Its been a quiet end to a big week for equity markets with major indices trading essentially flat as they digest the big gains from earlier in the week. With a few earnings disappointments in the technology sector it appears that investors have been taking some profits off the table ahead of the weekend, as is common particularly in the summer. Because of this, it appears that a number of indices have encountered resistance at key levels such as 1,600 for the NASDAQ 100 (NDAQ100 CFD), 975 for the S&P 500 (SPX500 CFD), 650 for the S&P/TMX 60 (Toronto60 CFD) and 10,725 for the S&P/TMX Composite.

Canadian equity markets appear to be responding to increased bullish sentiment today . Equity markets have charged through a number of previously formidable resistance levels, boosted by more good news on the earnings and particularly the housing fronts. Building on yesterday?s U.S. house price data, existing home sales in June increased by 3.6%, more than double the 1.5% increase the street had expected. Recalling that the collapse of the housing bubble a couple of years ago had been a major contributing factor toward last year?s financial market crisis, a housing recovery could help to underpin a broader economic recovery and indicate the potential for increased resource demand in the coming months.

Focus appears to be on corporate earnings reports . Equity and commodity markets have been mixed today with some digesting recent gains, some encountering resistance and some breaking out to the upside. With a very light economic calendar, the focus appears to be on corporate earnings reports which have generally been well received with few negative surprises.

Failure to break out may have also spurred some profit-taking off recent gains . After starting out the day strong, equity markets have been retreating into the afternoon following comments from the Bank of Canada and U.S. Fed Chair Bernanke that suggested while there have been signs of improvement in the economy, there remain risks and it appears that neither central bank considers their economic situation to be strong enough to take the pedal off the metal as of yet.

Commodity prices have also been climbing this morning . Equity markets picked up where they left off last week, continuing to trade above resistance levels that fell last week such as 5,000 for the DAX (German30 CFD), 8,600 for the Dow Industrials (US30 CFD), 930 for the S&P 500 (SPX500 CFD) and 1,500 for the NASDAQ 100 (NDAQ100 CFD). A number of factors appear to have provided a boost to the bullish cause including a better than expected U.S. leading indicator (0.7% vs. street 0.5%), indications that CIT may be able to get interim financing to help it avoid bankruptcy and better than expected earnings reports out of the industrial sector from companies such as Eaton (NYSE: ETN, Stock Forum) and Johnson Controls (NYSE: JCI, Stock Forum). Next key resistance levels for U.S. markets include 8,900-9,000 for the Dow, 950 then 1,000 for the S&P. and 1.600 for the NASDAQ.

Indices have continued to hold above the resistance levels they broke through earlier in the week . Equity markets in North America and Europe have been trading close to flat today following the release of a number of generally positive earnings reports out of the technology and banking sectors, and positive data out of the housing sector. This appears to have given equity bulls enough confidence to continue providing enough support to at least balance off selling from those that may want to lock in this week?s advances and take profits ahead of the weekend. Most significantly, indices have continued to hold above the resistance levels they broke through earlier in the week, such as 8,600 for the Dow Industrials (US30 CFD), 930 for the S&P 500 (SPX500 CFD) and 1,500 for the NASDAQ 100 (NDAQ100 CFD). This suggests building optimism heading into next week when earnings season really ramps up. Next resistance levels for U.S. indices include 8,900 for the Dow, 960 for the S&P and 1,600 for

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Canadian markets have been on a tear this morning with commodities advancing . A number of positive developments overnight and this morning have propelled equity and commodity markets significantly higher this morning. These include: better than expected earnings reports and guidance from companies such as Intel (NASDAQ: INTC, Stock Forum) and Gannett (NYSE: GCI, Stock Forum), along with a relatively benign U.S. CPI number (+0.7% over month, -1.4% over year), and better than expected Empire Manufacturing (-0.5 vs. street -5.0) plus industrial production (-0.4% vs. street -0.6%) reports. In addition, a bigger than expected decline in crude oil inventories (-2.8 mmbbls vs. street -2.1 mmbbls) appears to be helping support early gains in energy markets.

This time around, equity markets have been holding above key support levels . Over the weekend, rumours swirled that U.S. leasing company CIT Group (NYSE: CIT, Stock Forum) may be teetering on the edge of bankruptcy. Investors? limited reaction to this news, however, shows how much has changed over the last nine months.

Grains have been under pressure today following the release of the USDA crop report for July . Commodities have continued to decline this morning led by U.S. crude oil, which has broken down below the $60.00/bbl level once again and appears to be trending toward the $50.00-$55.00 range, which would represent a common 50%-62% retracement of the previous advance. Grains also have been under pressure today following the release of the USDA crop report for July, which showed higher inventory forecasts for soybeans, wheat and corn. Soybeans have been hit the hardest on this news, falling 2.7% to test the $10.00/bushel support level, while corn and wheat have dropped 1.6% and 1.1% respectively to trade near $3.38 and $4.88/bushel respectively.

A number of commodities also appear to be stabilizing . Equity markets have been trading close to flat today as the recent market trading correction appears to be taking a break for the moment. Better than expected results from Alcoa (NYSE: AA, Stock Forum) and a positive U.S. jobless claims report that may have been affected by last week?s holidays appears to have attracted some support. Overall, however, investors appear to be waiting for earnings reports to ramp up next week before committing to a direction for earnings season.

This correction in commodities appears to be driving a lot of the trading in equity markets today . Despite the news that the International Monetary Fund has raised its global growth outlook for 2010 to 2.5% from 1.9%, and slightly better than expected U.S. crude oil inventories (-2.9 mmbbls vs. street 2.8 mmbbls), commodity prices have continued to decline. This suggests that with commodities having staged major advances off their lows, investors still appear to be looking for reasons to book profits. As such, it appears that a correction remains underway that could see a common 50%-62% retracement of earlier advances. How low could such a correction take commodity markets? As examples, the 50%-62% retracement ranges appear between $50-$55 for U.S. crude, $1.70-$1.85/lb for copper and $810-$850/oz for gold.

The bears appear to have gained the upper hand for now . Commodities have been dropping today as green shoots theories and hopes for a strong and quick economic recovery appear to be wilting under the hot summer sun. It appears that the initial rebound in prices this spring may have been too much too quick and that commodity prices may be correcting back to levels more in line with current economic conditions and the potential for a longer and slower economic recovery that may see false starts and setbacks along the way.

This may be the calm before the storm . As is common on days when U.S. markets are closed, and news flow is light, Canadian markets are up slightly in quiet trading. The S&P/TMX 60 has been holding near 625 while the S&P/TMX Composite has been holding above 10,200.

Commodities have also been climbing this morning . After drifting lower within their consolidation ranges in recent sessions, equities have started to rebound within the same trading channels this morning. This suggests that overall the general sideways in the markets continues with the risk of an early July correction still possible. Overall, however, this week may be quite mixed. With Canada closed for a holiday on Wednesday and the U.S. closed for a holiday on Friday, the data release schedule and the potential for volatility may be compressed into four days for the U.S. For Canada, Thursday could be a particularly busy day as we play catch up but this may be offset by a potentially very quiet Friday. With many investors starting summer vacations this week around the holidays and long weekends, overall trading volumes may be lower, which could also create the potential for some volatility off any news that does come out.