Peter Cruddas

Even though personal income has improved, spending appears to be lagging . The economic data that came out of the U.S. today may generally be seen as good news. Personal income grew by 1.4% in May, well above the 0.3% street estimate, personal spending grew by 0.3%, in line with expectations, and the University of Michigan beat expectations slightly.

Commodities have been rebounding today from recent declines . For the most part, equity and commodity markets have been fairly quiet today indicating that with summer approaching, limited news flow, and holidays coming next week in North America. Equities have shrugged off a soft U.S. jobless report (627k vs. street 600k), but remain below Monday?s highs, suggesting that current sideways trading may continue through next week.

Investors may be waiting to hear what the Fed has to say before fully committing to a direction . Some of the selling pressure that had gripped equities and commodities appears to have eased this morning. Markets have been rebounding in response to a positive surprise in U.S. durable goods sales (+1.8% vs. street -0.9%) and appear to be shrugging off soft new home sales data (342k vs. street 360k). That being said, indices remain below recent trading levels, which suggests that investors may be waiting to hear what the Fed has to say later today before fully committing to a direction.

A continued bounce from here could have longer-term bullish implications . Equities and commodities have been rebounding this morning despite a lack of any news catalysts. This suggests that with quadruple witching hour coming later today, investors may be covering shorts and closing out positions ahead of the weekend and option expiry. Although today?s bounce has the feel of a relief rally and a respite from recent selling, a continued bounce from here could have longer-term bullish implications.

U.S. equity markets have moved up moderately today . For the last week, most equity and commodity markets have been sliding, while natural gas has been rallying. Today, however, these trends appear to have reversed a bit following a number of data releases.

However, muted rebound suggests that there remains a risk of a significant near-term correction . Generally positive economic news out of the U.S. this morning appears to have helped equities and commodities to stabilize in the wake of yesterday?s selloff, although the muted rebound suggests that there remains a risk of a significant near-term correction.

The pending global economic recovery may be longer and bumpier than some investors have hoped . In recent sessions, the rebound we had seen in equity and commodity markets since March appeared to be running out of steam with bulls having difficulty overcoming significant resistance levels. Today, it appears that bears may be starting to gain the upper hand for now, although to this point, this retreat still appears to be more of a correction than the start of a major turn lower.

Advances appear to be stalling near key resistance levels . Equity markets had been strong through overnight trading but once again advances appear to be stalling near key resistance levels. This suggests that although equities have moved to the high end of the base building trading ranges that have been forming since November, not enough positive news has appeared to give investors the conviction to launch a new broad recovery trend.

Despite declining off the open, a number of key equity index support levels have held this morning . With economic and corporate news flow very quiet over the weekend, equities have been sliding this morning in what appears to be normal backing and filling after recent gains. Despite declining off the open, a number of key equity index support levels have held this morning including 8,600 for the Dow Industrials (US30 CFD), 930 for the S&P 500 (SPX500 CFD), 4,400 for the FTSE 100 (UK100 CFD), 5,000 for the DAX (German30 CFD) 630 for the S&P/TMX 60 (Toronto60 CFD) and 10,350 for the S&P/TMX Composite. This suggests that the current retreat represents a normal correction within the context of longer-term uptrends that remain intact to this point. Upside resistance levels for key indices appear near 8,800 and 9,000 for the Dow, 955 and 1,000 for the S&P, 4,750 for the FTSE, 5,350 for the DAX, 650 and 680 for the 60 and 10,650 and 10,800 for the Composite.

U.S. equity futures rallied briefly on the news . Equities and commodities have had a different reaction to today?s U.S. employment report. The report was mixed with nonfarm payrolls declining by 345K much less than the widely expected 520K drop, but the unemployment rate rose by 0.5% to 9,4% which was worse than the 9.2% street estimate.

Recent declines appeared to be due to normal profit-taking . While equity markets have been quiet and stable today, a number of commodity markets have bounced back strongly from yesterday?s selloff. This suggests that for the most part, recent declines appeared to be due to normal profit-taking and that underlying bullish sentiment and price trends remain intact.

Likely profit taking also putting pressure on energy commodities . A series of second-tier economic data points coming in below expectations appears to have sparked some profit taking in the lull between Monday?s big rally and Friday?s Canadian and American employment reports, the main event for this week. Note that tomorrow could be a big day for economic news in Canada with an interest rate decision, building permits and Ivey PMI data all scheduled.

Sign of continuing strong underlying investor support . In the wake of yesterday?s breakout rally and with limited economic and corporate news on tap for today, a bit of consolidation and profit taking could be expected. Considering the potential then for some selling pressure, today?s trading, which has seen equity and commodity markets continue to trade well above their breakout points, can be seen as a sign of continuing strong underlying investor support. Pending home sales, which rose by 6.7%, well above the 0.5% Street estimate, also appear to be providing some support for the bulls.

Consolidation trends that started a month ago may run into the summer . Equity markets in North America and Europe have been trading close to flat today, and appear to be encountering significant resistance near the high end of their current trading ranges. This suggests that the consolidation trends that started a month ago remain intact and may run into the summer with news flow generally lighter now that corporate earnings season is over for this quarter.

U.S. consumer confidence jumped in May . After a sluggish start, North American markets roared to life mid-morning, rallying in response to two positive economic developments. U.S. consumer confidence jumped in May to 54.9 from 39.2 in April, coming in well above the 42.6 street estimate. Also the Richmond Fed Manufacturing Index moved back into positive territory, coming in at 4 for May, well above the -6 that the street had expected. In addition, the Dallas Fed manufacturing survey came in at (21.5%), which was not as bad as the (22.1%) the street had feared.

S&P/TSX Composite essentially continues to consolidate in the 9,800 to 10,400 range . Equity markets in Canada and Europe have been very quiet today with U.S. and U.K. markets closed for holidays. The S&P/TSX Composite has moved back above the 10,000 level, but essentially continues to consolidate in the 9,800 to 10,400 range, while the S&P/TSX 60 (Toronto60 CFD) continues to hold above 600 support with additional support near 590 and resistance near 630.

Overall, equity markets still appear to be in a sideways consolidation trend . Although a series of developments appeared to take the wind out of market?s sails yesterday, today?s rebound indicates that these developments were not enough, however, to weaken underlying support or give bears enough conviction to drive markets lower. This action suggests that overall, equity markets still appear to be in a sideways consolidation trend. It also appears to suggest that yesterday?s downdraft for most commodities represented a normal correction in the context of longer-term recovery trends.

The rally of the last two months may be getting tired . Despite some early signs of strength, most equity markets have traded off from their highs this morning while commodity markets have been mixed. This action suggests upside resistance continues to emerge while growing negative MACD divergences indicate that upward momentum is slowing. Based on this, it appears that the rally of the last two months may be getting tired and that markets may be entering a period of consolidation.

A quiet start to the week . With no big economic or corporate news developments to set direction today, equity and commodity markets appear to be spinning their wheels, giving back some of last week?s big gains. Late last week, bearish double tops and negative divergences between indices and their MACD indicators suggested that the advance which started two months ago may be getting tired and that the risk of a short-term correction may be growing. For now, however, have been holding above previous resistance levels, which suggests that today?s action may be normal consolidation within the context of existing uptrends.

April employment report showed an increase of 35,900 jobs; a 50,000 decline had been expected . Sentiment toward Canadian equities appears to have improved dramatically this week. While improving commodity prices and global equity market sentiment may be playing a role, a big boost also appears to be coming from early signs that suggest Canada may have started to come out of the recession in April. Today?s employment report, which showed an increase of 35,900 jobs last month when a 50,000 decline had been expected, builds on the Ivey PMI report of earlier in the week. That showed a reading of 53.7, well above the 40.8 street estimate, but most importantly, moved back above the key 50 level suggesting that economic activity in Canada may have started to expand once again.