Crude Oil Futures Contract (CL.F) & S&P/TSX Composite Index (TSX.I)

The S&P/TSX Composite Index, Canada’s main benchmark, rose to a record high on Wednesday again, as heavyweight energy and mining sectors have bounced back from some losses from earlier, although investors remained on edge due to rising COVID-19 cases worldwide. Technology stocks have seemed more resilient to virus-related disruptions over the past year.

Crude Oil has also been making headlines recently after OPEC's latest meeting where production was to increase by 400,000 barrels/day over monthly increments. However, the US Administration is feeling the pressure of the combination of higher domestic gas prices at the pump plus higher inflation. This has led to the Biden administration calling for faster production from OPEC and domestically while at the same time calling for more action against climate change.

In this issue of Equity Leaders Weekly, we take a look at how Crude Oil has performed over the last year and half and how that has affected the Canadian Market with analysis on the S&P/TSX Composite Index.

Crude Oil (CL.F) has had quite the ride over the last year and half starting 2020 around $60 USD a barrel, hitting a low in April of 2020 of $11.57 and then rocketing up to a high of $74.76 in July of 2021. CL.F is now up 40.75% YTD so far in 2021. Crude has now settled into a little more of a short-term trading zone between $65 - $75 for the time being as different supply/demand forces globally are pulling for control. The White House through a statement made by the National Security Advisor called on OPEC to revive production more quickly above and beyond the current 400,000 b/d monthly hikes the cartel is already implementing.

Oil prices haven’t come down fast enough for the Biden administration as it is reported that they are feeling some heat to keep inflation and gasoline prices in check. The Energy Information Administration reported gasoline stockpiles fell by 448,000 barrels last week, but not as much as many were expecting causing crude prices to turn slightly bearish over the near-term.

U.S. gasoline stockpiles dropped by 1.4 million barrels last week, the fourth straight weekly draw. Support for CL.F is now at $65.55 and a move through this level would trigger a Double Bottom chart pattern and could see additional support around $57 come into play. To the upside, the main resistance levels are around the $75-$76.8 levels which brings in the high from July and 2018 into play. A breakout over $76.90 would signal the start of a new advance.

The S&P/TSX Composite Index (TSX.I) has hit new all-time highs again this week up 0.29% yesterday, 1.46% over the last month, 6.64% over the last quarter, and 17.9% YTD.

The TSX.I continues to move higher in a Spread Double Top chart pattern on a 2% chart as it approaches the next potential resistance level at around 21,141. Further resistance above this is found around 22,435. To the downside, support is found at 18.722 and below this at 17,690 based on a previous high. The Canadian benchmark’s higher concentration in Energy, Materials, and Financials hampered its recovery relative to the US in the early stages of the global rebound. TSX.I broke through its February 2020 peak in January of 2021, compared with June 2020 for the Technology-heavy NASDAQ (NASD.I), and November 2020 for the broad US S&P 500 (SPX.I) and Russell 2000 (RLS.I) indices. But Energy and Financials have seen a strong push lately and Canada has added 94,000 jobs in July, compared with analyst expectations of 177,500, and the unemployment rate fell to 7.5%, just off expectations of 7.4%. It remains to be seen if this momentum will continue or if the TSX.I might come to a slight halt from its column of X's at some point with a brief pull back as inflation, volatile commodity prices, a looming election, and other global factors come into play.