Gold Continuous Contract (GC.F) & Crude Oil Continuous Contract (CL.F)
It’s rare to see investors take the seasonal saying “Sell in May and Go Away” quite this literally, but the last week really has been a tale of two markets. Thursday and Friday of last week saw a strong finish to April, helping US indices to record their best month since January, boosted by a positive response to generally stronger than expected results this earnings season.
Sentiment has turned much more cautious, however, and indices have dropped back after the forced sale of First Republic Bank reminded investors that the US banking crisis isn’t necessarily over and that lingering risks remain. A surprise resumption of interest rate increases after previously pausing by the Reserve Bank of Australia reminded investors that the fight against inflation isn’t over and the road ahead for the economy may be bumpier than previously hoped.
US economic news to start May has been positive with Construction Spending and ADP Payrolls coming in well above expectations. While this indicates a supportive environment for corporate earnings, it also gives the Fed scope to keep raising interest rates. At its meeting yesterday, the FOMC hiked the Fed Funds rate to 5.25% and was non-committal about its future plans for interest rates suggesting it’s waiting for more data while also confirming it remains ready to provide support if any emergencies flare up.
Fear indicators like Gold and the VIX Volatility Index have picked up in recent days. Crude Oil and other commodities have sold off on concerns a volatile global economy could impact demand for resources.
US indices have dropped back to retest their lows of last week. Whether they break down or rebound in the coming days may indicate whether we are currently in a correction, or a trend change as we move deeper into spring. Key economic reports of the coming week include US Nonfarm Payrolls and Canada Employment tomorrow, followed by the US Consumer Price Index on Wednesday.
Earnings season reaches it peak today with Apple reporting after the close. After today, results from mega cap US stocks drop off, and focus turns to a larger number of potentially less impactful results from small and medium sized US companies. The sector spotlight turns to the entertainment sector with Warner Bros Discovery reporting tomorrow, Electronic Arts on Tuesday and Walt Disney on Wednesday. Canada continues to move through the peak of its earnings season with headliners including BCE and Telus today, Magna and Enbridge tomorrow, Manulife and Nutrien on Wednesday, and Sun Life plus Canadian Tire next Thursday.
In this issue edition of Equity Leaders Weekly, we look at the prices of Gold and Crude Oil for insights into the state of investor sentiment.
Gold Continuous Contract (GC.F)
Back in 2019-2020, Gold (GC.F) staged a massive rally that took it above $2,000/oz for the first time. Since then, For nearly three years, Gold has been consolidating that big advance trading in a sideways range between approximately $1,660 and $2,060.
Since the start of this year, Gold has been on an upswing, climbing from the bottom to the top of its current range. Renewed interest in Gold has come from a combination of a weakening US Dollar, and increased uncertainty in the US and Global banking system which has sparked a rotation of capital into defensive havens including Gold.
Currently, Gold is testing the top of its current range. A close above $2,066 would complete a bullish spread double top pattern, adding to the current Double Top, and a close above $2,100 would confirm the start of a new advance within a longer-term uptrend. Should that occur, next potential resistance may appear near $2,236 based on a pending horizontal count, and $2,272 based on a vertical count. Initial support appears near $1,871 based on a 3-box reversal and a retest of a previous resistance level.
Crude Oil Continuous Contract (CL.F)
A two-year upward trend on the price of Crude Oil (CL.F) peaked in the spring of 2022 with highs in March and June. At that time, investors were more concerned about a shortfall of supply, but since then, concerns have shifted more toward worries about a shortfall in demand particularly related to China’s last COVID shutdown and sluggish recovery.
For about a year now, Crude Oil has been under distribution, declining in an orderly step pattern of selloffs followed by periods of consolidation at lower levels. The last selloff was contained in early April when OPEC+ announced a surprise production cut in a bid to defend the price. So far, $65.90 has held but an April rebound failed to overcome previous resistance near $83.50 and Crude Oil has rolled down again in recent weeks caught between concerns about hawkish central banks and financial sector turmoil potentially having a negative impact on the global economy.
A close below $65.90 on this 3% chart would complete another bearish double bottom and a bearish catapult to signal the start of a new downleg. Should that occur, next potential support may appear near $62.10 based on a previous column low, then $55.20 based on a vertical count. Initial resistance on a bounce appears near $78.70 based on a 3-box reversal.
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