Equity Leaders Weekly

Equity Leaders Weekly - July 9, 2020 DAX & Crude Oil

Trading action so far this week has seen equities and commodities continue to climb a wall of worry, showing resilience in the face of ongoing coronavirus uncertainty. While there continue to be flareups and setbacks in some regions, stepping back and looking at trends in global markets it appears that investors are continuing to anticipate a global economic rebound with equity indices across all three major trading regions breaking out to the upside, and commodities from several sectors (Metals, Energy, Grains, Softs) also advancing.The coming week should bring investors more insight into the state of the global economy and the summer outlook. Earnings season gets going in the US with results due from senior Financials (Banks, Brokerages and Asset Managers) along with several big names from the Technology, Consumer Staples, and Communications Services sectors. Economic news also picks up with trade and GDP reports for China, several key numbers from the UK, plus retail sales reports for the US and China. Three central banks are meeting, the Bank of Japan, Bank of Canada and the European Central Bank.In this week’s issue of Equity Leaders Weekly, we take a look at Crude Oil and Germany’s Dax Index as examples of recent strength in Commodities and Equities   

DAX Continuous Contract (DAX.F)

Although here in North America, our focus is primarily on the key US and Canadian benchmark indices, its important to keep an eye on other regions as well. This week, trading action has been particularly strong in Germany’s Dax Index. Coming off a rally in May and June, the Dax paused for a few weeks, forming a Symmetrical Triangle of higher lows and lower highs, which often reflects a consolidation phase within a larger trend. This week, the Dax has broken out of the triangle in a pattern, signalling the start of a new advance which would be confirmed by a breakout over 12,940 that would also complete a bullish Spread Double Top pattern. Based on previous highs, next potential upside resistance may appear near 13,600 and then 13,870. Initial support appears between 12,070 and 12,180 based on previous support and a 3-box reversal.  Perhaps most significant is that the Dax has not been acting alone, but rather in concert with other large cap indices. The chart for the US S&P 100 Index (OEX.I) features a similar symmetrical triangle breakout this week, while in Asia Pacific trading, markets in Hong Kong, Taiwan and India have also been advancing. 

Crude Oil Continuous Contract (CL.F)

Commodity markets have increasingly been responding to anticipation of a recovery in global demand for resources as economies reopen. In recent issues of the Equity Leaders Weekly we have highlighted Copper and Lumber and this week we note another breakout in the crude oil price. Other commodities turning upward this week include Canola, Corn, Cotton, Platinum and Soybeans.Since its big meltdown back in March-April, crude oil has been steadily recovering as the factors which caused the big drop (infighting among suppliers and a plunge in demand) have reversed to varying degrees (OPEC+ reached a new deal, demand recovery more uneven). Overall though, the price of crude climbing alongside some of the other economically sensitive commodities above indicates a general expectation among investors toward a rebound in the global economy that could drive a recovery in resource demand.This week Crude Oil (CL.F) has broke out over $40.00, completing a bullish Double Top, signalling that the recovery trend has resumed following a minor 3-box correction. Oil is approaching potential resistance near $42.50, a former significant support level which signalled the price collapse when it failed back in March. There are two potential resistance zones based on clusters of old support/resistance and vertical/horizontal counts, $42.50-$44.25 and $51.85-$55.05, in between those are the $50.00 round number, and a downtrend line near $46.00. Initial support appears at the recent low near $36.30.   

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