Equity Leaders Weekly

Equity Leaders Weekly - July 23, 2020 Silver Continuous Contract & S&P/TSX Composite Index

We have now moved into the heart of this quarter’s earnings season with several big cap companies reporting results this week and through the next two weeks. Companies across a broad range of sectors including Technology, Energy, Industrials, Consumer Discretionary and others may continue to provide insight into the strength and sustainability of the reopening rebound. With so many companies reporting results and the economic calendar very light for the coming week, the spotlight remains squarely on individual companies and sectors rather than broad market moving developments. In recent days, index action has been mixed with indices often delivering split decisions from day to day depending on their sensitivity to different sectors. Overall action has been neutral to slightly positive over the last several days. Although the NASDAQ has captured most of the recognitions, the S&P 500 Large Cap, S&P 400 Mid Cap, S&P 600 Small Cap, and Russell 2000 have all posted moderate gains and completed bullish patterns to signal the start of new upswings in the last week. Governments continue to provide support their economies. Last week, three central banks indicated they were continuing their asset purchase programs but not committing new money. This week new money has started to roll in from the fiscal side with the EU agreeing to a €750B stimulus plan and US politicians working on plans that could rise up into the $1-3 trillion range depending on which party’s program gets adopted. Rising political tensions between the US and China have been noted briefly by investors but have not had a lasting impact on markets to date. The combination of reopening and recovering economies with growing fiscal and monetary support has had a positive impact on commodities this week, particularly energy and metals, as investors anticipate. Both WTI and Brent Crude continue to trade above US$40.00/bbl, while copper continues to climb. Continuing stimulus has continued to underpin gains for gold which rallied to its highest level since 2011 this week. Interest has returned to Silver and Platinum in particular this week, benefitting from both their status as precious metals and their sensitivity to industrial demand.   In this week’s issue of Equity Leaders Weekly, we look at this week’s Silver price rally and recent gains in the Canadian S&P/TSX Index

Silver Continuous Contract (SI.F)

Silver has caught fire in the last couple of weeks, exploding to the upside after spending the last five years stuck in a sideways trend. What had appeared for a long time to be Silver going nowhere has now become the foundation of a large base between $13.50 and $20.50 following a collapse in the first half of the 2010s. Considering that Gold broke out to the upside about a year ago and silver only started to really rally in May, a catch-up play as a precious metal appears to be getting underway. With its industrial applications, Silver can also benefit from renewed interest in industrial metals like copper. So at this point in time, the two main forces which influence Silver, which have often offset each other in the past, currently appear to be aligning to create a significant tailwind. Next potential upside resistance tests for Silver appear near $27.50 where a numerical measured move and a horizontal box count converge, then the $30.00 round number which coincides with previous column lows. Initial support appears near $21.25 based on a 3-box reversal,  

S&P/TSX Composite Index (TSX.I)

Although Canada’s benchmark S&P/TSX Composite Index has been steadily recovering since bottoming out in March, it has struggled relative to some of its peers with a bearish SMAX score of 5 indicating weakness relative to the asset classes. This relative underperformance appears to be due to the higher sensitivity to the Canadian market to the Energy, Materials and Financials sectors which have lagged the overall markets. In contrast, the NASDAQ composite, with this concentration in Communications Services, Health Care and Technology stocks, has been outperforming many of its index peers and the asset classes recently rallying to new all-time highs and posting a perfect SMAX score of 10.  With the recovery in energy and metal prices accelerating, the potential for catch-up action in the S&P/TSX composite has increased lately and the technical picture has improved. TSX.I has been steadily advancing in a step pattern of rallies followed by consolidation at higher levels. In recent weeks, the index has broken out of a downtrend, consolidated in another higher range, and now has broken out to the upside once again, completing a bullish Double Top pattern. Initial upside resistance appears in the 16,610 to 16,776 range where previous column highs and a horizontal count converge, followed by 17630 based on a vertical count, and the 17,980 to 18,000 area where a round number and vertical count cluster with the previous all-time peak. Initial support appears near 15,490 based on a 3-box reversal.  

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