S&P/TSX Composite Index (TSX.I) & Copper Continuous Contract (HG.F)

Equities and commodities continue to climb, driven by a combination of continuing easy money from central back asset purchases, a new fiscal stimulus package working its way through Congress in the US, combined with continuing vaccine rollouts and falling case counts. Unlike a year ago when investors were fearful of that the then-new COVID pandemic might mean and confidence crashed, this year, investors continue to look over the valley of this winter’s COVID lockdowns and focus more on the potential for reopening and recovery as this year progresses.

Several major indices in the US and Canada have reached new all-time highs in the last week, a sign of positive investor sentiment and high expectations. Another sign of confidence has been climbing US traded interest rates. There also have been broad-based gains in commodity prices across several groups, including grains, livestock, energy and metals. The ten-year treasury yield has been approaching 1.20% for the first time since March of 2020, indicating that investor panic continues to fade, confidence in the economy continues to improve and that with commodity price on the rise, inflation expectations may be starting to increase.

The coming week is expected to be slower for news with several holidays and market closures scheduled including Lunar New Year for Asia Pacific markets starting on Friday, plus a long weekend in North America with the US and Canada closed for Presidents Day / Family Day on Monday.

Earnings season continues to move through its peak in Canada with many of the leading technology and mining companies scheduled to report in the coming days. Highlights include: Agnico-Eagle today, Air Canada and Constellation Software tomorrow, first Quantum on Tuesday and Shopify next Wednesday. Earnings season hits a bit of a lull in the US for the next few days with most of the big caps done and retailers results not due until later in the month.

In this week’s issue of Equity Leaders Weekly, we look at the S&P/TSX Composite Index and the copper price as examples of recent gains in equity and commodity markets.

Canada’s S&P/TSX Composite Index broke out to a new all-time high this week, clearing 18,165 to complete a bullish Double Top pattern and confirm that the trend upward from the March 2020 low remains intact. Gains made by the Energy and Health Care (marijuana) sectors have been leading the way higher but other industry groups have also been pitching in, a bullish sign of wide breadth and high participation in the current rally.

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.

The Canadian recovery only seems slow compared with US indices. The January S&P/TSX breakout, arrived at a similar time as Germany’s DAX (DAX.F) index, and significantly quicker than two major overseas indices with similar composition to Canada, Australia’s S&P/ASX Index (SPIM.I) and the UK’s FTSE 100 Index (LFT.F) both remain well short of their February 2020 highs, particularly London which was held back through much of 2020 by Brexit uncertainty.

Next potential upside resistance for TSX.I appears near 19,095, based on a horizontal count from a recent bullish Double Top pattern, followed by the 20,000 round number, and then the 20,880 to 21,090 zone where multiple vertical and horizontal counts cluster around the 21,000 round number. Initial support appears near 17,635 based on a 3-box reversal.

One of the signs that investors have increasingly been looking past the current round of lockdowns and focusing more on the potential for economies to recover has been the trading action in Dr. Copper. The orange metal is widely recognized as being one of the markets most sensitive to global economic activity and resource demand due to its wide variety of applications.

The 10-year chart shows that after spending the first half of the 2010s trending downward as the previous decade’s commodity bull market unraveled, copper spent the last five years stuck swinging back and forth in a range between $2.00 and $3.40/lb.

Its interesting that just as some economies were entering COVID Wave 2 lockdowns, copper was breaking through its 2017 resistance to the upside, completing a bullish Spread Triple Top pattern and confirming the start of a new uptrend. Some of the reasons for this, particularly when compared with the COVID Wave 1 plunge, include: confidence that increased fiscal/monetary stimulus would dampen the blow from lockdowns this time around, a weakening US Dollar generally supporting commodity prices, and the launch of new vaccines/treatments decreasing fears and increasing optimism that economies can reopen in the coming months.

With copper continuing to climb, next potential resistance appears near the $4.00 round number, followed by $4.15 based on a horizontal count, and then the $4.50-$4.70 range where vertical and horizontal counts cluster around the 2011 peak. Initial support appears near $3.45 based on a 3-box reversal.