A mixed start to another big news week

Early trading in North America today appears to be sending mixed signals about investor sentiment heading into another busy week for earnings and economic news. After closing on its key 8,000 support level Friday, the Dow Industrials (US30 CFD) decisively broke down this morning. The U.S. ISM Manufacturing report for January came in at 35.6, better than the 32.5 consensus estimate, and since then, equities have been clawing back some of their early losses. Despite this positive surprise, however, the Dow has remained below 8,000, with disappointing construction spending data, which showed a 1.4% decline in December vs. the 1.2% drop expected, possibly providing some headwinds. This suggests that 8,000 may be becoming a new resistance level, a bearish sign that suggests unless bulls can pull together and overcome that level, a retest of the November lows near 7,450-7,500 appears possible in the near term.

At this point, other indices have been holding but may also be vulnerable. For example, the S&P 500 (SPX500 CFD) has been holding above 800 but should that falter, a retest of 735 may be possible. Similarly, should the NASDAQ 100 (NDAQ100 CFD) fail at 1,130, there may be a risk of 1,100 or 1,010 being retested. For the S&P/TSX 60 (Toronto60 CFD), key support appears at 500, with additional support possible in the 455-470 zone. Upside resistance levels appear near 8,000 then 8,400 for the Dow, 850 for the S&P, 1,220-1,250 for the NASDAQ and 540 then 565 for the 60.

Note that in the early part of the week, corporate earnings reports may have a significant impact on trading, but as the week progresses, investor focus may shift toward interest rate decisions and economic data. While the Bank of England and European Currency Board interest rate decisions Thursday and the Canadian and U.S. employment reports on Friday may be particularly scrutinized, ISM Non-manufacturing data and pre-employment data such as ADP payrolls Wednesday, and jobless claims Thursday may also attract attention. For Canada, PMI data and building permits, both on Thursday also may be significant.

Commodities, meanwhile, appear to be consolidating today with investors seemingly taking a breather while awaiting additional data. Copper, for example, has been sitting in the middle of its $1.40-$1.50/lb trading range. U.S. Crude oil, meanwhile, continues to hold above its key $40.00/bbl level. Precious metals also appear to still be supported. Gold appears to have moved into a new consolidation range within its emerging step pattern, this time between $900-$925/oz. Silver continues to trend toward a test of $12.50/oz with next resistance on trend closer to $13.50/oz.

Even some of the early year indicators have been sending contradictory signals. For example, the January effect, which suggests that how markets perform in January is generally a portent of how they perform for the year, would seem to suggest that markets may be in for another tough ride in 2009. On the other hand the Super Bowl indicator (won by Pittsburgh, an original NFL team) would suggest that markets may finish the year on a positive note.

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This commentary is based upon technical analysis. Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.

CMC Markets Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada and Member CIPF. CFDs are distributed in Canada by CMC Markets Canada Inc. dealer and agent of CMC Markets UK plc. Trading CFDs and FX involves a high degree of risk and investors should be prepared for the risk of losing their entire investment and losing further amounts. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. CFD and FX trading is available in jurisdictions in which CMC is registered or exempt from registration, and may be available to Accredited Investors only in certain jurisdictions.

Note that any references to CFD prices or price changes are sourced from CMC Markets' proprietary trading system Marketmaker™.

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