Financials drag markets lower...again

Having encountered resistance just over a week ago, equity markets have quickly found themselves back at the bottom of the primary trading ranges that have been in place for the last six weeks. Following yesterday’s declines, equities had attempted to stabilize briefly this morning on mixed US economic data, but downward momentum has resumed as the morning has progressed, sending both equity and commodity markets towards a number of key support tests.

Key support levels currently being challenged include 8,000 for the Dow Industrials (US30 CFD), 800 for the S&P 500 (SPX500 CFD) and 510 for the S&P/TSX 60 (Toronto60 CFD). Should these levels fail to hold, the November lows could be retested near 7,400 for the Dow, 740 for the S&P and 450-475 for the 60.

While jobless claims were worse than expected, (524,000 last week vs. the 503,000 street estimate), this appeared to be offset by Empire Manufacturing ( (22) vs. street (25) ) and Philly Fed ( (24.3) vs. street (35.0) ) readings for January that were not as bad as had been feared. It appears then, that a resumption of fear about the health of the financial services sector may have tipped the balance of sentiment in favour of bears once again. Overnight, rumours circulated that Bank of America (NYSE: BAC, Stock Forum) may need additional government assistance, with investors apparently more worried about results due from Citigroup (NYSE: C, Stock Forum) tomorrow than encouraged by better than expected numbers from JP Morgan (NYSE: JPM, Stock Forum) today. Leading US financial decliners include: Bank of America down 21.4%, Citigroup down 21.1%, Fifth Third (NASDAQ: FITB, Stock Forum) down 18.7%, and First Horizon (NYSE: FHN, Stock Forum) down 17%.

Investors may recall that in the first three quarters of last year, equities sold off ahead of earnings season and then tended to rebound as results came out with some not as bad as feared. This didn’t occur in October/November due to the credit crunch. Should this pattern resume, however, initial resistance levels may appear near 8,400 and 8,600 for the Dow, 880 or 900 for the S&P and 525 or 540 for the 60.

Commodity prices have also been retreating toward significant support tests today. Gold, for example, may retest $800/oz with next support not until closer to $750/oz. Crude oil, meanwhile, has been trending toward a test of $35.00/bbl with a risk of a drop below $30.00/bbl or a retest of the 2002 low near $25.00/bbl possible should that fail. Silver has been holding above $10.00/oz support although natural gas has continued to slide below $5.00/mmbtu despite continued cold weather in consuming regions. Similarly, copper has dipped back below $1.50/lb today with next support closer to $1.45 then $1.40.

Upcoming Free Seminars:

In the coming weeks, Colin Cieszynski will be making a number of free presentations for accredited investors across Canada.

Location Date Time Topic

Toronto Jan 15 1:45pm ET New Year, New Opportunities (at Financial Forum)

Montreal Jan 21 12:30 pm What a Year! An overview of and 2008 and look 6:30 pm ET Ahead to 2009

Toronto Jan 28 6:00pm ET What a Year! An overview of 2008 and look Ahead to 2009

For more information on these and additional CMC Markets seminars, please go to CMC Markets Seminar Registration Page at:

http://www.cmcmarkets.ca/en/content/education/free_seminars.do

Upcoming Client Trading Webinars:

In the coming months, Colin Cieszynski will be presenting a series of free webinars on trading for CMC Markets clients only from coast to coast.

Date Time Topic

January 20 7:30pm ET MarketTrends Monthly Review (for CMC Markets clients Only)

For more information on these and additional CMC Markets seminars, please go to CMC Markets Seminar Registration Page at:

http://www.cmcmarkets.ca/en/content/education/free_seminars.do

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.

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

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