It was a shaky start to the week for stocks and the speculative and resource-rich CDNX was hit the hardest, declining 52 points to close at 2239. The CDNX did a very abrupt and unexpected u-turn a week ago today after it climbed as high as 2399, a 17% jump over the early March low of 2050. This market was looking very strong until last Monday when Goldman Sachs issued a bearish short to medium-term commodities call which shook both the TSX and the CDNX. Today, S&P downgraded its outlook on U.S. long-term government debt to negative which spooked the markets yet again though this should not have come as any surprise. Perhaps it will have the effect of waking up some American politicians, including the President, and get them much more engaged in what should become a “war on debt”. Not surprisingly, Gold rose today and hit a new all-time high of $1,499 but the U.S. Dollar Index interestingly also gained ground.
Where to from here for the CDNX? It’s troubling the CDNX has shed 6.6% over the last six trading sessions with Gold actually advancing $21 during that same time period to a new record high. The CDNX 50-day moving average (SMA) is now firmly in decline which suggests lower prices are likely on the way. However, this market has shown a lot of resilience over the past two-and-a-half years and won’t cave in easily. The long-term bull market remains intact and there are major support levels beginning at 2200. Below is a weekly CDNX chart that John completed after today’s close.
Interestingly, the TSX Gold Index chart is looking healthier than the CDNX right now and it’s quite possible we could see a situation over the next while where the producers or near-producers outperform the speculative junior exploration plays. Investors should keep this in mind and look for opportunities in that regard. In terms of CDNX stocks, the current environment is such that it’s more critical than ever that investors focus on companies that are not only well-managed but have very strong balance sheets and outstanding properties.
We’re in a volatile period in which it’s harder than ever to predict the market’s near-term moves. We’ll do the best we can and continue to point out the companies that we believe are the rising stars.
