Thoughts around what might have been behind recent modest up and down moves on Canada’s main stock market will be forgotten for now after the Toronto Stock Exchange (TSX) closed up more than 240 points and at the 20,200 level Tuesday — hitting its highest levels in near three months — buoyed by higher commodity prices and, perhaps even more specifically, buying of energy stocks.
Despite continuing concerns around high inflation and the prospect of a global recession in 2023, and despite geopolitical risks, the Energy sector here has often proven of late to be a leading light, even with volatility in the crude price, and because of that it is attracting more close inspection. Energy rose 2.4% today, making it one the biggest gainers among sectors, along with Base Metals.
National Bank in an overnight Monday note entitled ‘Technical Analysis: Chart highlights in a volatile energy market’ in a section on West Texas Intermediate (WTI) noted breaks on WTI at US$95.00 “completed a top and broke the chart under its 200-day”, setting the stage for lower prices. National said a break of its rising trend line at US$90 was “more technical evidence of a weakening trend.” The bank noted the September lows were tested near US$77.00 and held. Its target remains at US$65-$70.
On S&P/TSX Energy/WTI noted energy stocks continued to “hold in well” relative to WTI. “The rising trend in the S&P/TSX Energy index relative to WTI remains in a strong uptrend.” it said, before adding: “This ratio remains relatively low compared to historical metrics.”
In a section on S&P/TSX Energy/S&P/TSX, National noted the strong relative performance in the energy sector was starting to lose momentum. “While a rising trend in the S&PTSX energy/S&P/TSX ratio remains intact, the chart is turning back from a double top,” it said, before adding “a break of its rising trend line will be a red flag.”
On individual stocks, National noted the Suncor (SU.TO, SU) chart broke out at $30.00 and met the bank’s objective as it challenged major resistance at $47.00. National said the overall chart “remains constructive” until a break below $39.00, and the bank would view initial breaks of $45.00 and $42.50 as ‘red flags’.
On Kelt Exploration (KEL.TO), National noted a weakening trend on the KEL chart was becoming more and more evident as the stock loses momentum. The bank noted its 50-day has broken below its 200-day as the stock makes a series of lower highs; Relative strength against the S&P/TSX just broke to an eight-month low; Key support at $5.00 was being challenged with a break completing a one-year top; And potential downside was $3.00.
And on Vermilion Energy Inc. (VET.TO), National noted a big volume sell-off on the VET chart that took out its moving averages indicated that “the bears are taking over”. The bank noted overhead resistance established at $32.00 was a cap on the stock; A test of key support at $24.00 can be expected; Relative performance against WTI and the S&P/TSX had turned negative; And an eight-month top was being carved out and will be completed on a break of $24.00 that pointed to a target in the mid-teens.
Among commodities today, gold closed with a small gain on Tuesday as the dollar and bond yields weakened. Gold for February delivery closed up $0.20 to settle at US$1,754.80 per ounce.
Also, West Texas Intermediate crude oil closed higher for the first time in five sessions as the dollar weakened, recovering from a whipsaw session on Monday after a report that OPEC+ planned to raise production sent prices to the lowest since January, only to recover after Saudi Arabia and other members firmly denied the group was planning the move. WTI crude for January delivery closed up $0.91 to US$80.95 per barrel. January Brent crude, the global benchmark, was last seen up $1.22 to US$88.67, while Western Canada Select was up $2.10 to US$54.84 per barrel.