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TORONTO (GlobeinvestorGOLD) — After surging from its all-time low of 62 cents (U.S.) in early 2002 to a high of 91.02 in May 2006, heights not witnessed since 1978, the Canadian dollar appears to be readying itself for a short-term consolidation. Technical analysis indicates that the moving average convergence/divergence oscillator (MACD) is overbought and currently registering at levels associated with the 2004, 84 cent U.S. dollar, rather than even higher overbought levels to support a continuation to higher highs. It also appears that the Canadian dollar is in the midst of completing the fifth wave of a five-wave Elliott wave advance. If the month of May completes with a level of about 89.50 -90.33 cents (U.S.), then the monthly candlestick will form a spinning top, suggesting a possible trend change ahead. There is always a possibility that June may see a retest of the previous high, or a slightly higher high could be established before the trend changes, but the spinning top serves as a warning signal.
A pullback from current levels and a further close below 88.76 cents U.S. would suggest a decline to first support at about 86.80 cents U.S. If that level acts as support we might expect that over the course of the next few months the Canadian Dollar might trade between the 86 — 91 cent U.S. level before it breaks out to the upside once again, as we may just be at the beginning of a long-term Canadian dollar rally. It appears that the first primary wave subdivided into five smaller waves and as the smaller fifth wave is just completing, it signals the completion of the first primary advancing wave also, which will then be followed by a counter-trend corrective second wave. After that, expect a spectacular rally with technical analysis suggesting a possibility that the third primary advancing wave could measure to about $1.14 U.S., perhaps into 2007 -2008.
That won't be the end of it either, if my Elliott wave count is correct. It is possible that as the world economy expands and demand for commodities drives prices higher, in turn accelerating demand for Canada's rich natural resources, the Canadian dollar will likely vault even higher perhaps to $1.275 U.S. by the time the fifth wave completes in, say 2010. With commodities accounting for 35 per cent of Canada's exports and unemployment at a 32-year low, might Canada become a new economic super power to be reckoned with? Although we'll have to see how the next phase unfolds to answer that question, I believe that it will and in the not too distant future, others might suggest the same.
Higher commodity prices directly affect commodity-based equities and Teck Cominco Ltd. share price would be a major beneficiary. Teck produces zinc, metallurgical coal, copper and gold, and if its hostile $15.8-billion bid for Inco is successful, you can add nickel cobalt and other precious metals to the mix, making it a premier metals equity.
A daily technical chart reveals that the stock is oversold at current levels. A preliminary buy signal has just been trigged by the MACD and the stock is dramatically oversold at $72.50, (at time of writing), suggesting purchases could be made at current levels. It appears that the stock has completed the first wave of a five-wave advance and is currently in the corrective countertrend second wave. The May sell off to $62.59 was supported by the 200-day MA and the trading day ended with a bullish candlestick being formed. The following three trading sessions resulted in another bullish formation called the three white soldiers. The latter candlestick pattern should now act as support on any pullbacks to retest the recent lows. Most notably the upside open window gap at $67.76-$68 between the first and second candlesticks should be viewed as strong support and should be used as a buying opportunity if the occasion arises again. The rally could now take the stock up to about $82 to the upper Bollinger band before another minor sideways correction sets in. After that the stock should rally to about $116 over the next 12 months.
Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.