The Materials index closed on Friday July 25, 2008 at $367.60. The materials index has a market capitalization of about $1.5 trillion, which represents about 22% of the S&P/TSX Composite index. Some Canadian companies you may recognize in the Materials Index are Agnico-Eagle Mines Ltd., Agrium Inc., Barrick Gold Corporation, Canfor Corporation, Eldorado Gold Corporation, Fording Canadian Coal Trust, Goldcorp Inc. and Nova Chemicals Corporation.

The rolling 52-week high for the Materials index over the last year was $426.52 on June 30, 2008 and the 52-week low was $362.49 reached on August 16, 2007. From the trough (low) to the peak (high) that represents an increase of 55% for the Materials index vs. the S&P 500, which was down -9% over that same time frame and the S&P/TSX, which was up 12.6%. Year-to-date the Materials index is up 8.7%. The S&P/TSX is down –3.3% over the same period and the S&P 500 is down –14.3%. Despite it’s recent drop of more than –9%, the materials index is one of only a few positive performers in the S&P/TSX year-to-date.

Technically, the chart is telling us that investors are bearish toward the Materials index. The trend from last year until June 30, 2008 was bullish represented by the upward price momentum in the chart. Recently, a double top pattern occurred on June 27, 2008 and July 15, 2008 followed by a downward channel from July 15, 2008 to date. On July 16, 2008 the current price dropped below the 50 day moving average at about $400. The next support level broken was the 200-day moving average, which occurred on July 24, 2008 at about $365.

The Materials index price-to-earnings ratio is trading at 24.53 times vs. the S&P/TSX, which is 17.22 times. Like the energy sector, the drop in materials prices has been due to a number of factors including periods where the US dollar has rallied and a general market sell-off due to increased concerns about the impact of higher costs on company profits and consumer spending. In a recent Financial Times article, written by Lina Saigol in London and Julie McIntosh in New York, entitled, “Hostile bids at their highest since 1999”, they point out that cash rich companies are making bids for weaker counterparts. A consequence of this increased merger & acquisition drives up share price of the companies being taken over. In both energy and materials, this should continue with the need to develop reserves to meet demand. Like energy, demand and supply issues have led to the rising price of materials. Longer term this should remain the pattern with continued rising demand from places like China.

Since the high last month the materials index is down –9% so like energy, in the short term, technicals are bearish but longer term, the fundamentals favour the bulls.