Oil's Perfect Storm
Crude Oil: Crude Oil continues to climb this morning and is currently trading above the $90 mark. In recent days, the market has had a number of factors going for it – a weak Dollar, falling inventories, traders accumulating commodities, geopolitical conflict and a cryptic oil cartel. The greenback continues to slide ahead of the FOMC meeting next week, with traders now thinking that a half-point rate cut may be in order. The soft Dollar has caused traders to load up on commodities as an inflation hedge. Crude was drifting lower prior to the EIA's inventory report, but the lower supplies gave Oil bulls the jolt they needed. OPEC has pledged to increase exports by 500,000 barrels, but the cartel has not indicated that it would further increase output, saying the market was “well supplied.” There are also indications from tanker tracking companies that the 500,000 increase is going to be more in the 50,000 range. In addition to the ongoing conflict over the Iranian nuclear program and the Turkey-Kurd situation, there were reports that Israeli warplanes were shot at, but not hit, over Lebanon. All of these factors are “what if” forces driving the market higher, but not actual economics like the supply report. Hedge and commodity funds seem to be pushing prices much higher than supply and demand would dictate, so a withdrawal of money from the market by these funds could trigger a sell-off at any point. December Crude continues to look bullish on the daily chart, but the market is very overbought. Momentum continues to outpace RSI to the upside, which is bullish over the near-term. Support comes in at 88.50 and 84.75, while resistance may be seen at 92.00 and 95.00.
S&P: Stocks finished nearly unchanged in a wild day of trading yesterday. Prior to the open, durable goods orders and weekly jobless claims both came in worse than expected and the market immediately sold off. New home sales were better than expected, but the prior two months were revised down by 60,000 and 69,000, respectively, negating any positive that could be drawn from the report. The market then began to brush aside the economic data and focus on corporate earnings, which have been solid. As we approach Wednesday's FOMC rate decision, the market figures to trade in a choppy, erratic manner reminiscent of yesterday's action. The only report released today is the Michigan consumer sentiment figure at 8:45 AM CST, which is expected to come in at 82.3, up slightly from last month's 82.0. Technically, the ESZ07 is trading in a sideways consolidation pattern between 1495 and 1530, without a clear direction in the near-term. The market is still well above the weekly uptrend line, and it would take a sell-off into the low 1400's for the market to break down longer-term. Momentum is showing bearish divergence from the RSI, which points to a negative bias in the near future. Critical support and resistance are 1495 and 1550, with a close beyond either level likely to determine market direction over the medium-term. In addition to these key levels, minor support and resistance come in at 1508 and 1542, respectively.
Gold: Precious metals continue to climb on the tumbling greenback and skyrocketing Oil prices. Gold has benefited from climbing commodity prices and inflation-averse investors. Lower rates likely mean more USD downside and possibly more upside for the precious metals market. December Gold is trading above recent highs of 776.90, which would be considered a technical breakout if the market is able to hold these levels. Momentum is beginning to show some bearish divergence from the RSI. Given the sharp climb in prices in the early going, a close below 776.90 would probably be considered bearish by traders and could spark some profit-taking by Gold traders who have been faked out by the market before. Gold is overbought on both the RSI and slow stochastics, suggesting possible profit-taking in the near-term. Support comes in at 765.00 and 750.00, while resistance can be found at 783.00 and 800.00.
Rob Kurzatkowski, Commodity Analyst
