Profit-Taking Continues to Take Its Toll
Crude Oil: Crude Oil futures are higher ahead of the weekly inventory data release on expectations of a drop in inventories and a weaker U.S. Dollar. Inventories of Crude Oil are expected to fall by 750,000 barrels, which would mark the fourth consecutive week of declines. The market sold off sharply yesterday on heavy profit-taking, even though Saudi Arabia contradicted earlier reports by indicating that it would not ramp up production. Despite the Saudi statement, indications are that OPEC nations do not want petroleum prices at these levels, fearing that it could stifle demand. Things have been very quiet on the geopolitical front in recent days, the lack of market-driving news stories likely influencing some traders to take profits. The Dollar is weaker against the major currencies this morning, making physical commodities more attractive. December Crude closed below the 18-day moving average, which suggests that a near-term high may be in place. The market came down to test the $90 mark, but bounced before reaching this psychological and technical support area. Momentum has drifted lower and is at the lowest levels since prices were at $80. Support comes in at 90.00 and 88.50, while resistance can be found at 93.70 and 95.00.
Gold: Gold prices have rebounded sharply this morning on strength in energy prices and a weaker U.S. Dollar. Prices fell for three consecutive days on heavy profit-taking and weakness in commodities in general. Gold has been driven by the currency markets recently, and a slumping greenback could bring bulls back into the market. Continued worries in the U.S. mortgage and housing markets could also result in a “flight to quality” effect in the Gold market. Despite the solid fundamentals, Gold may been susceptible to further profit-taking, having rallied sharply in recent weeks. Traders will focus on today's PPI figures, which are expected to show an increase in core PPI of 0.2 percent. More inflationary figures could give the market a lift. December Gold held above the 18-day moving average, which is a positive sign for bulls. Momentum has swung higher at a steeper pace than RSI, which suggests short-term technical strength. Support comes in at 785.00 and 775.00, while resistance can be found at 810.00 and 825.00.
S&P: Stocks had a stellar showing yesterday on strong earnings from Wal-Mart and suggestions that the recent wave of subprime write-offs may be slowing. Goldman Sachs said it does not plan to write off a significant number of bad loans, bucking the current trend and offering investors some encouragement. Retail sales are expected to show a decline today, but the market will likely focus on profitability of retailers and not the raw sales figures. Nonetheless, weaker sales figures could indicate slower economic growth, as consumers find themselves in a credit crunch amid rocketing energy costs. Traders will also have to digest today's PPI release, which could show that producer prices climbed due to higher energy costs. The December e-mini S&P closed just below resistance at 1485.00 and the market was unable to push above the 9-day moving average in early trading this morning. Momentum continues to outpace RSI, but to a lesser degree, which suggest that the market may have run out of steam in the short-term after rallying over 40 points yesterday. Support comes in at 1460.00 and 1435.00, while resistance can be found at 1485.00 and the key psychological 1500.00 area.
Rob Kurzatkowski, Commodity Analyst
