Profit-Taking Tarnishes Gold
Gold: Gold futures are sharply lower this morning on profit-taking and lower energy prices. After climbing to record high closes last week, traders are looking to take some profits off the table in this technically overbought market. Metal traders have been talking about $800 Gold for some time, but now that this figure has been eclipsed, there is widespread indecision on where we go from here. Longer-term fundamentals remain bullish – the Dollar is weaker, energy prices are still near historical highs, physical demand is strong in India and China, and inflationary pressures remain high in the U.S. December Gold comes in at a very overbought 89 percent on the RSI, which has heavily influenced the selling pressure this morning. Momentum has turned somewhat lower this morning, but remains strong at +54.7. Friday's spinning top pattern, coupled with two candlesticks with long upper wicks, also sets a bearish technical tone for the day, as it indicates bulls did not have control of the market, even as the market made new record high closes. Support now comes in at 808.70 and 780.00, while resistance can be found at 848.00.
Dow: Stocks tumbled last week on the continuing subprime mortgage concerns and earnings warnings. Retail sales showed the weakest October figures since 1995, which could be a prelude to a slower-than-expected holiday shopping season. Wachovia and E-Trade have joined the subprime fray, with both companies issuing warnings on Friday. Surprisingly, bank shares are leading the charge this morning, as value investors have stepped in to buy shares in the beleaguered sector. On a sour note, Deutsche Bank released a report suggesting that subprime losses are expected to reach the $300 to $400 billion mark globally, far outstripping prior forecasts. Technology stocks have dipped this morning due to several downgrades in the sector and worries that the Christmas shopping season may be slower than anticipated. Friday's tumble sent the market toward the 13,000 support area and dragged the RSI below 25 percent, which could partially account for the bounce we are seeing in the early going. Momentum has begun to show bullish divergence from the RSI, suggesting short-term strength. Support comes in at 12,815 and 12,650, while resistance can be found at 13,250 and 13,500.
Crude Oil: Crude Oil futures are lower this morning on weaker U.S. economic growth forecasts and the possibility of OPEC production increases. There is speculation that Saudi Arabia – the only OPEC nation not pumping at capacity – may increase output by as many as 500,000 barrels a day. Fed Chairman Ben Bernanke's slower growth forecast for the U.S. has weighed on the market and prevented further advances. Several North Sea facilities that were shut last week have restarted production. Some traders have been disappointed that Crude prices did not test the $100 mark last week, which has eroded some confidence in the market. Three consecutive small body candlesticks on the daily chart show that traders have been indecisive, with bulls unable to control the trading sessions. The market is currently trading below the 9-day moving average, and a close below the average could signal short-term weakness. The stochastics and TRIX indicators crossed to the downside this morning, also suggesting short-term technical weakness. Support comes in at 93.70 and 90.00, while resistance can be found at 97.10 and 98.50.
Rob Kurzatkowski, Commodity Analyst
