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December 2007 Archives

December 3, 2007

Sour Crude

Crude Oil – Crude Oil futures are slightly lower this morning, despite comments by Algeria and Qatar that OPEC does not need to increase output. The nations stated that the market remains well-supplied and suggested that increases to supply could lead to a glut. The public comments indicate that there is indecision among OPEC members, but a minority of analysts believes the cartel will push forward with a production increase of 500,000 to 700,000 barrels a day. Oil declined almost nine and a half dollars last week on expectations that the U.S. economy will slow in the early part of next year, coupled with stronger-than-expected GDP figures for the 3rd quarter that could lead the Fed to bypass another rate cut. January Crude is trading just above the 50-day moving average and a close below the average could be a bearish signal longer-term. Adding to the bearish picture is the 9-day moving average, which is about to cross the 18-day average to the downside. The market is swiftly approaching oversold territory, which could lead to some short covering and consolidation or, possibly, a bounce. Momentum has gone into the negative in the late part of last week for the first time since early September. Support now comes in at 87.23 and 83.82, while resistance can be found at 90.00 and 93.06.

S&P – Stock index futures are trading higher overnight, supported by a stronger financial sector. Shares in Citigroup and Bank of America are leading the way due to some easing in recent subprime/mortgage fears. Equity traders are expecting the Fed to lower interest rates later this month, and there is a possible bailout in the works for the adjustable rate program. Lower Crude Oil prices could give the stock market a lift, making less of an impact on corporate bottom lines and improving holiday sales as consumers find themselves with more expendable income. The December e-mini S&P broke out above resistance at 1475 on Friday, which may lead to some follow-through buying. The 9- and 18-day moving averages are close to confirming a bullish crossover barring a sharp turnaround. Momentum has moved over 100 points, but remains negative. Support now comes in at 1475.00 and 1454.00, while resistance can be found at 1500.00 and 1525.00.

Gold – The Gold market has followed Crude Oil lower in early trading on a stronger Dollar and sale by the European Central Bank. The ECB sold 42 metric tons of the precious metal, which will more than likely overwhelm lackluster demand for the metal. Jewelry demand in the U.S. and Europe has been lukewarm, at best, which could lead to an oversupplied market. Commodity traders are at odds with equity traders in their Fed rate policy expectations, with commodity traders looking for the central bank to pause and stock traders looking for yet another quarter point cut. February Gold is very close to confirming a double top formation, which measures a possible move of almost $100 to the downside. Like Crude, the Gold market has held the 50-day moving average thus far, but further advances by the USD could pressure prices lower. Momentum is showing extreme bearish divergence from the RSI, which gives the market a bearish short-term technical bias. Support can be found at 780.00 and 765.00, while resistance can be found at 800.00 and 813.80.

Rob Kurzatkowski, Commodity Analyst


Bulls Cast Their Vote With the 10-Year Note

The 10-year Note recovered today from a pullback over the last couple of sessions. On Monday of last week, the Fed hinted that a rate cut might be coming at its December meeting, sending stock prices higher. However, Bonds didn’t follow suit, perhaps because there was so much money going into the stock market that had to come from somewhere – namely Bonds. A second potential reason is that the 10-year market was on such a hot streak that it needed a pullback and last week was it.

On the chart, we see that prices have been above both the 15- and 25-day moving averages for almost a month, and haven't touched the 25-day line since mid-October. This market has been on fire lately for the bulls – from a technical standpoint, sustainability is the main question at the moment.

But other questions need to be asked:

The Fed certainly plays a big part in this, but how much of this rumor has already been priced into this market?

If the Fed does indeed make a move, how much more will it move rates either up, down or sideways?

Will the continued subprime problems attract investors to a "safe haven?"

How much longer will real estate investors wait to come into the market, considering the housing slump has been the main driver of the rate cuts in the first place?

Mike Tosaw, Director of Education

December 4, 2007

OPEC Indecision

Crude Oil – Crude futures are slightly lower this morning, with traders reluctant to make a move before the December 5th OPEC meeting. There is a great deal of indecision among analysts on what the next move by the cartel will be due to conflicting statements and infighting. Yesterday's drop in the USD contributed to a late rally after trading lower for much of the day. Today figures to be another choppy, indecisive trading session ahead of the OPEC meeting and next week's FOMC policy statement. January Crude managed to hold above the 50-day, after flirting with the moving average in early trading. The 9 and 18-day averages did cross over to the downside, which can be seen as bearish in the intermediate term. Momentum is showing some bullish divergence from the RSI, which suggests a slight upward bias in the near-term. Support comes in at 87.85 and 85.00, while resistance can be found at 90.00 and 93.05.

Bonds – Bond futures continue to trend higher on continued financial worries. There are worries that the Bank of Scotland may be the newest victim of the recent credit trap. Also, there are concerns that consumers with good credit may be impacted by the subprime crisis. The recent move higher, despite a rebound in the stock market, suggests that fixed income traders are betting on a rate cut next week and not next month from the Fed. Yields are currently at the lowest levels in over 3 years. March Bonds seem to be breaking out of recent congestion in the early going today, and the next major test for the market may be the 109-00 mark. Momentum is showing bullish divergence from the RSI, suggesting bullishness in the near-term. Support comes in at 117-25 and 117-00, while resistance can be found at 118-30 and 119-14.

Wheat – March Wheat edged lower for the second consecutive day in a very choppy trading session. The bullish news that Argentina and Russian may have tight export supplies and the poor growing weather across the southern plains in the US was tempered by lackluster export data, which may be attributed to the slight rebound in the USD. New crop futures finished lower for the first time in a week, and spreads between old crop and new crop may widen as farmers try to capitalize on higher grain prices. The International Grain Council projected that the 2008-2009 Wheat stocks will rise after three consecutive years of output lagging behind demand. March Wheat (old crop) rejected advances above the $9 mark last week. This could be a bearish signal for the market, although March futures seem to have found solid support in the 860 area. The market is currently overbought, after making a solid run since mid-November, which suggests a negative to sideways bias for the market. Support comes in at 860 and 825, while resistance can be found at 900 and 950.

Rob Kurzatkowski, Commodity Analyst

December 5, 2007

OPEC Leaves Production Unchanged

Crude Oil – Crude Oil futures are up over a 1.50 in early trading and closing in on the $90 mark on news that OPEC will leave production unchanged, a decision was heavily influenced by global economic uncertainty in 2008. Believing that the market is already well-supplied, the cartel was concerned that increased production could create a glut and drive prices lower. Today's weekly inventory numbers are expected to show a decline in Crude Oil of 700,000 barrels for the week ending November 30th, while gasoline inventories are expected to rise 700,000 barrels and distillates are forecast to drop 400,000 barrels. January Crude has held the 50-day moving average, signaling that the market has found some technical support in the near-term. The pattern on the daily chart suggests that this is a consolidation period before more declines. Tempering this view, the momentum indicator is beginning to outpace RSI, which is bullish in the near-term. The RSI came in oversold, which could offer further technical support. Support comes in at 87.15 and 84.00, while resistance can be found at 90.00 and 93.00.

NASDAQ – Stock index futures are higher in spite of the OPEC news this morning, after declining the two previous trading sessions. The rebound is led by chip manufacturers, as the DRAMexchange Index posted five consecutive gains. Higher chip prices will likely lead to improved profits for semiconductor makers, and traders have begun value-buying in the tech sector. The market is still looking for the Fed to cut interest rates next week to bolster the economy, helping to offset the likelihood that energy prices will climb due to the OPEC decision. The December e-mini NASDAQ bounced off of support at 2050 and the market is holding above both the 9- and 18-day moving averages. The two moving averages had a bullish crossover yesterday – despite the declining market – which could offer some near-term strength. Momentum is showing bearish divergence from the RSI, possibly offsetting the bullish MA crossover. Support comes in at 2050 and 2000, while resistance can be found at 2100 and 2130.

Gold – Gold futures are higher for the third consecutive trading session, aided by higher energy prices. Climbing energy costs and a good chance of another Fed rate cut next week could create an inflationary scenario for the U.S. economy, leading to higher demand for commodities – specifically precious metals. The USD has rebounded slightly in recent days on news that policy makers in the U.S. and Europe will step up their efforts to prevent subprime losses from spreading. Extended rallies in the greenback could put some downward price pressure on the precious metals market. February Gold rebounded before reaching the $780 mark, which would have been the trigger line to confirm a double top reversal. This was also in the area of the 50-day moving average. The market has been reluctant to move above the 9- and 18-day moving averages in the early going, and momentum is beginning to lag behind RSI – two bearish near-term signals. Support comes in at 800 and 780, while resistance can be found at 815 and 835.

Rob Kurzatkowski, Commodity Analyst


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Dollar Fights Back

The Dollar posted gains today on some unexpected positive economic data. The Dollar Index (DXZ7) – which measures the greenback against a basket of world currencies – gained 1% on the day.

With the downtrend dominating the overall picture the last month few months, today we broke through a minor double top that was set a few weeks earlier. The interesting thing is that we are now above both the 15- and 25-day moving average, both of which acted as a minor support earlier this week.

Private sector hiring increased by 189,000 in November, shattering expectations of only a 60,000-job gain. With numbers like this coming out, any talk of a recession would seem to be on weak footing. Positive news about the U.S. economy helps the greenback, of course, but it will be interesting to see how this affects (or doesn’t affect) next week’s Fed meeting. If there is a pause in rate movement, it could mean good news for Dollar bulls.

Mike Tosaw, Director of Education

December 6, 2007

Dollar Reversal?

RBOB – Gasoline futures fell in reaction to larger-than-expected inventories and a strengthening U.S. Dollar. While the market found early support in OPEC's decision to keep output unchanged, Gasoline inventories rose by 4 million barrels, surpassing analysts' estimates of only a 700,000 barrel rise. OPEC's decision, while bullish on the surface, can actually be viewed as a bearish statement on the U.S. and European economies, and their potential impact on demand for petroleum products. The Dollar has rebounded from recent lows and many are now seeing at least some stabilization in the battered currency. January RBOB futures fell below the 50-day moving average and early price action indicated a confirmation of a bear flag pattern on the daily chart, barring a sharp reversal. While these technical indicators are bearish, the market is very oversold short-term, which could lend some price support to the market. Support now comes in at 2.17 and 2.13, while resistance can be found at 2.25 and 2.2850.

Soybeans – Bean futures are lower in overnight trading as a result of falling energy prices and a strengthening greenback. Demand for biofuels may be curbed by the recent decline in Crude Oil. The rising Dollar may slow exports – particularly to China – and could lead to a larger-than-expected carryout as a result. Poor growing weather in South America may give the market some support and help to counterbalance the bearish factors. After closing above the $11 mark in late November, this area has offered fairly stout resistance of late. The 9- and 18-day moving averages are close to crossing over to the downside, which could be considered bearish in the near term. On a positive note, the momentum indicator continues to stay in positive territory and is outpacing RSI. Support comes in at 1080 and 1068, while resistance can be found at 1105 and contract highs of 1114.

Dollar Index – The Dollar has rebounded strongly after making lows on November 23rd, and today's rally marks the fourth consecutive positive trading session. The greenback has been aided by a recovery from recent lows in the stock market and economic uncertainty in Europe. There is now talk that the U.S. government will be offering some relief to the beleaguered housing and subprime sectors, which has given the market a lift. Speculation that the Bank of Canada and Bank of England may both cut interest rates has also made the Dollar more attractive to investors. The March Dollar Index is trading above resistance at 76.10 in early trading, and a solid close above this area – which would also signal a close above the downtrend line – could bring more longs into the market. The market is swiftly approaching near-term overbought levels due to the recent run-up, which could slow some of the momentum it has recently built. Momentum is lagging behind the RSI, which suggests that consolidation may lie ahead. Support can now be found at 75.70 and 75.15, while resistance comes in at 76.45 and 76.75.

Rob Kurzatkowski, Commodity Analyst


S&P Rallies on Government Bailout

Today's big story was the government's plan to send relief to subprime mortgage holders by freezing adjustable mortgage rates for qualified borrowers over the course of the next five years. This announcement came at around 2:00 PM Eastern and the markets promptly reacted with a 10-point gain over the course of the next hour, as bulls appreciated the thought of fewer foreclosures.

On the chart, the e-mini S&P 500 (ESZ7) is clearly above both the 15- and 25-day moving averages today after clinging to the 25-day average for the last few days and trading below the 15-day average for almost a month. The slow stochastic is presently indicating no reversal to the downside. The last two market lows had a slow stochastic at around the 20 level (August and late November).

Today’s market upswing was most likely driven by news in a way that a lot of reversals are, but it's probably too early to say if this is a true reversal. Tomorrow should help clarify things, as the unemployment rate is set to be released at 8:30 AM Eastern.

Mike Tosaw, Director of Education

December 7, 2007

Currency Action This Week

The U.S. Dollar is performing stronger to close out the trading week, preventing the Euro from touching 1.5000. The buck was very sensitive to declines in the Gold and Silver markets while dodging the bullets of global event risk, beginning with worldwide central bank activity this week. The decision to cut interest rates to 5.5% in Great Britain and keep rates unchanged at 4% in the European Union both confirmed a growing fear of the unknown among central bankers – the mystery of just how bad the subprime credit market fallout will hurt the global economy, considering that defaults on mortgage loans in the U.S. are now at a 20-year high. The Bank of England adopted a more aggressive approach by cutting rates for the first time in 2 years, but the ECB only discussed the possibility of hiking rates before ultimately deciding to hold off on any action until next year. Meanwhile, the Bank of Canada surprised everyone with its decision to cut the base lending rate by a quarter of a point, setting off violent moves in the USD/CAD pair.

The Federal Open Market Committee gets its turn to make a policy statement on December 11th. Members have much to discuss about the current and future state of the American economy and its global performance on foreign exchange. Considering England, Europe and Canada have taken their concerns about Dollar weakness to the media, and the United Arab Emirates came within a hair of moving its currency reserve peg away from the buck, the pressure on Fed Chairman Ben Bernanke to steer the economy clear of disaster has rarely been so intense. Support from the Bush administration came in the form of a 5-year freeze on adjustable rate mortgages, which had been due for a potentially devastating reset in 2008. This is a pre-emptive strike to avert mortgage defaults for the estimated two million homeowners due for a substantial hike in their cost of living.

Looking forward to this mornings’ unemployment report at 8:30 AM Eastern, analysts predict a small increase in the jobless rate to 4.8% during November, compared to October’s report of 4.7%. Initial jobless claims reported Thursday showed a dip of benefit claims to 338,000, lower than the forecast of 340,000. And consumer credit will round out the week at 3:00 PM Eastern, with estimates calling for a rise of 2 billion from the previous report. As Americans' debt increases, economic growth slows, and food and gas costs continue to rise, it may not be long before consumers are the ones to demand relief from the weak U.S. Dollar.

Heather Mitchell, Currency Analyst

Stocks Rally on Subprime Bailout Plan

S&P – Stocks rallied on news that the White House is planning to offer relief to subprime and ARM borrowers. The plan would allow borrowers to refinance or freeze the rate of their loans. Freezing rates could decrease or at least stabilize foreclosure rates, which have been steadily climbing. Financial companies’ shares jumped on the news, as it could lead to strengthening balance sheets for companies with mortgage portfolios. Fixed income markets have priced in a 25 basis point rate cut by the Fed next week while some analysts are calling for a 50 basis point cut, which seems unlikely. The market is flat this morning as traders focus on the Non-Farm Payrolls number, which is expected to show the economy added only 70,000 jobs for the month, down from 160,000 in October. The unemployment rate is expected to rise to 4.8 from 4.7 percent the prior month. December e-mini S&P futures broke out above resistance between 1495 and 1500, and the market closed just below the 50-day moving average. A solid close above the average could bring in more buyers and force shorts to cover. Momentum has moved sharply higher in recent trading sessions and is outpacing RSI, which is now hovering near overbought levels. Support comes in at 1485 and 1465, while resistance can be found at 1525 and 1551.

Crude Oil – Crude Oil jumped above the $90 mark on President Bush's mortgage-aid plan. The plan, along with a Fed rate cut next week, could help the U.S. economy move at a much brisker pace than previously expected and increasing petroleum demand. Wednesday's inventory numbers failed to spark a rally because of the dim economic forecast, and the market continues along in a “no news is good news” mode because of the outlook. The mortgage relief plan and renewed tensions between the U.S. and Iran could change the negative bias the market has seen recently. February Crude rallied above the 50-day moving average and the $90 resistance mark, suggesting that the market has found some stability. Momentum is outpacing the RSI, which points to a bullish short-term bias. The RSI itself is oversold, which could have contributed to yesterday's rally. Support comes in at 88.45 and 86.85, while resistance can be found at 93.05 and 95.00.

Copper – Copper also benefited from the proposed mortgage bailout plan, with the market trading almost 7 cents higher overnight. A rebound in the housing sector could help demand, which has been sagging of late. A recovery in the U.S. economy could also help drive economic activity in China, whose main export partner is the U.S. The two nations are the largest users of Copper. March futures have found support near the $3 mark after falling from the $3.75 area since early October. The 9- and 18-day moving averages are close to crossing over to the upside, which would be a bullish indicator. Resistance at 3.21 will be a key test for the market and a close above this area could trigger a bullish reversal from the downtrend. Momentum is outpacing RSI, suggesting a bullish bias. Support comes in at 3.0300 and 2.9770, while resistance can be found at 3.1460 and 3.2100.

Rob Kurzatkowski, Commodity Analyst

December 10, 2007

Stocks Keep Charging Back

S&P – Stock index futures are higher in overnight trading, driven by financial stocks. UBS – the EU's largest bank – is following Citigroup's lead and accepting foreign capital infusions from Singapore and the Middle East to deal with mortgage related writedowns. U.S. banks rallied on the news, as it appears that virtually every large bank is going to have at least some losses related to the lending sector. Traders now look as though they are willing to accept the losses as long as they are not worse than expectations. The market is also upbeat over the possibility that the Fed will cut rates tomorrow and the U.S. Dollar seems to finally have found some stability of late, though the Dollar Index is slightly lower this morning. The only economic data on tap today is the pending home sales figure, which is expected to show a 1.0 percent decline. December e-mini S&P's closed right on the 50-day moving average on Friday and are trading above the key average this morning. Friday's price action did produce a spinning top candlestick, which suggests a short-term negative bias. Countering this, the momentum indicator is showing bullish divergence from the RSI, suggesting a positive short-term bias. Support comes in at 1485 and 1460, while resistance can be found at 1525 and 1540.

Crude Oil – The Oil market is slightly lower this morning in very choppy trading. Like stock investors, Oil traders are looking forward to tomorrow's rate decision by the Fed because of the lack of news. While the market seems to consider a rate cut a foregone conclusion, traders will focus on the language the central bank uses to describe its economic forecast in the release. The market largely discounted lower-than-expected Crude inventory numbers last week due to higher product numbers and slowing economic growth expectations for the U.S. and U.K. The market did rally sharply on Thursday after the release, but this can at least partially be attributed to short covering and buying by small speculators. The daily January Crude Oil chart remains bearish, with the market unable to hold Thursday's move above the 50-day moving average. The sharp rally did negate what would have been a downside breakout in the market based on early trading. Momentum is showing bearish divergence from the RSI, which suggests a negative near-term bias. Support can be found at 86.00 and 84.00, while resistance comes in at 90.00 and 93.05.

Soybeans – January Soybeans continue to make new contract highs, bolstered by strong demand and lower carryout forecasts. South American growing conditions remain in focus, with dry spells in Argentina likely interfering with Soybean pod formation. Infarma lowered its crop production estimates for 2008 as a result of the poor growing weather, but it should be noted that Chinese crop estimates have been slightly raised. The strong demand for old crop Beans is likely to lead to an even smaller carryout than previously expected for the current crop year, which has really driven the January and March contracts. January Beans had a breakout on the daily chart on Friday, which could be solidified by a solid showing today. The market is swiftly approaching overbought levels on the RSI and Slow Stochastic indicators, which could inhibit upside movement. Support comes in at 1103.75 and 1090, while resistance can be found at 1125 and 1140.

Rob Kurzatkowski, Commodity Analyst


Corn Crosses 400!

December Corn (CZ7) crossed the 400 level for the first time since late June, giving a positive sign for Corn bulls. The next level of resistance doesn’t come until 425, which was established in mid-June – anything above 435 would be an all-time high.

Looking at the indicators, we see that the fast stochastic is above the 90 level. Can the trend continue without a reversal? We have been going higher since early October. This trend is also above both of the moving averages, indicating that things are moving fairly fast.

Tomorrow, all eyes will be on the Fed announcement due at 1:15 PM Central time.

Mike Tosaw, Director of Education

December 11, 2007

Fed Day

S&P – Stock index futures continued their recent rally this morning ahead of the Fed announcement. The mortgage and banking sectors are still riding the wave of enthusiasm sparked by President Bush's mortgage bailout plan and capital infusions from outside investors. Many traders are looking for a quarter point rate cut and a positive statement from the FOMC, but not too positive, as it could close the door on further cuts. Also, any mention of inflation in the statement could have a negative impact on the market. Technically, the December e-mini S&P is coming in very overbought due to the recent rally. Momentum studies continue to outpace the RSI, which may help offset the negative bias. The market managed to hold yesterday's rally above the 50-day moving average, which sets a positive tone for the market longer-term. Support comes in at 1490 and 1465, while resistance can be found at 1525 and 1550.

Crude Oil – The Oil market has rebounded in early trading after starting off the week on a sour note. Petroleum traders have struggled to justify current prices levels, as inventories remain strong enough to meet the winter demand and the health of the U.S. economy remains a huge question mark. A quarter point rate cut and a positive statement from the Fed today may aid prices in the near term, but many traders remain skeptical on the longer-term price outlook for petroleum prices. The January Crude chart remains bearish, as the market continues to trade sideways after the price collapse, signaling the possibility of further downside. Momentum has rebounded slightly, but remains negative and is being outpaced by the RSI, which may be seen as bearish near-term. Support comes in at 86.85 and 84.05, while resistance can be found at 90.70 and 93.00.

Gold – Gold is trading lower this morning on a stronger U.S. Dollar and profit-taking, as precious metal prices have detached themselves from energy prices over the past couple of weeks. Gold has become a safe haven for traders who are pessimistic about the economy and have lost faith in the energy sector. The Fed rate cut has been priced in by currency traders, so it may not have a large impact on the Dollar. A bleak policy statement could trigger a sell-off in the greenback and support Gold prices. Since almost confirming a double top reversal on the daily chart, February Gold prices have rebounded over $30. Momentum has shifted gears and is now approaching positive territory after spending the past two weeks on the negative side. Support can now be found at 795 and 785, while resistance comes in at 825 and 835.

Rob Kurzatkowski, Commodity Analyst


Oil Heads For Higher Ground on Fed Day

Crude Oil (CLF8) took a run above 90 with the bulls for a period today before settling back at 89.22 – still ahead 1.5% on the day. You can make a case either way as to whether the 25 basis point Fed rate cut had anything to do with the rally, but the bottom line is that Crude is back in positive territory.

The chart suggests that we're in a bit of a consolidation over the last few days. Since the beginning of the month, Crude has been bouncing between 85 and 91, and the market remains below both moving averages. If this is a move to the downside for the longer term, the next level of support is at 84, followed by stronger support at 78. To the upside, the market never managed to get above the 100 level a few weeks ago, marking the 99 area as resistance on that end.

Of course, the biggest news of the day was indeed the Fed rate cut. S&P futures reacted negatively with a close to the downside of 40 points (1478), setting up an interesting ride for the rest of the week with retail sales, initial claims, CPI, and PPI all still on tap.

Mike Tosaw, Director of Education

December 12, 2007

Fed Disappoints Equity Traders

Dow – The Dow Jones Industrials fell by almost 300 points after the Fed lowered rates by a quarter point. While the rate decision was in line with consensus estimates, traders were disappointed by the language in the policy statement. Inflation is still very much on the minds of the central bank’s policymakers, indicating that the Fed may be hesitant to cut rates at its next meeting. Fed Fund futures were pricing in a 1/3 chance of a 50 basis point cut, making for a large contingent of disappointed traders when the announcement came down. Financial stocks were hit especially hard due to the recent belief that the Fed would help bail out the battered lending sector by injecting liquidity, which may not be the case after all. Traders sometimes forget that the availability of cheap money has contributed to the current mortgage crisis in a major way. The December Mini Dow fell below the 50-day moving average after three consecutive closes above the key average. This also created a bearish engulfing candlestick pattern, which suggests a possible reversal of the recent uptrend. Momentum has swung sharply lower, but remains in positive territory. The RSI also moved sharply lower and the very overbought levels coming into may have helped contribute to the sell-off. Support comes in at 13,400 and 13,200, which may be a litmus test for the market, as price stabilization at this level could provide longer-term technical support. Resistance can be found at 13,650 and 13,800.

Crude Oil – Like equities, the petroleum market was disappointed by both the quarter point rate cut and the language in the policy statement. Crude Oil traders view the cut as too little, too late for the slumping economy. Today's EIA inventory numbers are expected to show a drawdown of 750,000 barrels, but products are expected to make another strong showing, with gasoline and distillate stocks forecast to rise 1 million and 500,000 barrels, respectively. If the products figure holds up to estimates, the Crude figure itself is likely to have very little impact on trading. The $90 mark has acted as a barrier to rallies since the beginning of the month, with the exception of last Thursday. Because of the sell-off leading up to recent consolidation, the bias on the daily chart seems to remain to the downside. Momentum has edged higher, but remains negative for the moment. The RSI indicator has recovered from oversold levels, which could negate some of the short covering support the market has seen recently. Support comes in at 86.85 and 84.00, while resistance can be found at 90.50 and 93.00.

Soybeans – The USDA report yesterday confirmed many traders' suspicions that carryout will be lower than prior estimates, but not to the extent that the report showed. The report estimated August 31st inventories will drop to 185 million bushels, sharply lower than median analyst estimates of 197 million bushels. Continued poor growing weather in Argentina and parts of Brazil, along with higher South American Corn acreage – which could also steal away Bean acres – also helped support prices. January Soybeans are approaching overbought levels once again, which could stall further rallies. Momentum is beginning to lag behind the RSI, which suggests consolidation or a possible sell-off near-term. Support comes in at 1110 and 1080, while resistance may be found at 1150 and 1165.

Rob Kurzatkowski, Commodity Analyst


Oil Takes a Climb

Crude Oil continued its bull run today with an extension of yesterday’s rally. The high of the day was almost $95 (94.85) on the December contract (CLF8) with the low at $89.26 – more than a 5% range. The big news of the day didn’t hurt the Oil bulls, of course – U.S. inventories came in lower for the fourth straight week.

On the chart, we can expand on our discussion from yesterday, as we closed above both of the moving averages. In addition, the slow stochastic places Crude squarely in the middle – with no indication of an overbought or oversold marketplace. Therefore, we have a new picture to look at when it comes to the Crude chart. With the price sitting above both moving averages, these lines may act as support, possibly paving the way for the breakthrough to 100. However, Oil bears may see the beginning of a head and shoulders pattern that started at the beginning of November.

Tomorrow's economic calendar includes retail sales, PPI, initial claims, and business inventories.

Mike Tosaw, Director of Education

December 13, 2007

Gold Goes Below $800

The February Comex Gold contract (GCG8) took a turn to the down side today with a 2% drop. The low of the day was at 797, but Gold had fought back to 802 by the time of this writing. Elsewhere, the Dollar Index gained some ground against the world's currencies, with a high of 76.75 and a close around 76.56.

On the Gold chart, we see short-term highs becoming lower and lower during the last three periods. This has been the case since the beginning of November. There seems to be a bit of consolidation going on, with the lows getting higher as well. In the short term, trade is becoming more and more range-bound, which may be a sign of a breakout to either side with traders getting ready to ride the momentum either way. If it is to the upside, the highest level of resistance is around the 850 level while the downside shows a lot more room before support. If this is a top, it could be a long way down.

Tomorrow, we look forward to CPI data.

Mike Tosaw, Director of Education

December 14, 2007

Indecision Caps a Wild Week

S&P – Stock index futures are lower ahead of this morning's CPI release at 7:30 AM CST, which is expected to show consumer prices climbing at a brisk 0.6 percent pace. Given the Fed's new plan to inject liquidity into financial institutions directly and a somewhat hawkish policy statement, the higher inflation numbers may force the central bank to sit on its hands when it convenes next month. The spike in Crude Oil prices over the past few days may also weigh on the market. Industrial production – which will be released at 8:15 AM CST – is expected to show a modest 0.2 percent gain in production, up from a 0.5 percent decline last month. Given the uncertainty in the economy, traders may key on this figure more than usual, and a weaker-than-expected figure may suppress any chance of a rally. The December e-mini S&P has been unable to mount a rally beyond the 9-day moving average after failing to hold the 50-day moving average earlier this week. Momentum is showing bullish divergence from the RSI, which suggests that the market has a slight upside bias in the near-term. Support can be found at 1465 and 1440, while resistance comes in at 1495 and 1525.

Crude Oil – Crude Oil is little changed this morning, as petroleum traders also await the CPI figures. Like equity investors, Crude Oil traders are skeptical of the Fed's new plan to collaborate with European and Canadian central banks to offer liquidity to financial institutions. This lack of faith led to a sell-off late in the day yesterday, with traders showing little confidence that the Fed's plans will be able to turn around the slumping economy. If inflation pressures kick up, investors may again flock to physical commodities, making Crude Oil an attractive investment. Of course, this could be tempered by sagging economic conditions, as it could lead to lower demand. The January Crude chart has turned around over the past few days, with the market sustaining rallies beyond the $90 mark. Yesterday's weak close was an indication that traders may be treading lightly and not trusting that this is a true breakout to the upside. Momentum is currently near the zero line and is being slightly outpaced by the RSI indicator. Support comes in at 90.70 and 88.00, while resistance can be found at 95.00 and 96.25.

Gold – The Gold market is lower this morning on a stronger U.S. Dollar. Precious metals traders are moving cautiously ahead of this morning's CPI release and price action indicates that traders may be looking for tamer inflation figures. While sharply higher inflation numbers typically drive the Gold market, the relatively benign estimates for the CPI figure could cause the Dollar to rally, as the Fed would be less likely to slash rates going forward. The new plan by the Fed to deal with the banking sector directly may be viewed as a move to provide more liquidity and, at the same time, not cause the greenback to freefall as it has in the wake past rate cuts. February Gold is trading below the key psychological $800 support mark, but the critical support area the market must maintain is $785. A move below this figure could trigger a triple top reversal, which could spark an extended sell-off. It is difficult to tell if the daily chart has been building a triple top reversal or a wedge consolidation pattern, which could lead to more upside. This confusion may cause technicians to take a “wait and see” approach. Despite the second consecutive day of declines, the momentum indicator has moved higher and is outpacing the RSI, suggesting a short-term bullish bias. In addition to 785, support can be found at 755, while resistance comes in at 813 and recent highs of 822.80.

Rob Kurzatkowski, Commodity Analyst

December 17, 2007

Sweet Corn

Corn – Corn prices jumped overnight on expectations that ethanol use will increase, after Congress on Friday passed a new farm bill which would mandate substantial increases in biofuel usage. The bill would push ethanol demand near production capacity and force the fledgling ethanol industry to find ways to use crop leftovers – such as husks and cobs – to produce the alternative fuel. Sagging Dollar prices have boosted export demand for Corn and related products, such as sweeteners, while lower feed stocks in Europe and Australia have also helped drive demand overseas. March Corn briefly made new contract highs in early trading and prices remain strong. The market is very overbought right now, but the overbought levels have been more than offset by strong momentum, which is outpacing the RSI indicator. Support for the March contract comes in at 425 and 410, while resistance can be found at 450 and 465.

Soybeans – Bean prices continue to rally in overnight trading on expectations that demand for U.S. exports will remain strong. The Dollar is trading a bit weaker in overnight trading, which could help give exports – which have already surpassed USDA estimates – a lift. China's appetite for Beans and Oilseed has not waned in the face of rising prices, and demand is forecast to remain strong through the end of the crop year. Crude Oil prices are lower in overnight trading and could hamper rallies, as it would adversely affect Bean Oil demand. January Soybeans remain overbought on the daily chart, with prices rising in 8 of the last 10 trading sessions. The overbought conditions may restrict further upside, but momentum remains very strong and is outpacing RSI in the early going. Support comes in at 1145 and 1114, while resistance may be found at 1175 and 1200.

S&P - Stock index futures are trading lower this morning on mounting fears of a severe slowdown or recession. While there is a contingent of analysts quick to use the R word, the fear of a severe slowdown is spreading in the same manner in which the credit crunch has spread to the broader economy. The Fed did little to boost investor confidence last week with a quarter point rate cut and its collaboration with European and Canadian central banks. New disclosures by Bank of America and Citigroup in relation to credit market exposure also shook investor confidence. Financial companies are leading the way lower this morning. After starting out with a boom, holiday sales are expected to disappoint and retail stocks have suffered this morning as a result. The December e-mini S&P is trading below both support at 1465 and the 18-day moving average this morning. A close below the 18-day could suggest that a recent high is in place. Momentum is showing bearish divergence from the RSI, suggesting more downside is definitely a possibility. Support can now be found at 1440 and 1406.25, while resistance comes in at 1483 and 1501.

Rob Kurzatkowski, Commodity Analyst

December 19, 2007

Heating Oil Cools Down

Heating Oil – Heating Oil futures followed Crude Oil lower on the strengthening U.S. Dollar and economic uncertainty after a disappointing U.S. housing report. Turkey withdrew troops from northern Iraq after a brief incursion, which also helped spark the late sell-off. Weather models are forecasting warmer-than-average temperatures over the next month, which should keep demand for Heating Oil soft, but inventories at the lower range of seasonal averages have been more than enough to offset the weak demand. Today's inventory figures are expected to show a drawdown of 400,000 barrels of distillates. January Heating Oil has found support at the 2.54 mark in early trading, but the market has fallen below both the 9- and 18-day moving averages, which suggests a negative near-term bias. The close below the 18-day may be more significant, as it could indicate that a near-term high is in place. Momentum is beginning to fall at a brisker pace than the RSI, offering further evidence of a negative predisposition. Support comes in at 2.5100 and 2.4450, while resistance can be found at 2.5915 and 2.6700.

Wheat – Wheat futures dropped a day after climbing to record highs on a rebounding greenback and falling energy prices. Global stocks remain at the lowest levels in over thirty years, but recent rains across the winter Wheat-growing regions may improve crop conditions, a possibility which helped trigger a late sell-off. The rebound in the U.S. Dollar also adversely affected the grain markets, as did the drop in the petroleum sector, which led to widespread weakness in commodity prices. Early weather models are suggesting another dry year across much of the summer growing region in 2008, which may offset some the high planting projections. Much of the selling pressure seen over the past two days can be attributed to profit-taking and the generally overbought conditions in the market. March Wheat failed to establish support at 960, leading to a short-term negative technical bias. Momentum has moved lower over the last two trading sessions, but remains robust. Support comes in at 940 and 911, while resistance can be found at 980 and contract highs of 1009.50.

Ten-Year Notes – Fixed income futures got a boost from the weak housing figures, as traders hoped the data would force the Fed's hand in lowering rates. The rebound the market has seen over the past three trading sessions may be a bit of an aberration, as further rate cuts would be needed to support higher prices. The treasury markets have not experienced the “flight to quality” effect that we have seen in the past due to overseas investors' reluctance to acquire debt instruments until the Dollar shows more stability. There is also no indication that the Fed will abandon its new plan to inject liquidity into the banking sector directly, instead of via the broader market. Steep declines in the equity markets and commodity weakness may bring buyers back to the market. March Notes saw a reversal pattern develop as a result of Monday's trade, but what remains to be seen is whether this is a longer-term recovery. Despite the market trading higher for the third straight day, momentum is falling, suggesting a negative near-term outlook. Support comes in at 112-04.50 and 111-23.50, while resistance can be found at 113-05.50 and 113-29.

Rob Kurzatkowski, Commodity Analyst


The Greenback Finishes Green!

The U.S. Dollar Index (DXH8) finished the day to the upside today, closing at 77.62. Although it is obvious this is not a day to end all days for Dollar bulls, the buck has been making a bit of a statement lately.

There are rumors that the Fed will not lower interest rates again at its next meeting due to rising inflation numbers. Investors have also had more of an appetite for higher-yielding U.S. government bonds – which have also had a nice week to the upside, thank you very much. Combine these factors with the U.S. stock markets having a down week, and it becomes clear why bulls liked the Dollar.

On the chart, the Index is currently above both of our moving averages. This has been a one-week pop. The nearest point of resistance is at the 78 level, and we're close to hitting that right now. Beyond that level, the next resistance area doesn't emerge until after 80.

Recession will be the big question to start 2008, and the answer will play a big part in the fate of the Dollar.

Mike Tosaw, Director of Education

December 20, 2007

How Sweet It Is

Sugar – The Sugar market is sharply higher this morning, aided by stronger energy prices. The relatively low price of the sweetener compared to other commodities – such as grains and metals – has attracted investors in recent weeks. Brazil is expected to curb exports of Sugar over the next year in the face of a strong increase in domestic demand for Sugar-based ethanol. The explosive move to the upside in Corn recently may result in food manufacturers switching from Corn-based sweeteners to Sugar in an effort to cut rising costs. While the market has risen on expectations of strong demand and possible supply cuts, the fundamental picture still remains moderately bearish, with world stocks remaining at very high levels. March Sugar appears to be showing a breakout from a bullish flag pattern on the daily chart this morning – the signal is contingent on the contract closing above the 10.80 mark for the day. Traders may not get overly bullish on the continuation pattern, as the recent rally has been built upon relatively light volume. Momentum is showing bullish divergence from the RSI, which remains at overbought levels. Support can be found at 10.56 and 10.20, while resistance comes in at 11.32 and 11.66.

E-mini S&P – Stock index futures are posting modest gains this morning ahead of the final Q3 GDP numbers. Analysts are expecting no revision to the prior figure of 4.9 percent, which showed solid economic growth prior to the subprime fallout. Retailers led the market lower yesterday after a third consecutive week of lackluster sales. The holiday season started off with a bang, with sales topping the most bullish forecasts, but 2007 go out with a whimper if sales do not pick up going into the Christmas holiday. Private research group the Conference Board is releasing its Leading Economic Indicators report this morning, which is expected to show economic growth during the month of November dropping at a pace of 0.3 percent. Yesterday was a very choppy, indecisive day of trading, leading to a spinning top candlestick, which may indicate a slight upside bias. Traders may be looking for March futures to have a solid close above the 1500 mark to restore some confidence in the market. There are conflicting short-term technical signals, with a bearish crossover of the 9- and 18-day moving averages on the daily chart, but momentum studies are sharply outpacing both price and RSI. Support comes in at 1445.75 and 1415.75, while resistance can be found at 1480 and 1500.

Crude Oil – The Oil market is posting modest gains for the second consecutive day on a fairly bullish inventory report yesterday, which showed a large drawdown of over 7.5 million barrels for the week. The size of the drawdown was largely attributed to weather problems, resulting in traders' views that this was only a temporary setback. In addition, Cushing, Oklahoma – the key delivery point for the NYMEX contract – showed a build for the sixth consecutive week. The market has not been able to get solid upside momentum recently from bullish supply and demand in the face of an economic slowdown. Energy Secretary Sam Bodman is expected to go to the Middle East next month to lobby OPEC to increase supplies, which may be a hard sell given the recent economic data. The daily February Crude Oil chart remains in a consolidation pattern, with the market not able to find a direction. The 18-day moving average is closing in on the 50-day and a crossover could be considered bearish longer-term. Momentum is showing slight bullish divergence from the RSI, which suggests a positive short-term bias. Support comes in at 89.15 and 87.00, while resistance can be found at 93.00 and 94.70.

Rob Kurzatkowski, Commodity Analyst


In the Spirit of the Season, Wheat Gives Back

After a pretty big day for Wheat bulls yesterday, the bears made a short-term statement today, dropping the March contract (WH8) by nearly 2%. The low of the day held at the 950 level, but the close at 954 put us just below yesterday’s open.

Looking at the chart, we see that the past six months have been good to Wheat bulls, with prices increasing by over 50%. Although we have been in a bit of a channel since the beginning of October, the last few days have lingered above previous resistance in the 950 area. If we continue to the upside, there is no apparent resistance. But the bears were in control today, and the longer that lasts, the better the chance that the channel may continue. Should the bulls take over the trend, the longs will have a very happy New Year indeed.

Mike Tosaw, Director of Education

December 21, 2007

Corn Exports Show No Letup

Corn – Corn futures posted solid gains yesterday on strong export data. Unlike the rest of the CBOT grain complex, the stabilization in the U.S. Dollar and rising prices did little to curb demand in Corn. Market chatter suggests that a host of factors may lead Soybean acres to increase significantly and take away from Corn acres in 2008, including attractive Bean prices, record Corn fertilizer costs and crop rotation. The ethanol hype over the past few years has also caused farmers to over-plant Corn, which has done ecological damage in the Midwest and may make the region more prone to drought conditions. Longer-term meteorological models suggests the La Nina weather pattern is picking up in the Pacific, which could cause dry conditions in both North and South America in the upcoming crop year. March Corn found support at the 9-day moving average over the past two trading sessions, showing that the market has maintained short-term positive momentum. Momentum is showing positive divergence from both price action and the RSI. Corn remains at overbought levels on the RSI, which may leave the market susceptible to profit-taking pressure. The bearish crossover on the stochastics on Monday was negated by the indicator lines crossing back up as a result of yesterday's move. Nonetheless, the indicator remains above the 80 percent mark, which gives further indication of overbought conditions. Support comes in at 430.25 and 411, while resistance may be found at contract highs of 443.25 and 465.

Coffee – Coffee fell for the second consecutive day on lack of buying interest in commodities and indications that Brazil's output may be larger than previously thought. The drought conditions in the key Coffee-growing regions may make much less of an impact on the 2008 crop than earlier projections, according to a joint report released by Fortis Bank and VM Group. The report is showing the possibility of a 50 million bag crop, trumping earlier estimates of 44 million bags. At this point, it is still too early to tell how the inclement weather has affected the crop in the infant stages of growth. Commodity fund activity was very light, with the inflationary GDP deflator figure being offset by a strong Dollar. In general, softs have gotten a lift from fund buying in recent weeks, as investment managers have diversified away from commodities that have made explosive moves over the year, such as metals and energies. Some of the selling may also be attributed to profit-taking ahead of year end, as well as the technically overbought conditions. The RSI, SMI and slow stochastics are giving overbought readings, with the latter two indicators showing bearish crossovers. The daily chart shows two consecutive spinning top candlesticks, which points to indecision among traders and may suggest a short-term reversal of the recent uptrend. March Coffee is still trading above the major moving averages and has not yet shown major evidence of a reversal, despite the claim made by the oscillators. Momentum has been resilient in the face of yesterday's sell-off. Support comes in at 132.50 and 131.25, while resistance can be found at 135.25 and 136.75.

Dow – Stocks finished higher in another choppy trading session yesterday. Buyers stepped in despite the first ever losses posted by investment banking powerhouses Bear Stearns and Morgan Stanley due to writedowns related to subprime loans. Leading indicators were weaker than expected at -0.4 percent, initial claims rose more than forecast and the revised GDP deflator showed a higher rise in prices than the preliminary release, all of which were equity bearish. Traders may key on the deflator figure, which paints a truer inflation picture, as it is shows an unfiltered view of the change in consumer prices, whereas the CPI data leaves out certain consumer staples. Online retailers are expected to have a stronger holiday season that previously believed, a fact that helped spark a rally in both tech and retail stocks. After the bell, RIMM posted strong earnings, which doubled last year's profits for the same period. The market will digest more inflation and income data with the release of the PCE incomes, spending and inflation figures at 7:30 AM CST. The March Mini Dow chart remains in a tight consolidation pattern, suggesting more downside may lie ahead. The 9-day moving average crossed the 18-day, which is a negative signal in the near-term. Momentum is showing positive divergence from the RSI, which conflicts with the chart to show a bullish bias. The RSI is quickly approaching oversold levels, which may support the market going into the New Year. Support comes in at 13185 and 12900, while resistance may be found at 13535 and 13645.

Rob Kurzatkowski, Commodity Analyst

December 26, 2007

"Eventful" Few Days For Crude

Crude Oil – Oil futures are up for the third consecutive trading session on renewed Middle East tensions. Turkey has mounted a new offensive in northern Iraq against Kurdish rebels, which threatens to disrupt supplies. The Turkish government has indicated that the attacks against rebels will continue, but the military also stated that they will only attack rebel bases. While the offensive itself is not likely to result in damage to pipelines, traders fear that PKK rebels may launch terrorist-style attacks on key supply lines to retaliate against perceived American and Iraqi government complicity. Elsewhere, criminal gangs siphoning off a Nigerian Oil pipeline triggered an explosion that killed 40 and disrupted supplies from the Oil-rich nation, which pumps 2.5 million barrels a day. After a relatively calm month on the geopolitical front, these renewed tensions – along with the belief that OPEC has not yet made good on its promise to increase output as of November 1 – have traders thinking that U.S. supplies will be lower than seasonal norms. Tomorrow's inventory release – a day later than usual due to the Christmas holiday – is expected to show a drop for the sixth consecutive week. The February Crude chart is beginning to look more bullish, but traders may be cautious due to recent false breakouts and light volume, which has caused choppy trading conditions. Traders may be looking for a close above recent highs of 94.72 to validate an upside breakout and a late-day sell-off could scare away bulls. The momentum indicator has turned positive for the first time in two weeks, when it and the market turned higher before falling back. The indicator is showing bullish divergence from the RSI, suggesting a positive near-term bias. Support comes in at 92.35 and 89.15, while resistance can be found at 95.20 and 96.60.

S&P – Stock index futures are flat in early trading on news that retail sales leading up to the Christmas holiday have improved, but by less than many had expected. The retail sector is now gearing up for the post-holiday/New Year season, which starts today. Gift card use has increased significantly over the past several years, and retail giants like Best Buy and Wal-Mart are banking on their use, along with deep discounts, to help drive sales going into 2008. Many big box stores are expected to discount products more deeply than in previous years to clear away inventory, a recent trend that has made the post-holiday season almost as vital as the pre-holiday period. Other than retailers, it looks to be a quiet news day for the market with no economic releases and no early stories hitting the wires. The March e-mini S&P closed above the key 1500 on Monday, which may be considered an upside breakout. Traders may take the signal with a grain of salt, however, given the light volume and the perceived “Santa Claus rally” on Monday. More confirmation may be needed to attract bulls and stop out bears. Support comes in at 1485 and 1475, while resistance can be found at 1515 and 1530.

Soybean Oil – Bean Oil continues to rally on strong demand and rising spot prices in China, with the March contract making a push toward new highs. The strength in petroleum prices and a weaker Dollar could further support Bean Oil prices. China's appetite has not waned in spite of the stabilization of the greenback in recent weeks, with domestic output lower than expected and the government's plan to stockpile oilseeds. The March chart shows Bean Oil breaking out of recent congestion. Momentum is showing bearish divergence from both price and RSI, which could indicate the possibility that this may be a false breakout. The market is in overbought conditions on the RSI and stochastic indicators, signaling that the market may be susceptible to selling pressure. Support comes in at 47.33 and 46.45, while resistance may be found at 48.25 and 48.60.

Rob Kurzatkowski, Commodity Analyst