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