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
