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
