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
