Crude Oil – Oil futures are higher in early trading on continued geopolitical tensions and expectations that U.S. inventories will show yet another decline. Nigerian militants launched attacks against several police stations and tourist destinations in Port Harcourt, sparking fears of deadly exchanges between the military and criminal gangs in the Oil-rich city. The news comes on the heels of the Bhutto assassination, which threatens to destabilize nuclear-armed Pakistan. Crude Oil inventories are forecast to drop by nearly 2 million barrels, which would mark the seventh consecutive weekly decline. Meanwhile, a severe cold front is set to hit the Northeast, which is expected to boost Heating Oil demand. Despite the bullish news, the market may be susceptible to selling pressure due to the slumping economy and technically overbought conditions. The 9-day RSI is giving a reading north of 90 this morning and the stochastics remain in overbought territory. Momentum is beginning to flatten after jumping sharply over the past few trading sessions. Support can be found at 94.65 and 93.00, while resistance comes in at 97.92, 98.12 and 99.29.
Gold – Gold opens up the New Year on a strong positive note, buoyed by higher energy prices and a weaker U.S. Dollar. Monday's sell-off can largely be attributed to profit-taking before year end and a reaction to technically overbought levels. Economic uncertainty and inflation fears are likely to drive the market in the near-term. With the stock market showing chinks in the armor and treasuries trading at relatively high levels, Gold ETFs are likely to continue seeing a cash influx, which would drive physical demand for the metal. Traditional commodity funds are also likely to power the market, with traders once again talking about the possibility of prices reaching $1,000 an ounce. The market is still a long way from this mark and a series of major events – such as economic meltdowns in the U.S. and Europe – would likely need to occur for the market to make the ascent to four-digit prices. The 9-day RSI has fallen back from the low 90's, but February Gold remains at overbought levels. While these overbought levels may not lead to a sell-off, the market may consolidate and labor in moving higher. Momentum remains strong and is outpacing the RSI, suggesting a positive bias. Support comes in at 825 and 810, while resistance can be found at 855 and 880.
S&P – Stocks try to ring in the New Year on a positive note, with shares rising in European trading. This morning's release of construction spending data and the ISM Index are both forecast to show weakness, spurring the pre-market rally. Traders are betting that weakness in the figures – set to be released at 9:00 AM CST – will force the Fed's hand in lowering rates. The December FOMC minutes will be released at 1:00 PM CST and will give investors more insight into the central bank's mindset. The early part of the year figures to be volatile due to the uncertainties facing the economy, which could result in more funds being shifted to the sidelines by traders not willing to stomach the difficult trading conditions. The March e-mini S&P has held support in the 1475-1480 area, but a violation of this level could bring about a test of the 1450 area in the near-term. Momentum is showing slight upside divergence from the RSI, which sets a mildly bullish tone for the remainder of the week. Support comes in at 1471 and 1445.75, while resistance can be found at 1511 and 1530.
Rob Kurzatkowski, Commodity Analyst