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January 2008 Archives

January 2, 2008

New Year, Same Old Worries

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

January 3, 2008

Crude Briefly Flirts with the Century Mark

Crude Oil – Oil futures started off the New Year with a bang, with prices eclipsing the intraday $100 mark for the first time. Geopolitical tensions rocked the market early and the ISM manufacturing report showed an inflationary prices paid component, which was the driving force after the NYMEX floor open. Supply concerns were very much on the minds of traders, and are likely to spill over into today’s trading as well. Looking at the newswires, several major financial publications reported that global petroleum supplies have reached a peak, meaning the world has used half of the petroleum on the planet. The stories only acted to spur on an already emotional trading session. Commodities were higher in general on inflation worries, with Feeder Cattle, Sugar and Coffee the only markets to take a pass on the rally. Today’s trading figures to be very volatile with the release of the EIA petroleum inventory numbers, which are expected to show a decline of 1.8 million barrels for the week. The enthusiasm over the cold blast hitting much of the eastern portion of the country may dissipate given the warmer forecast for the winter as a whole. The slowdown indicated in the ISM manufacturing number may give some traders cause for a retreat, as it showed a larger-than-expected drop in manufacturing activity, but at the same time showed inflationary pressure. This could lead to a pause in the Fed’s recent wave of rate cuts. February Crude had a technical breakout, closing above previous contract highs of 98.12, and traders will look for the market to establish further closes above this area to confirm the breakout. The market remains very overbought, registering 92.67 percent on the RSI. Support comes in at 97.18 and 94.73, while resistance may be found at 100.94 and 102.25.

Soybeans – The grain markets jumped sharply on news that the Chinese government will be imposing hefty duties on exports of grains in an effort to bolster domestic reserves. The protectionist move will likely lead to even stronger U.S. export demand and pressure already tight global stocks. Adding to supply squeeze, the recent upswing in petroleum prices is expected to spur more bio-fuel demand. On the weather front, the La Nina patterns strengthened, opening the door for hot, dry conditions across the Midwest this crop year. The Bean market may be susceptible to profit-taking pressure in the near-term after rallying sharply over the past few trading sessions. The March Bean chart remains bullish with yesterday’s breakout above previous contract highs. The RSI is registering an overbought reading, opening the door for profit-taking. Momentum continues to outpace RSI, leading to a positive short-term bias. Support comes in at 1225.50 and 1202.50, while resistance can be found at 1267.25 and 1285.75.

Orange Juice – Freezing temperatures across Florida’s citrus-growing region sparked yesterday’s OJ rally. Traders will be closely monitoring the length of time that temperatures remain below the freezing point. Six hours is generally viewed as the breaking point, with frosts lasting longer generally causing significant damage. Even if the weather fears evaporate over the next day or so, the market may benefit from the overall bullish sentiment in physical commodities. On the other hand, traders may be tempted to simply dump Juice contracts if the weather warms, preferring to jump into one a booming market like energies or precious metals. March FCOJ was unable to hold early day rallies and, as a result, formed a spinning top formation on the daily chart. Momentum continues to outpace RSI, suggesting that the short-term bias is moderately bullish. Support comes in at 145.05 and 141.30, while resistance can be found at 152.25 and 155.75.

Rob Kurzatkowski, Commodity Analyst


Oil Hits $100 Again, But Not For Long

As usual these days, the big story in the markets was Crude Oil. Today, the price was briefly over $100 on the February contract (CLG8), as the high was put in around mid-day at $100.09. This level held for but a few minutes before the bears came in to bring things back to double digits. After that, the price was event below $99 for a short time, and at the time of this writing, the price was lingering at $99.17. The biggest news event on the Oil front was inventories, which were down 4 million barrels to 289.6 million for last week.

On the chart, we are now trading well above both moving averages following a cross of the averages last month. Since then, the bias has continued on into uncharted territory to the upside, with little apparent resistance past today’s high. Buyers of new highs are really beginning to pay attention. On the downside, the nearest level of support is around the $90 level set in mid-December. According to the stochastic indicator, Crude is approaching overbought levels.

Mike Tosaw, Director of Education

January 4, 2008

And the Market Volatility Continues

Dow – The Dow almost let early gains slip away in yesterday’s trading session, but in the end managed to post a modest gain of almost 13 points. The afternoon plunge was led by disappointing auto sales figures for the month of December. The battered U.S. auto industry was hit hard by tighter lending standards and the rising price of gasoline. Stock traders have been gun shy over the past few trading sessions on worries that the rising cost of petroleum could further dampen the U.S. economic outlook and negate any positive impact that could result from the recent rate cuts. Today’s focus will shift to the labor market after the release of non-farm payrolls at 7:30 AM CST. The report is expected to show the labor market slowing and adding only 75,000 jobs in December, down from November’s 94,000 new jobs. The unemployment rate is forecast to rise to 4.8 percent and hourly earnings are expected to fall to 33.6 from 33.8. The tight labor market and rising cost of gasoline may curb American consumers’ appetites for non-necessities like electronics. Right now, the long- and short-term outlooks on the Dow chart give vastly different views. The spinning top candlestick formed by yesterday’s price action indicates that the market may bounce in the near-term. But the weekly Dow chart (see cash index chart below) shows a more ominous outlook, as the market may be in the midst of forming a head and shoulders reversal pattern. The neckline of 12,787 has acted as support the last three times the market traded down to it, but a violation of this area could spark sell-offs to Fibonacci retracement support near 11,515. Momentum is showing bearish divergence from the RSI, setting a short-term negative bias. Support comes in at 13083, 13022 and 12967, while resistance can be found at 13198, 13254 and 13314.

Sugar – Sugar futures surged on reports that Indian production of the sweetener will fall well short of lofty expectations. Bullish sentiment in commodities as a whole and a bullish petroleum inventory report fueled strong speculative buying. Index funds are expected to step up their buying over the next week to mimic the DJ-AIG Commodity Index, which suggests that spec buying could remain strong in the near-term. The fund activity resulted in shorts getting squeezed out of the market and triggered a large number of buy stops. Today’s bias may shift to the bears, as the market has already run through a good number of buy stops and new buyers may be hesitant to enter the market without some pullback. Longer-term fundamentals have improved on a recent increase in South American demand and lower-than-expected Southeast Asian production, but overall the market remains well-supplied. The March Sugar chart shows a breakout from the recent congestion pattern on late buying. The March contract seems to have established 10.70 as near-term support, springing higher after violating the area briefly yesterday. The momentum indicator is outpacing the RSI, pointing to a possibly bullish short-term bias. Support comes in at 10.90, 10.54 and 10.35, while resistance can be found at 11.45, 11.64 and 12.00.

Gold – Gold continued its historic march to new highs yesterday, bolstered by stronger commodity prices and a slumping Dollar. Traders are beginning to talk about the Fed being backed into a corner, almost forced to lower rates despite inflationary pressures. Commodity prices have rallied over the past several years, mainly due to forces outside of the U.S. economy, such as China’s explosive growth. Prices of raw materials may continue to climb in the event of a U.S. recession, sparking global inflation. In this scenario, Gold and other precious metals may begin to appreciate at an even quicker pace than energy prices. This view could be tempered by the opinion that a U.S. recession could easily spill over into the global economy, trimming the demand for raw materials in the very same developing economies that have been driving the commodity bull market of late. The February Gold chart remains bullish, but oversold. The market has almost reached its objective price of 890 after breaking out of the wedge consolidation pattern on the daily chart. Support comes in at 866.20, 859.50 and 843.00, while resistance can be found at 875.80, 882.50 and 892.20.

Rob Kurzatkowski, Commodity Analyst

January 7, 2008

Small Caps Feel the Heat

Russell – Stocks tumbled hard Friday on a Non-Farm Payrolls number that surprised even the most pessimistic of investors. Not only did the economy only add 18,000 jobs for the month of December – far short of consensus estimates of 70,000 – but the unemployment rate jumped from 4.7 to 5.0 percent when the market was expecting no higher than 4.8 percent. These numbers underscore the economic pressures that the stock market has been feeling as of late. Corporate earnings have been fairly solid to date with the exception of companies with considerable subprime exposure, but forward guidance has been revised down, indicating that 2008 may be a tough year for corporate America. The Russell 2000 underperformed versus the major indexes in 2007 and the New Year may bring more bad news for the small cap sector. This is not surprising given that the Russell has outshined the broader market since the second half of 2004. With the lending market feeling the crunch of the subprime fallout, smaller cap stocks may find loans harder to come by than larger, more established institutions. This could result in many of our nation's smaller companies not being able to weather the storm in the event of a prolonged economic downturn or recession. The cash Russell 2000 index formed an ominous double top formation on the monthly chart, suggesting that the market may see significantly more downside during the year. The pattern measures a move to the second Fibonacci retracement support of 590. The March e-mini Russell suffered a near-term setback, falling below support at 735.00. The 9-day RSI has fallen into oversold territory, which could lend some support to the market in the near-term. Support comes in at 715.20, 703.10 and 684.20, while resistance can be found at 746.10, 765.10 and 777.10.

Gold – Gold futures are slightly lower this morning on a stronger U.S. Dollar and a decline in Oil prices. Both this morning's early selling and Friday's lackluster trading seem to have been driven by profit-taking. The fact that the market stayed in the red on Friday highlights the fact that buying pressure over recent weeks may have caused the market to become a bit strained. Fundamentals remain overwhelmingly bullish for the precious metals market, so the action or lack thereof over the past two sessions may be signaling consolidation before the market makes another push to historic highs. The daily February Gold chart remains very bullish and may be forming a bull flag if the market remains passive today. The RSI and stochastic indicators are signaling very overbought conditions, which is likely driving the profit-taking. The overbought readings may make it difficult for the market to break new highs in the near-term without cooling off first. Support comes in at 857.90, 850.00 and 843.10, while resistance may be found at 872.60, 879.60 and 887.50.

Crude Oil – Oil futures are lower for the third consecutive trading session on unseasonably warm weather across much of the eastern half of the country. Here in Chicago, temps are expected to reach highs in the low 60s – golf weather. This warming pattern is expected to reach the Northeast, which is likely to curb Heating Oil demand significantly. Oil traders have been locking in profits over the past two sessions due to overbought technicals and a lack of meaningful news on the geopolitical front. The slowing state of the U.S. economy has traders in a lull over the past three sessions, but has yet to cause any heavy selling pressure. Thursday's price action formed a spinning top reversal pattern, which may be contributing to some of the technical selling we have seen. The market has honored the $97 mark as support both Friday and in the early going today, but a sharp move below this level could bring more selling pressure. The 9-day RSI is falling back from overbought levels and is now being outpaced by the momentum indicator. Support comes in at 96.87, 95.83 and 94.56, while resistance may be found at 99.18, 100.45 and 101.49.

Rob Kurzatkowski, Commodity Analyst


The Barrel Has a Leak

After scraping the $100 mark a couple of times last week, Oil has since been running scared from the bulls. Today the February Crude contract (CLG8) closed almost 2.5% to the downside, and traders who put in buy stop orders at the 100 mark are feeling the pain. At this point, we can see that is not where buyers came in to flood the market.

On the chart, prices dipped briefly below the 15-day moving average today, before rallying slightly to close above that price by day’s end. The 25-day moving average is also still well below the current price and stochastics are finally starting to decrease. Although stochastics never hit the 80 mark (overbought indicator), the $100 mark has acted as strong resistance since last week. As a result, Oil finds itself at a very interesting crossroads right now. If this is just a pullback from the higher trend, then the area around 94 acts as slight support before support gets stronger around 90. Meanwhile, bears have the big 100 mark as resistance based on the last few days.

Tomorrow, we look forward to pending home sales and consumer credit numbers.

Mike Tosaw, Director of Education

January 8, 2008

Commodities Strong Across the Board

Wheat – Wheat futures fell sharply yesterday on expectations that Friday's USDA report will show an increase in the forecast crop size for Argentina and Australia. A private forecast indicates that after several years of drought, Australian production may rise to record levels due to the La Nina weather pattern. While the pattern may adversely affect the U.S. crop due to dry conditions, the back end of the pattern produces good rains for the Aussie crop. New crop contracts have made solid gains versus the old crop recently, significantly tightening the spread that at one point was almost two dollars between the March and December contracts, but the Aussie and Argentinian outlooks may dampen hopes of another bull run in 2008. December Wheat recently broke out of a bullish wedge formation, signaling the possibility of higher prices. Yesterday's reversal pattern on the daily chart, along with a bearish divergence between the momentum and RSI indicators, may lead to the conclusion that this was a false breakout. With this morning's move to the downside, the momentum indicator is resting on the 0 line and further selling could cause the indicator to slip into the red for the first time in almost two months. Support comes in at 813.50, 807.50 and 797.25, while resistance can be found at 829.50, 839.75 and 846.00.

Sugar – Sugar continues to climb this morning, aided by rising fuel costs and solid commodity prices. Commodity index fund activity remains strong in the Sugar market, with funds adding positions to more closely match the DJ-AIG index. Morgan Stanley indicated that 53 percent of Brazil's crop has been diverted to ethanol production, giving traders hope that exports will be smaller that previously forecast. Although Oil prices dropped sharply yesterday, energy costs remain close to historic levels, which may result in higher ethanol use. Also in play, several sources have already indicated that Brazil may raise the ethanol component of its domestic fuel blend and India is also behind schedule harvesting its Sugar crop. The recent bullish turn in the fundamentals and relatively cheap prices have attracted investors to Sugar, but traders may move forward cautiously given the recent strong showing, which may open the door to profit-taking in the near-term. The March Sugar chart shows no sign of a letup after breakout out of a bullish consolidation pattern last week. Momentum is sharply outpacing the RSI indicator, which is bullish in the near- to mid-term. Support comes in at 11.28, 11.20 and 11.12, while resistance can be found at 11.45, 11.54 and 11.63.

Gold – The strength in commodity prices this morning has helped push the Gold market to new all-time highs, with the February contract trading as high as 879.30 as of the writing of this report. Today's pending home sales figures are expected to come in very weak, which could prompt the FOMC to lower interest rates when it meets later this month. Gold fundamentals remain very bullish and the ideal inflation scenario for precious metals bulls may be forming, with commodity prices rallying and interest rates falling. The Dollar continues to stumble in its bid to rally from all-time lows and the weakness in the U.S. currency will only add to the bullishness in the market. February Gold is breaking out of a bullish consolidation pattern on the chart. If the pattern is confirmed prices may rally to the target of 890 set by the wedge formation validated several weeks ago. Momentum remains bullish and is outpacing the RSI, which remains in overbought territory. Overbought conditions may do little to halt a strong bull run, but may bring about more consolidation and cause the market to labor going forward. Support comes in at 855.60, 849.00 and 844.50, while the market may find resistance at 879.30 and 885.70.

Rob Kurzatkowski, Commodity Analyst

January 9, 2008

Energy Traders Eye Inventory Figures

Crude Oil – Oil futures are higher ahead of this morning's EIA inventory report, which is expected to show a drop of 2 million barrels for the week. After falling sharply over the past two months, inventories are expected to be at their lowest levels in three years. Militants in the Oil-rich nation of Nigeria have threatened attacks, adding to the already strong buying interest. It appears that the extremist group may be targeting the nation's Oil supply according to communications from the group's leader. The drop in U.S. inventories over the past two months has offset slower demand amidst the glacial economic pace of late. February Crude remains bullish on the daily chart, but the market may be at a turning point. Rallies above the $98 mark could spur buying activity, while sell-offs below support at $95 could trigger stops and increase the speed of the correction. Momentum continues to outpace the RSI, which is bullish in the near-term. Support comes in at 95.21, 94.09 and 92.93, while resistance may be found at 97.49, 98.65 and 99.77.

S&P – Stocks are looking to recover this morning after suffering yet another setback yesterday. The e-mini S&P has only been able to close in positive territory once this year, and even that was a meager gain of just 0.25. Yesterday's pending home sales figures were much worse than expected – coming in at -2.6 percent versus expectations of -0.6 – hinting that the housing slump may be far from over. The market was looking for a weak figure to force the Fed's hand in lowering rates, but the size of the decline irked many traders. Rumors that Countrywide may be declaring bankruptcy – vehemently denied by the company – sent the markets tumbling late in the day and underscored the uncertainties that remain in the credit markets. Consumer credit came in much higher than expected, which puts the Fed in an interesting predicament. Consumers are racking up debt at breakneck speed, which, along with inflationary commodity prices, gives the central bank a disincentive to lower rates. On the other hand, economic figures are increasingly ominous, indicating a need for lower rates. Fed fund futures point to a 31 percent chance of a quarter point rate cut and a 68 percent chance of a half point cut. March e-mini S&P futures closed below support at 1420, suggesting the market may see continued selling pressure in the near-term. The RSI and stochastic indicators are somewhat supportive for the market, currently showing oversold conditions. Support comes in at 1380.75, 1364.50 and 1336.00, while resistance may be found at 1425.50, 1454.00 and 1470.50.

Bonds – Bond futures are slightly higher this morning, supported by uncertainty in the equity markets. Due to the poor performance of stocks in recent weeks, fixed income products and commodities have seen strong capital inflows in a flight-to-quality scenario. Bonds may see selling pressure in the coming weeks if commodity prices remain strong, due to inflation concerns. Something will have to give, as these markets typically have an inverse price relationship and the correlation seen over the past several weeks has been atypical. March Bonds are overbought on the daily chart, but momentum remains strong nonetheless, signaling the possibility of more upside. Prices are approaching late November highs, which may bring consolidation or a small correction. Yesterday's price action formed a spinning top candlestick, signaling a possible short-term reversal. Support comes in at 117-22, 117-02 and 116-16, while resistance may be found at 118-28, 119-14 and 120-02.

Rob Kurzatkowski, Commodity Analyst


Dollar Not Dead Yet!

The Dollar Index had a positive day, ending at a price of 76.48 (DXH8). Within the last week, we have seen a bit of a retracement around the 76 mark, with the DAX even dipping below this point for a brief period. However, we are back on the upside today. Of the major currencies, only the Australian Dollar and the Peso saw gains against the Dollar, while the biggest loser on the day in the currency world was the Canadian Dollar, closing out with a loss of just under .8%.

On the chart, the Dollar Index remains below the moving averages, which could be acting as a magnet for the greenback. If so, there is not much room for the bulls to run higher, with the next resistance level just below the 78 mark. Meanwhile, bears need keep in mind that the next level of support to the downside is just below 75 with nothing evident further down.

In related markets, the S&P 500 gained 18 points to cap the biggest day of a challenging year for the U.S. stock market thus far. Crude Oil lost .75%, while the 10-Year Note had slight gains.

Tomorrow brings initial claims and wholesale inventories numbers.

Mike Tosaw, Director of Education

January 10, 2008

OPEC Comments Keep Crude Market in Check

Crude Oil – Oil futures pulled back in trading yesterday despite a very bullish inventory figure – a draw of 6.8 million barrels that easily eclipsed consensus estimates of a 2 million barrel draw. However, Gasoline inventories saw their strongest build in over a year with a jump of 5.22 million barrels, offsetting the news in Oil. The state of the U.S. economy was very much on the minds of traders, with the latest blow coming from Goldman Sachs in a recession prediction for 2008. Stocks did manage to do an about face late in the day to post the best gains of the year thus far, but this was largely due to value buying and short covering amid oversold conditions. Each subsequent economic release seems to show conditions deteriorating to the point that even the most bearish of analysts are left scratching their heads. Commodities were mixed on the day, but indications point to another stellar year on concerns of highly inflationary conditions worldwide, not just in the U.S. OPEC's statements this morning indicate that the cartel is worried that a U.S. slowdown could easily spill over to the world stage. All of these factors are leading to a growing sentiment in the market that the threat of lower fuel consumption globally may influence traders to diversify away from petroleum and move to more traditional inflation hedges, such as precious metals and food-related commodities. Nonetheless, Crude Oil does still appeal to many traders who believe that tight global inventories will be able to support these lofty price levels and possibly even push prices above $100 a barrel. February Crude has drifted below 95.00 this morning and a close below this area could lead to a test of the 90.00 mark. Momentum remains strong in the face of the recent decline, but the divergence between the indicator and RSI is now rather insignificant. The market is flirting with the 18-day moving average and a close below the average would be a bearish signal in the near- to mid-term. Support comes in at 94.74, 93.80 and 92.19, while resistance can be found at 97.28, 98.90 and 99.83.

Dow – Stock index futures are coming in lower after posting the best gains of the New Year yesterday. The late buying was influenced by comments from Berkshire Hathaway that the company sees corporate earnings holding up in 2008, despite the tough economic conditions. Capital One slashed its growth forecast, becoming the latest victim of the credit crunch. The market will be keeping a close eye on today's initial jobless claims figure after last week's bombshell non-farm number. Scheduled for release at 7:30 AM CST, Initial Claims are forecast to rise to 340,000 – up from 336,000 the prior week – but it would not be surprising to the figure come in closer to 350,000. A slightly higher figure may actually be just what traders are looking for, with the belief that it could lead to expansionary policy from the Fed. Wholesale inventories at 9:00 AM CST are expected to show a 0.4 percent increase in November after a flat October figure. Yesterday's rally did little to improve the March Mini Dow chart, which remains very bearish over the longer-term. A close above 12845 may be considered bullish in the near-term and could bring about a test of 13250, but the market has a lot of work to do in order to change the longer-term technical outlook. Adding to the positive short-term technicals, momentum is showing strong divergence from the RSI, suggesting further short covering and bargain hunting may be seen over the next few trading sessions. Support comes in at 12599, 12452 and 12355, while resistance can be found at 12843, 12940 and 13086.

Gold – Gold is trading lower this morning on heavy profit-taking due to technically overbought conditions and lack of new buying interest. Lower energy prices and OPEC's somewhat grim outlook on the state of the global economy point toward tamer inflation, which has also influenced trading. Fundamentally, nothing has changed, suggesting that this could be the start of a healthy correction. The weak close after sharp rallies early in the day formed a spinning top candlestick, which is not necessarily bearish in and of itself but could signal a near-term reversal if the market is not able to recover from early losses. Closes below 870 and 859.40 may offer confirmation of the near-term reversal. The 9-day RSI and slow stochastics remain at very overbought levels, adding to the downside pressure. Momentum remains very strong, suggesting that a reversal may be short-lived. Support comes in at 872.20, 862.70 and 851.60, while resistance may be found at 892.80, 903.90 and 913.40.

Rob Kurzatkowski, Commodity Analyst


Wheat Continues Short-Term Downward Trend

Wheat continued its slide to the downside today, with the price for the March contract (WH8) resting at 882.5 at of the time of this writing – a 0.73 percent drop on the day. March Wheat had been as low as 878 in early trading before bulls came in and took the price up around 907. But just before the noon hour, the bears reasserted their muscle and slowly brought the price down to its current level as the afternoon progressed.

On the chart, the moving averages crossed yesterday and Wheat remains below both of them today. If the contract reverts back to that mean, the market could be in position for a nice gain as bulls may consider this level a potential double bottom – there is another level of support around this area on 12/31. On the stochastic indicator, Wheat is not near a turnaround level to either side, with bears looking at the highs back in early October. Over the longer-term, the market could be approaching resistance at 962 (October), 986 (December), and 950 (January).

In other news, the U.S. stock market made significant gains today as the March S&P contract (ESH8) ended the day with a 12-point gain. Fed Chairman Ben Bernanke's indications that there may be a rate cut at the end of the month spurred the positive moves in the equities. Later in the day, it was announced that Bank of America is in talks to acquire Countrywide Financial.

Mike Tosaw, Director of Education

January 11, 2008

USDA Focus

Corn – Corn is little changed this morning ahead of the USDA report, which is expected to show lower yields and production for the 2007/2008 crop year. Average analyst estimates for production are 13.109 billion bushels, down from the 13.168 billion bushel figure released in November. The market is looking for an average yield of 152.3 bushels per acre, down from 153.0 bpa in November, and ending stocks are expected to shrink to 1.698 billion bushels, down from 1.797. Yesterday's export sales were rather lackluster, coming in at 670,000 metric tons, well below the lower end of estimates of 750,000 to 1.05 million MT. Corn has made a good run since the last figures were released, making the market ripe for profit-taking in the event of an upside surprise. The lower export sales figures were extremely disappointing given the amount of Corn U.S. farmers were selling overseas during the latter half of 2007. March Corn is technically overbought, which could accelerate sell-offs in the event of disappointing production numbers. The March Corn chart shows two consecutive spinning top patterns, indicating indecision. The pattern would normally portend a high likelihood of consolidation or a pullback, but may indicate that traders were squaring up positions ahead of the report. Support comes in at 470, 466.50 and 460.75, while resistance can be found at 480.75, 486.25, and 490.75.

Soybeans – Beans are trading about 5 cents higher this morning on very light volume. Average analyst estimates for production are 2.584 billion bushels, down from the 2.594 billion bushel figure released in November. The market is looking for an average yield of 41.2 bushels per acre, down from 41.3 bpa in November, and ending stocks are expected to shrink to 170 bushels, down from 185. Yesterday's export sales were poor for actual Beans – coming in at 118,400 MT – but Bean Meal was within the average range of estimate at 77,900 MT and Bean Oil almost tripled estimates to come in at 28,200 MT. China's appetite for Soy Oil has been a driving factor for the Bean market and the nation has demonstrated in the past that appreciation in commodity prices has done little to curb demand, so Bean Oil should be no exception. RSI has fallen back from overbought levels, indicating the market has room to maneuver higher in the event of a bullish report. The March Bean chart shows a bullish consolidation pattern forming, suggesting the market may see more upside in the near future. Support comes in at 1251.25, 1242.50 and 1233, while resistance can be found at 1269.75, 1279.25 and 1288.25.

Wheat – Unlike Corn and Beans, the Wheat market has struggled to keep its footing in recent weeks due to higher acreage estimates and improved growing conditions for overseas producers. The 2008 winter Wheat planting estimate is expected to show 48.657 million acres, up from 44.987 last year due to attractive prices. The hard red crop traded on the KCBOT is seen at 34.88 million acres, up from 32.94 million a year ago. While the figures are expected to be bearish for Wheat, the market has the most room to run in the event of a bullish surprise in the report. The NOAA stated that it sees the La Nina weather pattern continuing through March, which may impact on U.S. yields. This bullish assessment is tempered by the fact that Australia will likely see higher precipitation over the same time frame. July Wheat has been forming a wedge pattern on the chart, indicating the possibility of huge price swings on a breakout either way. Momentum is showing strong bearish divergence from the RSI, leading to a negative near-term bias. A violation of December 17th lows of 763 could trigger stops and lead to extended sell-offs. Support comes in at 769, 762.25 and 750, while resistance can be found at 788, 800.50 and 807.50.

Rob Kurzatkowski, Commodity Analyst


USDA Results

Corn – The Corn figures were very bullish, with production coming in at 13.074 billion bushels, well below the 13.109 billion bushel consensus estimate. Both yield and carryout numbers were also well below forecasts, with yields coming in at 151.1 bpa versus estimates of 152.3 bpa and carryout pegged at 1.438 billion bushels versus estimates of 1.698 billion. The early call is 8-10 cents higher, but we may see 10-15 cents higher by the open.

Wheat – The Wheat number may be the most surprising of today's USDA figures. Winter Wheat seedings were 46.61 million acres total, below the consensus guesstimate of 48.657. The hard red crop was actually below last year's figure, coming in at 32.5 million acres versus last year’s 32.94 million acre figure. The early call is about 20 cents higher, but we may see the market open close to limit up, especially in KC.

Soybeans – Bean figures came in a little higher on the production and carryout numbers, while yields were in line with forecasts. The report is neutral to slightly bearish, but the Bean complex is expected to open higher on the coattails of the bullish Corn and Wheat figures. Production came in at 2.585 billion bushels versus estimates of 2.584 billion, while carryout was pegged at 175 million bushels versus estimates of 170 million. The early call is 5-7 cents higher.

Rob Kurzatkowski, Commodity Analyst

January 14, 2008

USDA Sparks Wheat

Wheat – Wheat is close to limit up once again in overnight trading due to a far lower-than-expected seedings figure in the latest USDA report. This news was exactly what Wheat bulls were looking for with the market nearing key technical support levels. The lower U.S. acreage – specifically in the hard, red crop – coupled with continued dry weather caused by the La Nina weather pattern could significantly reduce the size of the winter crop and pressure dwindling stocks. The lower seedings figure could also more than offset what is seen to be a possible record Australian crop. Look for spreads between the old crop and new crop to possibly narrow due to the bullishness in the winter Wheat figures. July futures rallied to new contract highs of 836 overnight, which would signal a bullish breakout from a wedge pattern if the market is able to hold these levels. The measured move on a breakout could spark rallies beyond the $9 mark. Momentum has shifted back into positive territory as a result of the nearly 60-cent rally over the past session and a half, albeit to a relatively tame +25. Support comes in at 775.50, 744.75 and 714, while resistance can be found at 836.25, 866.50 and 897.25.

Crude Oil – Crude Oil futures try to recover after dropping three consecutive trading sessions and six of the last seven trading days. The slumping U.S. economy has the market falling despite bullish inventory data and geopolitical news. Oil bulls grew worried when OPEC publicly stated its concern last week that an extended period of slow growth or recession could easily spill over to the global economy. The market has found some price support after President Bush denounced Iran as a state sponsor of terrorism, reacting to recent actions by Iran's navy in the Strait of Hormuz seemingly aimed at provoking an incident between the two nations. These tensions – along with instability in Nigeria and the Turkish/Kurdish conflict – could act as price support even as the U.S. economy slows. March Crude closed below the 50-day moving average on Friday, which could be viewed as bearish longer-term if the market is unable to bounce back above the average. Momentum had shifted into negative territory briefly, but is now on the positive side due to price strength in overnight trading. Oil is approaching oversold territory, which could offer price support over the near-term. Support comes in at 91.29, 90.41 and 89.02, while resistance can be found at 93.55, 94.95 and 95.82.

S&P – Stock index futures are higher overnight on increased expectations of a Fed rate cut. Fed Fund futures are now pointing to a 66 percent chance of a quarter point cut, and a 34 percent chance of a half point. IBM stated that the company's quarterly earnings will easily surpass analyst estimates, which has helped lift futures in the early going. The statement, along with an upgrade of Apple, has more than offset negative guidance from Sears Holdings. The market will digest earnings data from Citigroup tomorrow and Merrill Lynch on Thursday, which could offer downside surprises. Today is a report-free day for the market, but the week will give investors plenty of data to mull over, including CPI and PPI inflation data, retails sales and housing data. The March e-mini S&P looks to be in a bearish consolidation pattern on the daily chart, pointing to the possibility of more downside. A close above the 1455 mark could be needed to swing sentiment to the bulls. Support comes in at 1397.50, 1387.25 and 1374, while resistance can be found at 1420.75, 1434 and 1444.25.

Rob Kurzatkowski, Commodity Analyst

January 15, 2008

Corn Backs Off But Fundamentals Still Bullish

Corn – Corn shed some of its recent gains on profit-taking due to technically overbought conditions. The fundamental picture remains very bullish thanks in part to the lowest inventory figures since 1984. The grain markets have been aided by very strong overseas demand, along with a weak U.S. Dollar. While domestic prices are very high, the slumping greenback has made Corn a cheap import for countries with relatively strong currencies. China's demand has not waned and it is unlikely that high prices would due much to curb the nation's appetite for the grain, as we have seen with other commodities like copper, nickel and crude oil. Attractive Soybean prices may cause farmers to divert acres away from Corn, much the same way Corn diverted acres away from Beans this past crop year. March Corn remains very overbought, closing yesterday's trading at 91 percent on the 9-day RSI. This may put some downward pressure on the Corn market in the form of profit-taking, but the chart remains bullish barring some sort of gap reversal. Support comes in at 493, 498 and 505, while resistance can be found at 517, 522 and 529.

Gold – Gold futures continue to shine this morning on a weaker U.S. Dollar and lower stock index futures. The sagging equity markets and increased likelihood of future rate cuts by the Fed have given traders little incentive to dump positions. Physical demand for Gold remains very strong, as evidenced by the purchase of 10.75 metric tons by the StreetTracks Gold Trust ETF yesterday. The outlook for precious metals remains rosy due to the lack of alternatives, as global equities have been slumping, some other commodities are trading at levels difficult to justify based on fundamentals and treasuries/fixed income instruments lack the inflation hedge feature of commodities. February Gold remains very bullish on the daily chart, but yesterday's choppiness did form a spinning top candlestick, indicating the possibility of a near-term reversal or consolidation. The technically overbought conditions could influence traders to take profits. Support comes in at 892.40, 881.40 and 869.60, while resistance can be found at 915.10, 926.90 and 937.90.

10-Year Notes – March 10-Years are trading at new contract highs on the sell-off in equity futures and the continuing mortgage crisis. The treasury markets have seen a huge inflow of funds from nervous equity traders over the past few weeks. The subprime crisis – fresh in the minds of traders due to Citigroup's earnings release this morning – has certainly aided the “flight to quality” effect the market has seen. Today's retail sales report is expected to show zero growth despite the holiday shopping season, and could give further evidence of a need for the Fed to slash rates once again. The market has already priced in steep rate cuts from the Fed, so the central bank will have to act swiftly in order to appease fixed income bulls. The market will also have PPI data to mull over today, and a sharp increase in prices could cause prices to back off. If March Notes are able to hold rallies above 115-23.5, it could signal a breakout and add to the bullishness the market has seen. The RSI is beginning to creep toward overbought territory, which may inhibit further advances. Support comes in at 115-03, 114-22 and 114-12, while resistance can be found at 115-26, 116-04 and 116-17.

Rob Kurzatkowski, Commodity Analyst

January 16, 2008

Demand Uncertainty Keeps Crude Prices in Check

Crude Oil – Oil futures fell yesterday on a poor economic showing and Saudi comments regarding increased production. Retail sales showed a decline of 0.4 percent versus expectations of zero growth for the month of December. But a much more troubling figure for Crude bulls was a report by the Commerce Department showing that purchases at service stations were down by 1.7 percent. It certainly appears that consumers are beginning to feel the pressure from all sides, with a bleak employment picture, record-high fuel costs and the credit crunch leading to tighter lending standards. All of these factors point toward a decrease in spending power for the American consumer, which is especially troubling considering the fact that the economic growth seen after the "dot com bust" was driven by consumers spending at or above their means and a robust housing sector – both of which have crashed and burned. A slowdown in corporate growth would also likely lead to slower petroleum usage and may cause the International Energy Administration to cut their demand forecast for 2008. Saudi Oil Minister Ali al-Naimi commented that it may be time for OPEC to increase production. While this defies logic – potentially leading to a price collapse in the near term – a production increase could aid the global economy and lead to stronger future demand. This long-range move would probably provide an opening to central banks around the world to implement expansionary policies due to a lowered threat of inflation, softening the blow of a downturn. Today's EIA inventories numbers are expected to show a build of around 1 million barrels of Crude Oil, a 1.55 million barrel build in distillates and a 2.5 million barrel build in gasoline stocks. The March Crude Oil chart negated a short-term reversal pattern to close below the 50-day moving average, which could be seen a bearish longer-term signal. The chart also appears to show the formation of a bearish consolidation pattern, which could spark sell-offs toward $86 in the near-term if validated. One positive technical factor is the bullish divergence between the momentum and RSI indicators, but the divergence is only very slight. Support comes in at 90.22, 88.94 and 87.02, while resistance can be found at 93.42, 95.33 and 96.62.

S&P – Stock indexes suffered heavy losses due to the poor showing on the economic front and the inability of Citigroup to reassure investors. The banking giant reported a loss of $8.83 billion and slashed its dividend by 41 percent. The dividend cut may be the far more troubling of the two figures, as it could be a harbinger of more write-downs related to CDO's and other mortgage-backed investments. Merrill Lynch, State Street and Bank of America all hinted at further losses due to subprime investments as well. The decline was not as bad as it could have been, as the poor retail sales figures and tame PPI data did somewhat buffer the slide in equities, fostering a perception among traders that the data could be the tipping point toward a half point cut by the Fed. Today is a report-heavy day, starting with the release of CPI data at 7:30 AM CST, which is forecast to rise 0.2 percent for both the aggregate and core figures. Industrial production released at 9:00 AM CST is expected to drop 0.2 percent, with a capacity utilization of 81.2 percent. Perhaps the most anticipated report of the day is the Beige Book at 1:00 PM CST, which will give traders some insight into the mindset of the Fed and provide a clearer picture of what economic datasets may influence the central bank more than others. The March e-mini S&P broke out of a bearish triangle pattern on the daily chart, suggesting the futures may test the 1350-1355 area. The market failed to establish support around the 1400 mark, which may cause traders to be wary near key psychological support areas in the near future. Support comes in at 1363.75, 1349 and 1319.75, while resistance can be found at 1407.50, 1437 and 1451.50.

Wheat – Wheat futures got a shot in the arm from freezing temperatures across the eastern portion of the Midwest. New crop futures have surged relative to the old crop due to a decrease in acres sown and strong early tenders. Farmers may have sown Wheat at a lesser depth than in prior years in an effort to get higher yields and speed up emergence – a risky strategy that further exposes the crop to the elements, such as this latest frost. July Wheat made new contract highs, giving confirmation to Monday's breakout above 830. Due to slumping prices prior to the USDA report, the RSI still has room to run before the market encounters overbought conditions. This has really been a dynamic week of trading, with the July contract looking as though it was going to take out support and then breaking out to new highs. Support comes in at 824, 796 and 775, while resistance can be found at 873, 894 and 922.

Rob Kurzatkowski, Commodity Analyst


Oil Continues to Move Lower

The February Crude contract (CLG8) closed lower today, off by about 1%. Just days ago, Oil was flirting with the $100/barrel mark intraday, but that turned out to be quite the point of mental resistance for bulls as prices quickly retreated and haven't been back.

Today's inventory report showed a larger-than-expected build in Crude stocks, and the greater supply numbers invited bears to the party – at least 1% of them. The Dollar didn't help matters for Crude, showing some strength today with a gain of nearly 1% in the index (DXH8).

On the chart, Crude Oil is below both moving averages. It won’t take a lot to bring things back, but this level signifies that things are heading down fairly quickly. It also appears that 90 is a level of support based on the mid-December numbers seen here.

Tomorrow brings initial claims, housing starts, and an announcement from the Philadelphia Fed.

Mike Tosaw, Director of Education

January 18, 2008

Market slides after with Bernanke's comments

S&P – Stock index futures are pointing higher on plans that President Bush will unveil a new stimulus package today. In testimony before the Finance Committee yesterday, Fed Chairman Ben Bernanke urged the President and Congress to take measures to get consumer spending and the housing market back on track. This caused the market to slide yesterday, but the fact that both Bush and Congress responded gave investors hope that new legislation may aid an economic rebound. GE and IBM raised their overseas growth forecasts, suggesting that large multinationals may be able to cope with a domestic downturn and use the slumping Dollar to their advantage. Leading indicators and consumer confidence figures will be released at 9:00 AM CST. Leading indicators are expected to show a -0.1 reading, but the figure may surprise to the downside given the grim results in recent economic releases for December. Consumer confidence is expected to slide to 74.5 percent, down from 75.5 the prior period. The confidence figure may also surprise to the downside due to all of the bad press the economy has received recently. Yesterday’s sharp slide gave confirmation to Wednesday’s bearish breakout on the March e-mini S&P chart and may be an indication of more downside in the near future. Even with the chart rally pre-market, the index would have to climb another 40 points before technical indicators would turn positive in the short term, and the market would have to rally over 100 points for a longer-term shift. Momentum is showing bearish divergence from the RSI, indicating today’s rally may be a "dead cat bounce." Support comes in at 1319.50, 1299 and 1264.25, while resistance can be found at 1374.50, 1409.50 and 1430.

Crude Oil – The Oil market has rebounded in tandem with stocks this morning in hopes that a stimulus package may help boost demand. The market is also aided by OPEC backing off of recent comments that output may be increased. Nonetheless, fundamental factors outside of geopolitical events remain bearish in the near term. Consumers are showing their shaky outlook on the economy at the pumps, with retail gasoline sales falling in December. This could lead to larger builds in gasoline stocks and the lower refinery utilization points to possible builds in supplies in the coming weeks. Weather maps for the next 90 days point to higher-than-normal temperatures across much of the nation, including the Northeast, which mainly uses Heating Oil instead of Natural Gas. The March Crude chart shows further consolidation, pointing to a bearish bias. Momentum is being outpaced by the RSI, suggesting a bearish near term bias. How the market behaves if and when it reaches the key 87.00 support area will likely determine the longer-term market direction. Support comes in at 88.85, 88.12 and 87.15, while resistance can be found at 90.55, 91.52 and 92.25.

Gold – Gold futures are holding their heads above water this morning, despite weakness in other precious metal prices and the rally in equities. Fresh buying activity remains strong, but has been overpowered by profit-taking in recent trading sessions. Physical demand remains strong, which has stopped a larger correction. The CPI report showed inflation growing at a much quicker pace than previously thought, which could keep demand strong. Fed fund futures are now pretty much factoring a half point rate cut later this month when the FOMC meets, and there is an increased likelihood of a three quarter point cut, which could lead to an extended slide in the Dollar. The recent reversal pattern on the daily chart suggests the market may test the first Fibonacci retracement, which coincides with early November highs of 855.00. Momentum is outpacing RSI, indicating that the weakness over the past few sessions has been a healthy correction. Support comes in at 873.30, 866.10 and 857.00, while resistance can be found at 889.60, 898.70 and 905.90.

Rob Kurzatkowski, Commodity Analyst

January 22, 2008

Panic Rocks Equities

S&P – e-mini S&P futures are down almost sixty points this morning, following sharp declines in European and Asian markets over the past two trading sessions. The fire sale began yesterday with the thinking that the U.S. economy now has a 50-50 chance of slipping into recession. Investors became especially pessimistic after listening to Fed Chairman Ben Bernanke’s testimony before a Congressional panel last week, urging the President and Congress to act swiftly to aid consumer spending and the housing market. The market was less than satisfied with the stimulus package unveiled on Friday, viewing it as too little, too late. The very idea that the economy would need this sort of kick-start has really irked traders overseas. This week figures to be extremely volatile due to the panic kicking off the week and the high volume of earnings releases. This will be a very light week of economic reports, which may give traders a bit of a reprieve. The March e-mini chart is a disaster after gapping sharply lower. Momentum has fallen to an overwhelmingly bearish -208 in the early going. The RSI is now giving extremely oversold readings, which may slow the sell-off if it can attract bargain hunters. Support now comes in at 1250 and 1225, while resistance can be found at the top of the gap of 1319.

Crude Oil – Oil futures are sharply lower on panic selling in the equity markets. The sharp declines seen in Europe and Asia are extremely troubling to energy bulls, as they signal a greater chance of a global slowdown. The increasing demand in developing nations has contributed greatly to the strength in energy prices. A curbing of this demand, along with easing in other commodity prices, could lead to much slower inflation that previously forecast, making Crude Oil much less attractive as an inflation hedge. The U.S. Dollar is still spiraling out of control, which may give some near-term price support to the market, or at least act as a buffer to sell-offs. March futures are well off of overnight lows at the moment and it appears that declines below 86.00 have attracted some buying interest. Barring a sharp turnaround, today’s sell-off could signal a downside breakout to the consolidation pattern formed over the past three trading sessions. Momentum has moved lower at a slower pace than prices, suggesting the possibility of some short-term strength. Support comes in at 85.40 and 82.60, while resistance can be found at 89.00 and 91.60.

Gold – Gold futures are sharply lower this morning, but are well off of session lows that tested the $850 mark. The inflation picture seems a bit tamer at the moment due to the possible slowdown globally, making precious metals and other commodities somewhat less attractive to speculators. The recent wave of profit-taking has contributed to the initial price weakness seen in the session. Even with inflation pressures easing, Gold may hold its own in the near term due to the lack of opportunity in other investments. February Gold attracted strong buying interest after the market retreated to the 850 mark. The February contract is trading below the 18-day moving average at the moment and a close below the average could signal that a near-term high may be in place. A recovery above the average would likely form a bullish hammer and may violate a downside breakout on the chart. Momentum is outpacing the RSI, suggesting a slightly bullish technical bias in the near-term. Support can be found at 850 and 835, while resistance may be found at 870 and 890.

Rob Kurzatkowski, Commodity Analyst

January 23, 2008

Surprise Rate Cut Buzz is Short-Lived

Dow – Continued economic uncertainty and a downward earnings estimate revision from Apple have pushed stock index futures lower pre-open. Yesterday’s surprise three quarter point rate cut from the Fed managed to temporarily soothe investors’ worries, but many traders viewed the move as several weeks too late. Stocks tumbled in Europe, as central bankers at the Bank of England and European Central Bank only hinted at future rate cuts while traders were banking on similar emergency action from the two. Today will likely be another volatile session, compounded by the fact that there are more big names – Motorola, eBay, Pfizer and General Dynamics among them – reporting quarterly earnings. There has been some pre-market chatter suggesting that all of the previously mentioned companies may post disappointing figures or revise future earnings downward. The panic selling seen yesterday caused the March Mini Dow to break through near-term support. The cash index fell below the key weekly support area of 12,100, which would be seen as bearish over the near term if the market is unable to rally beyond the figure. One positive that can be taken from yesterday’s sell-off is that the cash Dow did come close to reaching the downside target of the head and shoulders pattern created on the weekly chart. The move suggests that the market may be in store for more of a harsh, quick correction than an extended slump. Support comes in at 11500 and 11250, while resistance can be found at 12400 and 12550.

Sugar – The Sugar market has been on the same wild ride as stocks in recent days. After spiking as high as 13.09 in the March contract, the market has since dropped 150 points. The ICE exchange restricted a large Sugar trading company from Brazil from placing orders, which led to some panic selling as rumors swirled of a large block sell order. Fundamentally, world supplies of the sweetener remain on the high side, suggesting that the recent upward move may have been due to “hot money” entering the market and needing to find a home, as well as funds trying to balance commodity portfolios. The extreme volatility the market has seen over the past three sessions seems to have scared away some traders and resulted in a relatively tight range this morning. The pattern on the daily chart suggests a bearish engulfing reversal with wild price moves typically seen in “boom and bust” markets. March futures did manage to hold above support at 11.30, which is somewhat encouraging for bulls. Momentum has taken a sharp turn lower and is continuing to drop even as the RSI has stabilized. Support comes in at 11.30 and 10.75, while resistance can be found at 11.70 and 12.45.

Bonds – The Bond market is sharply higher again this morning, as traders begin pricing in the next rate cuts from the Fed. The three quarter point cut was already partially priced into the market, although it came a week earlier than traders were expecting. Mounting sentiment suggests that fixed income traders are banking on further expansionary policy from the central bank in the near future if the economy does not show some signs of improvement. The treasury market has seen solid inflows of funds due to the sell-off in equities, and further selling in overseas markets could attract further inflows of cash. Traders have been averse to corporate paper and bonds, making U.S. government debt obligations more attractive. Yesterday’s gains signaled a breakout above recent highs of 120-12 in the March Bond contract. Momentum is outpacing the RSI indicator, which points to the possibility of even more upside to the market. March Bonds are now approaching overbought levels, which could inhibit upward price movement and trigger some profit-taking. Support now comes in at 120-12 and 119-07, while resistance may be found at 122-16 and 113-08.

Rob Kurzatkowski, Commodity Analyst

January 24, 2008

Stock Enthusiasm Carrying Over

S&P – Stock index futures are pointing to a higher open, sparked by yesterday’s late bargain hunting rally. Some of the panic the market has seen over recent sessions has dissipated for the time being and investors are hoping the recent actions by the Fed will help the battered financial sector recover from the subprime crisis. Yesterday’s swift turnaround was fueled by traders trying to capitalize on some suddenly cheap stocks and the technically oversold conditions. Today figures to be another volatile day for the market, although the ranges in the indexes will likely be smaller than we have seen over the past two sessions. Initial claims – scheduled for release at 7:30 CST – are forecast to show 320,000 jobless claims for the week, a rise of 19,000 over last week. Existing home sales may continue their slide after a surprising jump in November. The report at 9:00 AM CST is expected to show home sales at 4.95 million versus the November figure of 5.00 million. Given the fact that the Fed has acted as swiftly as it did, traders may not focus on today’s economic releases as intently as usual. The market may begin to move away from its “bad news is good news” approach due to the sharp rate cuts. The March e-mini S&P has improved significantly on the daily chart, but the contract would probably need to take out resistance areas at 1390 and 1420 to swing over to the bulls' favor. A recovery from technically oversold conditions on the RSI could leave the door open for further selling pressure if the market is unable to gain upside traction. Momentum has stayed relatively flat, even as the market has made tremendous recoveries over the past two sessions, indicating that the near-term bias remains in favor of the bears. Support comes in at 1320 and 1270, while resistance can be found at 1390 and 1420.

Crude Oil – Spurred by the recovery in the equity markets, Crude Oil futures are higher today after falling in five of the last six trading sessions. The move higher has been tempered by the fact that today’s EIA inventory figures are expected to show a build of roughly 1.75 million barrels of Crude Oil and expectations that gasoline inventories will rise for the eleventh straight week. Energy traders would like to see more signs of life in the U.S. economy before swinging the bias back to the bulls. Recent events on the economic front and the lack of geopolitical confrontations have sucked the air out of the Oil market. The March contract is still trading near the key support area around 86.50, and a solid close below this level could bring a new flood of selling pressure. If the market is unable to make a push above the $90 mark over the next few sessions, it would probably further embolden energy bears and force many remaining bulls out of the market. Momentum has remained flat this morning, suggesting bias remains to the downside in the near term. Support comes in at 86.50 and 85.00, while resistance can be found at 90.00 and 91.90.

Cotton – Cotton futures have rebounded in early electronic trading after the market made a limit move lower. A slowdown in the global economy may decrease import demand from China, which has been a real driver for the market. Overbought levels on both technical indicators and the COT report helped spark the sell-off, which began last Friday. Cotton was also sucked into the wave of commodity selling due to the poor state of the U.S. economy. Speculation that farmers will begin planting more Wheat to try and capitalize on the historically high prices could act as support for the Cotton market over the longer term, but traders may not be ready to accept prices above the 70.00 mark until more concrete data is released by the USDA. The inability of the March contract to hold above last July’s highs was discouraging for technicians and may have contributed to the selling pressure over the past few sessions. It is critical for prices to hold above the 66.00 mark, as a solid close below this level could signal the beginning of a downtrend. Momentum has stayed in positive territory and the RSI has come down significantly from overbought levels. Support comes in at 66.00 and 63.25, while resistance can be found at 70.00 and 72.50.

Rob Kurzatkowski, Commodity Analyst


There’s Gold in Dem Der Markets!

Gold closed above the 900 mark for the third time this month after spending most of the day in a channeling pattern. At around 1:30 PM CST, however, the bulls took control and drove the price to new highs for the day. The close gave us an increase of 3.4% on for the February contract (GCG8).

On the chart, we see that we Gold is in “new high” territory after failing the 900 test earlier this month. A few important things to mention are the fact that there is no resistance beyond this price level, while there is support from this month near the 880 area. Although it isn’t strong, it is something to work with on this chart.

Also, the stochastic indicator check is at around 80, which typically connotes an oversold environment. However, it took gold until 90 to reverse its course a few days earlier when the price was around this level. We are significantly above the 25-day moving average at present, but fairly close to the 15-day.

Mike Tosaw, Director of Education


January 25, 2008

Good News from Redmond Lifts Markets

S&P – Stocks continue the recent recovery rally, aided by strong earnings news from Microsoft. The tech giant beat the Street estimate and gave a more upbeat forecast for future revenues, infusing the market with some early good news upon which to build. It is beginning to look like the panic rocking the markets earlier this week was fueled, at least in part, by French bank Société Générale liquidating long FTSE futures established by a rogue trader. Companies that do not have a direct link to consumers or banking have reported solid earnings and attracted widespread value buying, while firms relying directly on consumers will have the toughest time rebounding, as financial stocks figure to benefit quickly from the Fed rate cuts. March e-mini S&P’s have given an indication that this recent reversal may spark further rallies, although plenty of resistance still lies ahead. Momentum has moved higher, but remains at a bearish -120. Support comes in at 1338, 1323.50 and 1314, while resistance can be found at 1362, 1371.50 and 1386.

Gold – February Gold made new all-time highs today, despite a stronger Dollar and higher equity prices. After taking profits last week, Gold bulls have been buying with great zeal over the past two sessions. The emergency rate cut earlier this week, along with speculation that the Fed will once again cut rates next week, has led many traders to believe that a greenback recovery will come later rather than sooner and could ultimately create a highly inflationary situation in the U.S. Commodity prices were higher across the board yesterday and this morning, suggesting money is moving back into futures markets from the sidelines. If February Gold is able to hold these gains, it would signal a new breakout and possible push toward the $1000 mark. Momentum remains very bullish at the moment and the RSI is quickly approaching overbought levels. It will be interesting to see how the February contract behaves when we approach overbought levels, as the market tends to pick up steam at 70-75 percent in a strong bull market, and strong selling pressure may be an indication of choppy sessions ahead. Support comes in at 892, 878.30 and 867.30, while resistance can be found at 916.80, 927.90 and 941.60.

Rob Kurzatkowski, Commodity Analyst

January 28, 2008

Gold Continues to Shine in 2008

Gold – The Gold market continues to trade near record highs, buoyed by weakness in global equity markets and the U.S. Dollar. South African mines were forced to shut down in response to the country's largest utility threatening to cut power to miners, sparking a new wave of buying. The shutdown is only expected to close several mines completely for a day, but what is not known is how long it will take miners to get back to full capacity. The market has been on such a tear recently that almost any news on the U.S. economic front can be seen as bullish. If the economy sputters, traders can argue that the Fed will continue lowering rates, devaluing the greenback and opening the door for future inflation. On the other hand, if indicators pick up, the argument can be made that inflation will kick up sooner rather than later and make precious metals a good hedge opportunity. If the FOMC defies the markets and leaves rates unchanged later this week, it could adversely impact the precious metals market in the near term. April Gold broke out to a new contract high close on Friday, but traders would like to see a close above the previous high of 922.50 to offer further confirmation. Momentum is outpacing the RSI, which is bullish in the near term. The 9-day RSI and stochastic indicators are now at overbought levels, so it will be interesting to see how the market behaves in the near term. Support comes in at 908.60, 901.00 and 890.50, while resistance can be found at 926.70, 937.20 and 944.80.

Dow – Stock index futures are poised to open lower as a result of a sharp sell-off in European shares. Banks have been hit especially hard on the heels of the Societe Generale rogue trader fiasco. The scandal hit at a time when portfolio valuations are still difficult to calculate due to the continuing subprime crisis, which has caused another exodus in financials. Additional rate cuts by the Fed later this week have become less certain now after the surprise cut last Tuesday, which has impacted trading. Oil company shares have been impacted in European trading due to price weakness in the commodity and fears that the slowing economy may keep demand in check. Today's new home sales figures are expected to show a decline to 645,000 in December from the November figure of 647,000, according to median estimates. It would not at all be surprising to see the number come in closer to the 635,000-640,000 range. March Mini Dow futures continue to trend lower, and a close above 12,500 may be needed to renew bullish sentiment. Momentum is outpacing RSI, suggesting the market may begin to find some strength in the near term. Support comes in at 12,120, 12,005 and 11820, while resistance can be found at 12,420, 12,605 and 12,720.

Sugar – The Sugar market has rallied sharply in early morning trading, defying a statement by the chief of the International Sugar Organization (ISO) that prices will remain depressed. The group forecasts another year of record production from Brazil, but this may be at least partially offset by indications that the EU and India will trim production. The market is moving higher despite weaker Crude Oil and Corn prices, both of which are key outside markets for the sweet commodity. Today's rally may be a result of short covering after March futures held key technical support levels last week. The daily chart appeared to be forming a technical reversal before holding the key 11.30 mark. A move above the recent high close of 12.45 may result in a continuation of the uptrend. Support comes in at 11.54, 11.13 and 10.86, while resistance may be found at 12.22, 12.49 and 12.90.

Rob Kurzatkowski, Commodity Analyst

Gold Continues to Make New Highs

Coupled with a big day in the U.S. stock markets, Gold today hit an all-time high, closing with a price of $929 on the February contract (GCG8). Gold bulls have been on a monster run of late, with no resistance in sight at this level.

To the downside, the nearest level of support is around the 900 level. That can act not only as a chart support level, it can also act as a numeric support since that was a benchmark number. Below that, the next strong level of support is around the 800 level, with the same effect one would find at the 900 level – the 800 number has acted as numeric support as well.

Both the 15- and 25-day moving averages have been left in the dust in of this pricing action. Although the slow stochastic indicator has declined a bit in the last week since Gold hit lows in the mid-800’s, the market has not followed suit, posting one significant increase after another.

Today's news was the decline in new home sales, but the big difference-maker this week is the Federal Reserve announcement on Wednesday.

Mike Tosaw, Director of Education

January 29, 2008

Hot Chocolate

Cocoa – Cocoa futures are trading higher for the sixth consecutive trading session, bolstered by tight supplies and rough weather conditions. The seasonal Harmattan winds from the Sahara have been fiercely blowing over the main growing region during a dry past week. If the arid conditions persist, the likelihood of a very small midcrop increases dramatically, which could lead to tight supplies over the summer. Ivory Coast arrivals set to begin October 1st are up by over 60,000 tons over the 2006-07 crop year, but the pace has slowed recently. There are also indications that supplies from neighboring Cameroon may be tight. Cocoa has gotten some outside market support due to the slumping Dollar, which may continue if the greenback is unable to stabilize. March Cocoa is close to testing recent highs of 2237 and prices may need to break above these levels to get some renewed buying pressure. The market is approaching overbought conditions on the 9-day RSI, which could put some downward pressure on the market in the near term. Support comes in at 2193, 2173 and 2161, while resistance can be found at 2225, 2237 and 2257.

Wheat – Wheat finished limit up in the front month March contract on a slumping U.S. Dollar and lower shipping costs, both of which could keep export demand strong for the old crop. Wheat received quite a bit of outside market support, as there was a broad rally in commodity prices. Old crop supplies remain very tight and the recent tightening of spreads between old and new crop seem to have reversed over the past few trading sessions. Widening spreads can be attributed to the weak greenback and lower shipping costs, as both of these factors would indicate the possibility of strong short-term demand, but it is unknown if these conditions will persist. Export controls by Russia and Argentina have also aided prices and opened the door for more U.S. exports. The limit move pushed March Wheat toward the recent high close of 962.50. A breakout above this recent high could spark buying and bring about a test of the $10 mark. Momentum has turned sharply higher and is outpacing RSI, suggesting a bullish near-term bias. Support comes in at 943, 923 and 913, while resistance can be found at 973, 983 and 1003.

S&P – Stock futures are higher this morning on renewed confidence and expectations that durable goods orders will rise. In his State of the Union Address last night, President Bush indicated that he wants Congressional legislators to put aside partisan politics and put together a stimulus package quickly. There has been some skepticism on how quickly such a package could be put into action because of the vastly different way in which the two political parties want to offer aid to consumers. Durable goods orders, released at 7:30 AM CST, are expected to rise 1.5 percent after falling the previous 4 months, which could hint that there is some life left in the economy. Consumer confidence is expected to fall to 87 percent, but it would not at all be surprising to see the figure come in closer to 85 percent due to the bad press the economy has gotten recently. Traders are betting that Wall Street will be able to bully the FOMC into a half point rate cut on Wednesday, lowering borrowing costs. March e-mini S&P futures were not able to make much headway technically, despite rallying strongly yesterday. 13,900 remains the barrier that the market may have to cross in order to gain a bullish bias. Support comes in at 1323.75, 1293.00 and 1275.75, while resistance can be found at 1371.75, 1389.00 and 1419.75.

Rob Kurzatkowski, Commodity Analyst

Bears Keep Wheat Below 1000

Today in the grain markets, the March Wheat contract (WH8) made an attempt to get over the 1000 mark but couldn’t quite make it, hitting a high on the day of 993. With that high established early, the bears took over and never looked back. Although it was a bullish day overall in the markets, Wheat could not follow suit.

On the chart, we see that this is the third time in the last month and a half that prices have flirted with the 1000 mark, only to retreat. Although Wheat managed to get to 993, 1000 seems to be a scary number for the bulls. They have had three chances to bring the price higher, but haven’t been able to pull it off. The next level of support is around the 900 level based on trading activity earlier this week.

Also, the stochastic indicator is about in the middle, indicating that there are no overbought or oversold conditions based on that indicator. With neither bulls nor bears taking a side, it makes it hard to get a solid decision.

The big news tomorrow is of course the Fed announcement. It will be a widely watched event to be sure.

Mike Tosaw, Director of Education

January 30, 2008

Stocks, Oil Await Big Ben's Decision

Dow – Stock index futures are flat to slightly lower in pre-open trading, as traders nervously await the FOMC rate decision this afternoon. The market is expecting the central bank to lower rates an additional 50 basis points. If the committee leaves rates unchanged or only cuts a quarter point, it could embolden bears and lead to selling pressure in late afternoon trading. Traders will have to digest the 4th quarter GDP and chain deflator data at 7:30 AM CST, expected to show economic growth for the quarter falling to 1.2 percent and the chain deflator rising to 2.6 percent. Traders may focus on the deflator figure, as a surprise jump in inflation may prohibit aggressive rate cut policies by the Fed going forward. There are a number of high-profile companies reporting earnings today – including Amazon, Kraft, Kellogg and Starbucks – which could result in high volatility, and the market may not find direction until well after the FOMC releases its policy statement. March Dow futures rallied yesterday to test nearby resistance at 12,500, but the market has initially rejected these advances. Rallies beyond 12,500 and more importantly the key 13,000 mark could turn the tide in the bulls' favor. Momentum remains in negative territory but has recovered substantially and now shows some bullish divergence from the RSI, which is somewhat encouraging for bulls in the near term. Support comes in at 12372, 12273 and 12207, while resistance can be found at 12537, 12603 and 12702.

Crude Oil – The petroleum market is little changed this morning ahead of weekly inventory figures and key economic data. Consensus estimates show a rise of 2.3 million barrels of Crude Oil, but it would not at all be surprising to see the figure come in closer to 2.7 million barrels. Gasoline is also expected to show a build of 1.9 million barrels, while distillates are forecast to show a draw of 1.6 million barrels for the week. The market has reluctantly rallied over the past week despite a plethora of bullish factors, such as the declining U.S. Dollar and strong commodity prices. Funds seemed to be diversifying away from the petroleum sector and into more underperforming commodities. This is not only due to skepticism over future demand, but also because asset allocations were too heavily geared toward energies. Judging from the price action over the past two weeks, it seems that Oil traders may have more conservative estimates on the size of the Fed rate cut. It looks as though OPEC will probably leave output levels unchanged due to its current precarious position – a rise in output could create a supply glut which might lead to a price collapse, wile a cut in output would send prices higher in the short term, but could quash future demand. March Crude has rallied to an area offering stout resistance between 92.00 and 95.00. Advances beyond the $95 mark could spark buying interest, while declines below 91.50 could indicate range-bound or bearish conditions. Momentum has moved incrementally higher despite the market trading higher for the fifth consecutive session, which suggests a neutral to bearish bias for the near term. Support comes in at 90.50, 89.37 and 88.41, while resistance can be found at 92.60, 93.55 and 94.69.

Rob Kurzatkowski, Commodity Analyst

Fed Announcement Sends Stocks on a Wild Ride

As usual, the markets spent most of the day waiting to see what the Fed was going to do. The announcement didn’t disappoint as the Fed cut rates by 50 basis points, spurring the market to an immediate turn to the upside. After a brief pullback, the e-mini S&P contract (ESH8) got as high as 1387 before settling for a close at 1351.

On the chart, we see that the trend for 2008 has been to the downside. We had a brief scare for the bulls a little over a week ago when the market was down over 60 points, but that situation was remedied by the Fed's emergency rate cut of 75 basis points.

We are still below the moving averages. If the market treats this news as bullish, this could be an indicator that acts as a magnet. Also, we are just coming off of the 20 level on the slow stochastic, indicating an oversold condition. Tomorrow's action should be interesting in the wake of the Fed's latest move. At the time of this writing, the after-hours markets are down slightly.

Mike Tosaw, Director of Education