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
