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
