« January 2008 | Main | March 2008 »

February 2008 Archives

February 4, 2008

Gold Loses Luster on Profit-Taking

Gold – The Gold market is lower once again this morning after shedding over 15 dollars on Friday. The non-farm payroll figure released on Friday was very Gold-friendly, but a large European hedge fund is rumored to have sold off a large portion of its position in reaction to how the market behaved after the number. The market seems to be experiencing some follow-through profit-taking early in the session on a firmer Dollar and weaker energy prices. Several South African mines are now running at 90 percent of normal power use – up from 80 percent for much of last week – which seems to be weighing on the market. Longer-term fundamentals remain bullish, with the Fed focused on preventing a recession rather than trying to keep inflation in check. The Dollar Index is trading near support and a violation of the 74.75 level could fuel further declines, which would likely support precious metal prices. Friday's sell-off did little chart damage and the market has held support at 900 so far this morning. Momentum has slipped below the +50 mark, showing a somewhat weakening trend. Support comes in at 900.40, 887.30 and 866.60, while resistance can be found at 934.20, 954.90 and 968.

Crude Oil – The Oil market is lower this morning after dropping almost three dollars on Friday. OPEC's decision to keep output unchanged came as no surprise to traders, but the payroll data hints that the U.S. economy is either in recession or dangerously close to heading down that road. Inventories have climbed back to seasonal averages and the demand picture continues to worsen, both of which have been disappointing for bulls. Last Wednesday's inventory data showed Crude Oil and Gasoline inventories rising, despite lower refinery use. Consumers decreased the amount of money spent at service stations for the month of December and inventory data suggests that consumer spending on motor fuel will likely fall again in January. Outside markets have added to the petroleum market's woes, with metals prices falling and the U.S. Dollar holding up in the face of terrible economic data. Friday's sell-off hints at a new test of support near the $86 mark and it will be interesting to see if Oil bears can finally push prices below this critical psychological and technical level. Support comes in at 87.57, 86.19 and 83.91, while resistance can be found at 91.23, 93.50 and 94.89.

S&P – Stock index futures are little changed in overnight trading after rising sharply on Friday. The market was strong despite the payroll data, aided by Microsoft's bid for Yahoo and the 50.7 ISM number beating analyst estimates of 48.4 – a figure below 50 shows contraction in the economy. Earlier this morning, car and truck sales showed a decline from December's sales. The market is now focused on the only major economic release today – Factory Orders – which is expected to show an increase for the first time in five months. Friday's close above the 1390 mark can be seen as bullish for the market near term, but a close above 1425 may be needed to swing chart bias toward the bulls. Momentum is quickly approaching the zero line and is outpacing the RSI indicator, both of which can be seen as bullish. Support comes in at 1379.75, 1362.25 and 1353.25, while resistance can be found at 1406.25, 1415.50 and 1432.75.

Rob Kurzatkowski, Commodity Analyst

MTW02042008.jpg

Oil Makes a Slight Move to the Upside

With stocks taking a turn to “Bear Street” today, the Oil market stayed on the other side of town with the bulls. The price of the March Crude contract (CLH8) as of this writing is 89.90, marking the first day the bulls have come out on top over the last three sessions.

On the chart, we see that Crude closed below both moving averages, indicating a fairly rapid downward slide. After spending much of the day above the $90 mark, that level ultimately appeared to act as a point of resistance, similar to the behavior we noticed around the $100 mark a few weeks back.

If $90 is indeed a resistance point, the next level of support is around the 78 level. Keep in mind that if you are bearish right now, the next point of strong resistance is around the 95 level, which still represents an almost 5% movement in the underlying.

Mike Tosaw, Director of Education

FCB02042008.jpg
February 7, 2008

Great Grains

Wheat – Dwindling stocks have left Wheat importers scrambling to lock up supplies, resulting in another limit up session for the grain. Yesterday’s close marked the sixth consecutive limit up session for the prized hard-red spring variety traded on the Minneapolis Grain Exchange. Supplies of Spring Wheat are at the lowest levels since 1978 and the USDA is forecasting a 30 percent decrease in the size of the protein-rich variety. The situation is not expected to get better anytime soon due to dry conditions in Canada and Argentina. Producing nations have been exporting at breakneck speed, evidenced by the strong U.S. export sales figures over the past two months. The MWH8 contract is limit up in electronic trading, breaking the $15 per bushel mark and bringing the Chicago and KC contracts up right along with it. March CBOT Wheat broke through previous contract highs and closed above the $10 mark for the second consecutive session. The market is now eying $11, which may offer some resistance and finally slow things down. The MWH8 future has gained over 75 percent over the past three months, versus gains of just over 25 percent in the KWH8 and WH8 (see chart below). This suggests a possible “short squeeze” under way in Minneapolis, with shorts being forced to buy back positions on top of new money hitting the market.

Cocoa – Cocoa futures are extending recent rallies with strong gains overnight. Relatively under-priced compared with a number of other markets, Cocoa has managed to attract a fair amount of the fund money leaving other commodities. The attractiveness of Cocoa can be evidenced by the market's resiliency on this past Friday and earlier this week, while the rest of the commodity markets were dragged down by the Gold sell-off and renewed strength in the greenback. Growing regions in the Ivory Coast and Ghana have not seen any significant precipitation in recent weeks, which, coupled with the Harmattan winds, may lead to a small midcrop of sub-par beans. Expectations that the next crop year may yield a record harvest could somewhat temper the bullish enthusiasm, and the market may labor if and when it approaches 2500. March Cocoa made new contract highs of 2405 in electronic trading, but has initially rejected advances beyond 2400. Due to the overbought technical conditions, traders may be inclined to take profits if the market is not able to rally beyond the 2400 mark by the pit close. A sharp reversal may see the market test support at 2237 or possibly the 2174 Fibonacci retracement support. Support comes in at 2332, 2310 and 2290, while resistance can be found at 2416 and 2433.

Rob Kurzatkowski, Commodity Analyst

MTW020708.jpg
February 8, 2008

USDA Friday

Wheat – March Wheat futures are limit up this morning, bolstered by strength in the Minneapolis contract and expectations that the USDA will slash the ending stocks figure. U.S. Wheat carryout was forecast at 292 million bushels in January, but consensus estimates are looking for this number to be trimmed to 274 million bushels. Importers have been scrambling to get their hands on supply despite record high prices, which has eaten into already tight inventories. Export sales data did show Wheat exports at 11.5 million bushels, down 39 percent from the week before and 18 percent below the 4-week average, but exports are still well ahead of the USDA's expectations for this marketing year. Wheat will likely find strong buying pressure unless the USDA raises the carryout figure, but the chances of that are slim to none. The fundamental buying in March Wheat has been so strong over the past few sessions that you can pretty much throw out the technicals until the chart shows some sort of reversal pattern. The RSI is giving an overbought reading of 80 percent on the 9-day and 74 percent on the 14-day, indicating that the market has room to run before it reaches extremely overbought levels in the lower 90's.

Soybeans – March Beans closed electronic trading 29 ½ cents higher on expectations that the USDA will cut the ending stocks figure. January's report pegged ending stocks at 175 million bushels, which is expected to fall to 167 million bushels in today's report. Stocks are already much lower than last year's 574 million bushel figure due to strong export demand for Soybean Crush. Export sales for Beans were especially strong at 38.1 million bushels, easily surpassing the high side of estimates at 33 million bushels. The export number is 86 percent higher than the 4-week average and more than double the prior week's figure. March Beans appear to be breaking out above the recent consolidation resistance area near 1330. A close above 1341.50 would be considered a breakout, but a close above contract highs of 1373 would be more encouraging. Momentum has moved sharply higher and is outpacing the RSI indicator, which comes in overbought at 77 percent. Support comes in at 1310, 1288.75 and 1276.50, while resistance can be found at 1343.75, 1355.75 and 1377.25.

Corn – March Corn finished 7 ½ cents high in the overnight session on expectations that the USDA will lower ending stocks. The average estimate forecasts the ending stocks figure to be 1.411 billion bushels, down from 1.438 billion bushels in the January report, but still up from last year's ending stocks figure of 1.304 billion bushels. The Corn market has been overshadowed by the Soybean and Wheat markets, which could result in lower acreage for the 2008-09 crop year. Export sales for the feed grain were disappointing, coming in at 40.5 million bushels, a figure that was within the range of estimates, but still 46 percent lower than the prior week and 36 percent below the 4-week average. Demand may increase for sweetener use due to climbing sugar prices in recent weeks, but further strengthening in the greenback may act to offset this. March Corn remains the most technically vulnerable of the grains, needing to break out above the 515 mark to renew enthusiasm. Support comes in at 492, 484.75 and 478.50, while resistance can be found at 505.75, 512 and 519.25.

Rob Kurzatkowski, Commodity Analyst

February 11, 2008

Crude Gives Back

Crude Oil – Oil futures are slightly lower this morning after jumping more than three dollars on Friday. Several OPEC ministers have hinted at a production cut at the March meeting to head off the possibility of a worldwide glut. Venezuelan President Hugo Chavez is set to lose a key legal battle with ExxonMobil over one of the country's nationalized Oil fields and has threatened to cut supplies to the U.S. in retaliation. Royal Dutch Shell indicated that the company may not be able to honor all of its Nigerian export contracts due to political instability and sabotage. The geopolitical news comes on the heels of the largest weekly increase in Crude Oil inventories in nearly four years, showing that the U.S. is well-supplied at the moment and giving the threat of an OPEC production cut more credence. The Dollar is weaker this morning, which could act as price support for the market. Rallies on Thursday and Friday can also partially be attributed to bears' inability to drive prices below key support between 86.00 and 87.00 in the March contract. The market has rejected an initial push toward recent highs of 92.71 this morning. A breakout above this high would validate a double bottom formation on the daily chart. Momentum is outpacing the RSI indicator, suggesting a positive near-term bias. Support comes in at 89.19, 86.60 and 85.21, while resistance can be found at 93.17, 94.56 and 97.15.

S&P – S&P futures are slightly higher this morning after the index gave back 10 points on Friday. Motorola is said to be in talks with Nortel Networks to combine their cell phone infrastructures. Elsewhere, Yahoo's board is expected to reject Microsoft's recent bid as too low, and the Redmond, Washington giant is likely to counter by taking its case directly to Yahoo's shareholders. Higher Oil prices may weigh on the market today and volume will probably be light ahead of the flurry of economic data the market will have to digest later this week. Equities have seen some capital inflows of late, with optimistic traders beginning to believe that the market is slowly bottoming out. The March e-mini S&P chart gives evidence of a lack of a consensus opinion on market direction. After rejecting the 1400 mark, March futures have held the 1320 area, indicating the market is not yet set to make new lows. Momentum is outpacing the RSI indicator, which suggests that the near-term bias remains to the upside. Support comes in at 1319.50, 1309.00 and 1296.75, while resistance can be found at 1342.25, 1354.50 and 1365.00.

Rob Kurzatkowski, Commodity Analyst

February 12, 2008

Not Those Beans

Cocoa – March Cocoa is trading above the 2400 mark this morning on continued commodity strength and a weaker U.S. Dollar. Commodities in general have been seeing strong inflows of money due to a shaky stock market and choppy treasury market. The Ivory Coast and Ghana are only expected to get light precipitation on three of the next ten days, which is far too little to improve the overall hot, dry conditions. Civil unrest in both nations figures to disrupt normal port arrivals and could lead to a short-term supply squeeze. Friday's swift rally after the market broke down on Thursday gives evidence of strong fund buying on dips due to the solid fundamentals and the relatively under-priced state of the market. It is critical from a technical standpoint that the market hold above the 2400 mark, as a weak close could bring sellers out in full force. March Cocoa remains overbought on the RSI and stochastic indicators, suggesting the market could be vulnerable to profit-taking pressure in the near future, especially if new technical goals are not met. Momentum is beginning to turn a bit flat to lower as a result of today's trading, suggesting the near-term bias may shift slightly in favor of the bears. Support comes in at 1275, 2364 and 2355, while resistance may be found at 2395, 2405 and 2415. As of the writing of this report, March Cocoa has traded through the first two resistance levels.

Coffee – Coffee is slightly lower this morning on profit-taking amid technically overbought levels. The caffeinated commodity has made a good run of late, breaking through resistance at 144.00 and signaling that the market may be emerging from range-bound trading and forming an uptrend. Brazilian exports for January are down 17 percent from the same period last year and consumption has risen, which could lead to tighter supplies this year. Coffee trees in the second largest world producer are entering a less productive phase in a two-year cycle – coupled with warm, dry weather, this could severely diminish output. World production for the 2008-09 crop year is expected to barely meet 2007 consumption levels, which would eliminate any surpluses and put pressure on growers to meet demand. Yesterday's chart pattern indicates the possibility of a short-term reversal and could bring about a test of the newly established 144.00 support area. A violation of this area could bring about heavy profit-taking pressure. Support comes in at 1445.70, 143.50 and 142.05, while resistance can be found at 149.35, 150.80 and 153.00.

Dow – Stock index futures are trading higher this morning after posting moderate gains yesterday. The renewed buying interest comes on the heels of comments from St. Louis Fed President Poole's announcement that he sees the U.S. avoiding a recession. Six major U.S. banks are expected to announce a 30-day moratorium on foreclosures while they weigh the possibility of restructuring mortgages. “Buy” recommendations for Time Warner and Schlumberger are also aiding the market in the early going. Investors have begun to find bargains out there, especially in technology and consumer staples. Strengthening Crude Oil prices have helped renew buying interesting in large petroleum companies, such as Exxon-Mobil and Chevron. March Mini-Dow futures seemed to have stabilized after falling as much as 700 points over the past week. Moves above 12,500 could trigger more technical buying, while rejections of this price level point to sideways-to-lower trading. Momentum is showing bearish divergence from the RSI, suggesting the market may not be able to cross the 12,500 hurdle. Support comes in at 12,181, 12,124 and 12,087, while resistance can be found at 12,275, 12,312 and 12,369.

Rob Kurzatkowski, Commodity Analyst

February 14, 2008

Inventories, Chavez Lift Oil Markets

Crude Oil – April Crude Oil is higher in overnight trading, boosted by lower-than-expected inventories and a positive GDP reading from Japan. Yesterday's build of 1.1 million barrels was much lower than the 2.7 million barrel increase the market was expecting. Meanwhile, the economy of Japan – the world's third largest petroleum consumer – grew at a pace of 3.7 percent in the fourth quarter of last year, which doubled the consensus estimate. The solid GDP figure suggests that a U.S. recession may not spill over to the global economy. Oil traders are once again worried about the possibility of tight supplies, setting a bullish tone for the market. Venezuelan president Hugo Chavez is following through on his plans to cut off Oil sales to ExxonMobil, which could have a small impact on U.S. supplies. The move may backfire on the heavy handed leader, as Exxon will have an easier time finding alternative suppliers than Venezuela will have finding alternate buyers for the hard-to-refine heavy Oil the country produces. The U.S. is one of the few countries with the ability to refine this heavy variety of Crude, and the communist government needs money to fund its social programs, which may cause the government to step back from this policy. April Crude appears to be breaking out of a bullish flag formation on the daily chart, realized after the contract confirmed a double bottom. This sets a bullish technical tone for the market, with the possibility of rallies to the $98 mark. Momentum is outpacing both RSI and price, which is also bullish in the near term. Support comes in at 92.32, 91.23 and 90.39, while resistance can be found at 94.25, 95.09 and 96.18.

S&P – Stock index futures are pointing higher this morning on the good news out of Japan. The strong Japanese GDP data should be supportive for large multinationals that do business in the Pacific Rim region. Positive comments from several economists stating that the U.S. may avoid a recession combined with value buying to lift the equity markets over the past three sessions. Despite the upbeat comments, rocky times may still lie ahead. Today's release of initial jobless claims is expected to show very meager improvement, with the consensus forecast calling for a drop to 350,000 from 356,000 last week. The labor market has been battered over the past few months and improvements to the poor data we have seen recently may be needed for stocks to maintain their recent recovery. The March e-mini S&P chart remains an enigma, showing much indecision among traders and a lack of short-term direction. The daily chart, however, does appear to be forming a wedge formation. The formation – which can take weeks to build in many cases – may be a harbinger of rough times ahead, as a downside breakout could send the market into the low 1200's or possibly even the 1100's. Bulls are looking for the March contract to take out recent highs near 1400 before sentiment can swing in their favor. A close above 1430 could signal a reversal of the recent downtrend. Momentum is outpacing the RSI indicator, suggesting that the near-term bias remains to the upside. More importantly, the 20-day momentum indicator is close to breaking through the zero line, which can be seen as a medium-term buy signal. Support comes in at 1348.00, 1332.25 and 1321.00, while resistance can be found at 1375.00, 1386.25 and 1402.00.

Rob Kurzatkowski, Commodity Analyst

MTW02142008.jpg

Strong Economic Showing Fails to Rally Yen

Yen – The Yen is trading lower this morning, despite a stronger-than-expected GDP number in Japan. Price action indicates that the Yen carry trade is alive and well, with traders borrowing money in Japan and investing in higher-yielding assets in Europe and Australia. Talk of the BOJ possibly lowering interest rates may cool in the coming weeks, especially if the Japanese economy can show some follow-through to the GDP figure. A strengthening economy in Japan coupled with a slowdown in Europe may cause some unwinding of Euro/Yen carry trades. This view could be tempered by the fact that Australia is expected to keep raising interest rates due to inflationary concerns, which could hold back Yen rallies. March futures closed below support at .9300, but did manage to hold minor support created by January 10th highs at .9223. A late-day rally may result in a bullish hammer formation, which could signal a bullish reversal to the recent slide. Momentum is outpacing the RSI and price, indicating a near-term bullish bias. Support can be found at .9218, .9171 and .9096, while resistance comes in at .9340, .9415 and .9462.

Rob Kurzatkowski, Commodity Analyst

MTW021408.jpg
February 15, 2008

A Platinum Record

Platinum – April futures are up another eye-popping 54 dollars in early trading on worries that supplies will remain tight. South African utility company Eskom will limit electricity use to 90 percent for mines through 2012, setting up a potentially significant supply squeeze considering world stocks are already at historically low levels. Palladium futures may also get a lift from the news, as industrial users of Platinum may begin substituting due to the rocketing costs. The problem for the industrial consumers is that Russian exports of Palladium are inconsistent, forcing them to weigh the low cost benefit versus normally reliable supply from South Africa. Today’s release of the import and export price data suggests higher inflation, bolstering demand for precious metals as an inflation hedge. The Empire State Index showed a decline of 11.7 percent versus expectations of a 7 percent increase, which has sent equity futures tumbling and may lead to more inflows of funds into commodities. Technically, there is very little to say about the April Platinum chart. We continue to make new highs daily and, because the market is at historically high levels, it is difficult to gauge where resistance may come in. The RSI is extremely overbought at 90 percent, but is being outpaced by the momentum indicator, suggesting the trend is not weakening.

Copper – Copper futures did an about-face this morning, rallying almost 8 cents. Chinese imports of the yellow metal rose to 239,000 tons in January from 224,553 tons in December. LME warehouse stocks have been dwindling, but much of this inventory seems to have shifted to Shanghai, which showed a rise of 10,493 metric tons for the week. The weak Empire State Index reading was more than offset by the inflationary import and export prices. Base metal traders have largely taken their focus off of the U.S. economy – economic data is weak and the housing market is about as bad as it can get, so expectations are not very high. Rising aluminum prices due to the South African power situation have also offered outside market support for Copper. The March Copper chart continues to form a bull flag consolidation pattern, suggesting prices may test contract highs of 3.75. The market initially rejected 3.60, which sparked some technical selling, but did not do any major chart damage. 3.55 was the measured move objective for the inverted head and shoulders bottom, and 3.60 was previously the trigger line for the double top pattern in last October and a relative high made on October 29th, which is why this area has offered stout resistance. A solid close above the 3.60 mark may bring more buyers into the market and squeeze out shorts. Momentum continues to outpace the RSI indicator, suggesting a bullish near-term bias. Support comes in at 3.4350, 3.3825 and 3.3085, while resistance can be found at 3.5615, 3.6355 and 3.6880.

Coffee – The Coffee market has been a runaway train of late, breaking out of an extended slumber on supply concerns. The market opinion is that the upcoming crop year will be much less productive for growers, who will struggle to meet rising demand. Soft commodities have underperformed versus other commodity markets such as metals, grains and energies, leading many traders to believe that the sector has the greatest growth potential, especially with legitimate supply concerns in Cocoa and Coffee. After finally breaking through resistance at 146.25, it has been a straight rise in the May contract. The 9-day RSI is giving an extremely overbought reading of 90 percent, which could open the door for some profit-taking. Momentum continues to outpace the RSI, suggesting the trend has not weakened. Support comes in at 151.00, 146.25 and 142.00, while resistance may be found at 160.00 and 165.00.

Rob Kurzatkowski, Commodity Analyst

MTW02152008.jpg
February 19, 2008

Commodities Sizzle

Crude Oil – Crude Oil futures jumped in overnight trading on continued expectations that OPEC may trim production at its March 5th meeting. Several of the cartel's ministers have indicated that they are leaning toward a production cut to head off a potential glut of supply in the face of a slowing U.S. economy and rising inventories. There is some market chatter suggesting the group may not officially cut supply due to heavy lobbying from the U.S. government, but individual member states may begin to discretely cut output. A fire completely shut down Alon USA Energy Inc.'s Texas City refinery, which has further bolstered petroleum prices. The explosion injured four workers and a company spokesperson indicated that the refinery may be offline for weeks. April Crude Oil confirmed a double bottom formation and an ensuing bull flag last week, hinting the market may test 98.50. The 9-day RSI is quickly approaching overbought levels, which may limit rallies going forward. Support comes in at 94.53, 93.61 and 92.58, while resistance can be found at 97.51 and 98.43.

Gold – Gold futures come into this shortened holiday week higher on higher energy prices and a tumbling greenback. April futures briefly flirted with the key psychological $900 mark on Friday, which brought buyers back into the market. Gold has gotten a lot of help from outside markets today, with Platinum making yet another record high and Crude Oil prices moving sharply higher. The market has underperformed versus the broad commodity market of late, as some traders have diversified their portfolios while others have liquidated their Gold positions in favor of higher potential growth in other markets, like soft commodities and Platinum. The Gold market may be able to snap out of this funk if the Oil market continues to boom and the Dollar is unable to find support. Momentum was outpacing the RSI indicator prior to today's trading, suggesting a positive technical bias in the near term. Support comes in at 898.10, 890.10 and 879.70, while resistance can be found at 926.90 and 934.90.

Bean Oil – March Bean Oil posted a new record high in overnight trading, boosted by higher energy prices. Winter storms in China have damaged the Canola crop, which will likely lead to increased demand for Bean Oil as a substitute. The Chinese customs office has already shown an increase in exports of over 40 percent for the month of January. The rising cost of fuel may also lead to increased demand as an alternative fuel source and smaller speculative grain traders may also forsake the wild Wheat market for the relative calm of Soybean products and Corn, which could lead to further fund inflows. The March Bean Oil contract formed a spinning top pattern – suggesting lower prices this morning – but the pattern was negated by the sharp move higher. RSI and Stochastics are showing overbought levels, which has not dissuaded traders from entering the market. Support comes in at 57.98, 57.40 and 56.98. The market has already taken out resistance at 58.99 and 59.40 in early trading, leaving only the 59.99 pivot point resistance area. Further resistance is anyone's guess.

Rob Kurzatkowski, Commodity Analyst

mtw20080219.gif
February 20, 2008

Consumers Brace for Higher Fuel Costs

RBOB Gasoline – Energy futures are slightly lower this morning on yet another rejection of the century mark in Crude Oil. Gasoline prices jumped due to a flurry of bullish news: the Alon refinery explosion, expectations that OPEC will trim production, continuing uncertainty over the Venezuelan supply and broadly higher commodity prices, which suggest a highly inflationary environment. Falah Alamri – the chairman of OPEC's Board of Governors, who is also head of Iraq's State Oil Marketing Organization – stated that it is too early for the cartel to discuss cuts in output and indicated that the petroleum organization will meet in Vienna to discuss administrative issues. This dovish statement tempers some of the more hawkish statements of late from member states, but may be taken with a grain of salt, given the Iraqi government's ties to the U.S. The fire at the Alon facility, which refines 70,000 barrels of Oil daily, may be much more significant news for consumers. The refinery is expected to be offline for two months, which may overlap with scheduled maintenance at other refineries, squeezing supplies of motor fuel. April RBOB broke out to new highs on the daily chart, signaling a possible technical breakout. Prices have moved back from the 2.7223 breakout point in the early going due to technically overbought levels. Momentum continues to outpace the RSI indicator, suggesting a positive near-term bias. Support comes in at 2.6579, 2.5821 and 2.5387, while resistance can be found at 2.7771, 2.8205 and 2.8963.

S&P – Stock index futures are lower this morning ahead of consumer price data. Stocks fell into the red yesterday after spending much of the day positive in reaction to rising energy costs and worries in the telecommunications sector. Today's early release of MBA mortgage data suggests that the housing and mortgage markets are continuing to spiral out of control. The overall MBA market index fell 22.6 percent, while the purchase and refinancing indexes fell 11.5 percent and 27.9 percent, respectively. This could be an indication that consumers are expecting more rate cuts from the Fed in upcoming meetings and may be holding off on new purchases and refinancing options as a result. Today's CPI report is expected to show an overall reading of 0.3 percent and a core reading of 0.2 percent. Higher-than-expected price readings would put downward pressure on the market, possibly forcing the Fed to stall further rate cuts. Housing starts and building permits are expected to come in at 1,015,000 and 1,040.000, respectively, indicating further weakness in housing. The report that most traders will be looking forward to is the FOMC minutes released later this afternoon, which will give investors the chance to go through the thought process of the Fed at that January 30th meeting, and will give more insight into what economic data the central bank will use in future meetings to set interest rate policy. The March e-mini S&P is trapped in a triangle/wedge formation on the daily chart and is close to breaking through the lower boundary, which would indicate further declines. Tempering this grim view, the momentum indicator is outpacing both price and RSI, suggesting a positive near-term bias. Support comes in at 1344.00, 1332.25 and 1319.50, while resistance can be found at 1368.50, 1381.50 and 1393.00.

Platinum – Platinum futures have shed almost 80 dollars in early trading on heavy profit-taking and worries that all-time record prices may trim demand. Jewelry demand for the noble metal is expected to plummet in the neighborhood of 30-40 percent not only because of high prices, but indications that economies worldwide are slowing – jewelers account for roughly a quarter of all platinum demand. More importantly, auto manufacturers – which account for just under two-thirds of global demand – have begun substituting Palladium for use in catalytic converters. The supply squeeze may spurn innovation in the industry, as manufacturers look for Platinum and Palladium substitutes. Much of the selling pressure can be attributed to profit-taking due to technically overbought levels. The RSI and stochastic indicators had readings in the mid-to-high 90's, which threw up red flags for traders. If the April contract is not able to recover, traders may view the chart setup similar to a key reversal. While not a true textbook key reversal, the pattern can be viewed as very bearish and hints toward a trend reversal, at least in the near term. Support comes in at 2081.50, 2009.80 and 1963.60, while resistance can be found at 2199.30, 2245.60 and 2317.20.

Rob Kurzatkowski, Commodity Analyst

MTW02202008.jpg
February 21, 2008

Hedgers Nudge Gold to New Highs

Gold – April Gold futures posted a new record high this morning, as traders flock to precious metals as an inflation hedge. In addition to rising petroleum prices, the recent cold blast hitting much of the country has stirred the Natural Gas market from its slumber. Higher energy costs and a CPI report showing a higher-than-expected reading have more than offset the detrimental impact of yesterday's Platinum sell-off on the Gold market. The late-session buying in Platinum helped avert major chart damage, which should be supportive for the overall precious metals market. The daily April Gold chart shows the market breaking out of a wedge formation and penetrating resistance created by previous contract high close of 932.80. The measured move from the wedge formation suggests that the market may be ready to test the $1000 mark. Momentum continues to outpace both price and RSI, confirming a strengthening trend. Support comes in at 919.50, 901.30 and 886.40, while resistance can be found at 952.60, 967.50 and 985.70.

Crude Oil – April Crude Oil futures are trading below the $100 mark this morning ahead of the weekly petroleum inventory report, which is expected to show a weekly build of over two million barrels. The report itself is expected to be bearish for the Oil market, but may force OPEC's hand in lowering output. Today's activity figures to be choppy due to the report and the likelihood that some traders may be tempted to take profits after the contract jumped 13 dollars over the past nine sessions. Oil is a market that trades on perception, and the perception is that OPEC will slash production, even if an official word at the cartel's March 5th meeting is still up in the air. The actual supply and demand fundamentals for the market are actually quite bearish, with inventories building and domestic gasoline demand falling in December and appearing to drop in January and February as well. The Alon refinery outage is only expected to affect one percent of gasoline supply and will probably contribute to rising inventory levels. The spinning top pattern on the daily chart hints at consolidation or a small reversal. The RSI indicator is still overbought at the moment, suggesting the market may be sluggish in any further advance. On the other hand, momentum is screaming higher, outpacing both price and RSI, indicating a bullish near-term bias. Support comes in at 98.17, 96.65 and 95.30, while resistance can be found at 101.04, 102.39 and 103.91.

Rob Kurzatkowski, Commodity Analyst

MTW02212008.jpg
February 25, 2008

Gold Rises on Dollar Slump

Gold – Gold is higher in early trading, but is off of overnight highs after prices failed to test record intraday highs. The precious metal has a host of positive factors going for it at the moment, including rising energy costs and a slumping U.S. dollar. The greenback figures to stay soft due to the lackluster economic showing of late, as well as the increasing likelihood that the Fed will continue to trim rates. The central bank is in an awkward position at the moment as a result of the commodity price boom that is coinciding with an economic slowdown – commodity prices typically fall during periods of slow or negative growth in the economy, making it easy for central banks to simply trim rates to spur economic expansion. Expanding economies in China and other developing nations have increased demand for raw materials and decimated stockpiles. Last week's inflationary CPI report points toward the ideal scenario for Gold traders – high inflation and slow growth. Tomorrow's PPI numbers are likely to show producer prices increasing at an even higher pace than those of consumers, adding further price support for the yellow metal. The daily chart for April Gold remains bullish, but the last three candlesticks show a fair amount of indecision among traders. The chart appears to be forming a bullish flag pattern, which may lead to further price advances. Momentum is showing some bearish divergence from the RSI indicator, pointing to further consolidation or possibly even a pullback in prices. Support comes in at 939.60, 931.40 and 924.70, while resistance can be found at 954.50, 961.20 and 969.40.

Crude Oil – Crude Oil futures are little changed this morning, but geopolitical tensions figure to loom large this week. Turkey's incursion into the Kurdish region of Iraq has not disrupted Oil flow from the nation, but there are worries that an extended ground offensive may eventually affect supplies. Meanwhile, the U.S. is considering new sanctions against Iran over its nuclear program. The Oil-rich nation threatened to strike back at countries supporting the new sanctions, which may mean decreased exports from OPEC's second largest producer. Traders will continue to monitor these political events this week, but most of the market focus will be on next week's OPEC meeting. There really is no consensus among traders on what the cartel plans to do, with compelling arguments on both sides. On one hand, current production quotas may lead to supply excesses and steep price declines, but a decrease in production may be the straw that breaks the global economy's back, leading to economic contraction. The April Crude chart shows a spinning top candlestick after breaking through the $100 mark followed by a sharply lower session, suggesting the possibility of further declines from the century mark. Adding to this bearish sentiment, the momentum indicator is diverging from both price and RSI. Support comes in at 97.52, 96.24 and 95.31, while resistance can be found at 99.73, 100.66 and 101.94.

S&P – Stock index futures are higher this morning on bullish spillover from Friday's session. The market was able to finish last week on a positive note on speculation that troubled bond insurer Ambac Financial will be bailed out by several large banks. This good news could be met by some skepticism given that many of the banks involved in the bailout talks are have trouble of their own. Adding to the positive market sentiment, pharmaceutical giant Genentech gained FDA-accelerated approval for its breast cancer drug Avastin – a surprising move given the fact that sector analysts gave the drug less than a 50 percent chance of gaining such approval. Today's only major economic release is existing home sales data, which is expected to show sales declining 0.09 million average annual rate. The March e-mini S&P chart shows that market continuing to trade within the boundaries of the wedge pattern that has been forming since the beginning of the year. The congestion on the chart has gotten tighter and tighter, suggesting the market will be forced to determine a longer-term direction in the near future. Momentum is outpacing the RSI indicator, hinting toward a positive short-term bias. Support comes in at 1335.75, 1316.00 and 1305.25, while resistance can be found at 1366.50, 1377.25 and 1396.75.

Rob Kurzatkowski, Commodity Analyst

MTW02252008.jpg
February 26, 2008

Planned IMF Sale Sends Gold Lower

Gold – Gold futures are lower for the third consecutive session after the U.S. Treasury Department announced that it would back the IMF's planned sale of 12.9 million ounces of the precious metal. Even with South Africa running at full capacity, production fell short of physical demand last year, so the move shouldn't flood the physical Gold market by any means. The move may actually support Gold prices over the long haul, as it could rejuvenate demand down the road if prices correct sharply. The precious metals market still has a host of bullish factors going for it, so the move by the IMF can be seen as somewhat bearish over the short to medium term. The daily April Gold chart remains bullish, but may be vulnerable over the short term if the contract suffers a daily close below 930. Momentum has outpaced price and RSI to the downside, hinting at lower prices over the near term. Support comes in at 932.40, 924.20 and 912.90, while resistance can be found at 951.70, 963.00 and 971.20.

Copper – Copper is lower for the third consecutive trading session after a huge two-day jump in LME inventories. Supply, rather than demand, has been the focus for traders of the yellow metal, and the 10 percent increase in stocks on Friday and Monday is considered by many to be bearish near-term. The LME reported stocks decreased 100 tons this morning. Despite the recent inventory spikes in London and Shanghai, the overall trend in inventories remains lower, which may support prices over the mid-term. Chinese demand remains robust, but there are many uncertainties in the U.S. and European economies. The three-day reversal on the March Copper chart hints at lower prices over the short term, possibly testing support in the 3.55-3.60 area. Momentum has remained stronger than both price and RSI, suggesting the recent selloff may be a temporary phenomenon. Support comes in at 3.6700, 3.6100 and 3.5110, while resistance can be found at 3.8295, 3.9190 and 3.9885.

Wheat – March Wheat finished overnight trading 43 cents higher, but sold off after the Minneapolis contract gave back $1.20 of yesterday's gains. Adding fuel to the recent rally, India announced that it plans to import Wheat for the third consecutive year due to poor crop conditions. Global demand figures to outpace production once again for the 2008 crop year, which could keep prices near records going into 2009. Friday is First Notice Day for March futures on all three major exchanges, which may result in even more volatile trading.

Rob Kurzatkowski, Commodity Analyst

February 29, 2008

Record Commodities

Crude Oil – Oil extended its gains yesterday to all-time highs near the $103 mark, but the market is slightly lower this morning as traders begin to lock in profits ahead of the weekend. A weak U.S. Dollar and inflationary figures in the CPI, PPI and Chain Deflator reports were the main driving factors in the market this week. Crude Oil supply and demand fundamentals remain bearish, but the market has been driven by heavy commodity and hedge fund buying on expectations that the Fed will continue to lower rates and let inflation run wild, decimating the value of the already weakened greenback. News that the largest U.S. pension fund, CALPERS, will be diverting roughly $7 billion to buy commodities set a bullish tone for commodities in general, and is a prime example of a large institutional investor pulling money out of stocks and bonds – which tend to perform poorly in inflationary times – and diverting those funds toward raw materials. It's hard not to mention geopolitical tension when talking about the energy markets, but it has been a relatively quiet week on that front. Traders held their breath after Turkish troops crossed the Iraqi boarder, but supplies have not been disrupted thus far. There has been an eerie calm after an election commission confirmed Nigerian election results, but no major violent actions by militants. The April Crude chart remains bullish – if a bit top heavy – at the moment, suggesting the possibility of a profit-taking correction or consolidation. Momentum continues to outpace the RSI, hinting at further strength in the near term. Support comes in at 100.01, 97.43 and 95.95, while resistance can be found at 104.07, 105.55 and 108.13.

Gold – Like Oil, Gold set all-time highs yesterday on the tumbling greenback and inflation concerns. April futures are almost 5 dollars higher as of this report, mainly on expectations that the U.S. economy will continue to struggle. Gold traders seem to have shrugged off the bearish news earlier this week that the IMF will be selling a portion of its reserves of the precious metal. Precious metals and energies – rather than the traditional treasury market – have become the safe havens for traders diversifying their portfolios, as many begin to fear that government debt instruments may not be worth the paper they are printed on in light of the record low exchange rate of the Dollar. The April Gold chart looks a bit top heavy and the RSI indicator is now showing overbought levels, but the market may not consolidate or correct until the $1,000 mark is tested. Support comes in at 957.00, 946.50 and 937.50, while resistance can be found at 976.50, 985.50 and 996.00.

Soybeans – Bean futures continue to rally on the falling greenback and expectations that global production may not meet demand. The weak exchange rate of the greenback has benefited the grain markets greatly over the past year and indications are that this trend will continue. China has not come close to meeting their domestic demand and been forced to import Beans, Bean Oil and Corn from the U.S. The record high prices of diesel fuel has also benefited the Soybean market, as it would likely increase demand for Bean Oil. Biodiesel can be produced from many different sources, including animal fats, but Bean Oil heated to the proper temperature on the delivery truck can begin the reaction process much more quickly and is considered the ideal choice for manufacturers. The July Bean chart remains bullish, but extremely overbought, which may make the market susceptible to profit-taking. Momentum continues to scream higher, outpacing the RSI indicator and indicating continued strength. Support comes in at 1495.75, 1467.75 and 1452.25, while resistance can be found at 1539.25, 1554.75 and 1582.75.

Rob Kurzatkowski, Commodity Analyst

MTW02292008.jpg