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March 2008 Archives

March 3, 2008

Commodities a Mixed Bag

Gold – Gold futures continue to soar thanks to a falling U.S. Dollar and the broad sell-off in the Asian equity markets. The $1,000 mark is now within reach for the April contract, sparking speculative buying that has added to the “flight to quality” effect in the market. All three major U.S. inflation gauges – CPI, PPI and the Chain Deflator – are indicating that both consumer and producer prices are rising at a brisker pace than previously believed, and the inflationary scenario is likely to continue in light of soaring commodity costs and expectations of further Fed rate cuts. Despite the bullish news for precious metals, Gold may remain vulnerable to profit-taking pressure in the near term due to technically overbought conditions and some traders rethinking strategy when and if spot prices reach $1,000. The April Gold chart remains bullish, with the market closing at new record highs each of the past three sessions. Momentum continues to outpace both the RSI indicator and prices, suggesting the trend may still be strengthening in the near term. Support comes in at 968.00, 960.90 and 955.70, while resistance can be found at 980.20, 985.50 and 992.50.

Cocoa – Cocoa futures have succumbed to profit-taking pressure and are lower, despite reports from Cameroon that exports of beans were down 41 percent for the week. It is officially called a trucker strike, but in reality trucks are being blocked from moving by anti-government factions that may lead to further supply disruptions. Cocoa fundamentals remain strong with increasing chances that the mid-crop will be small and poor in quality, which has attracted strong fund buying. There are reports that some farmers have prematurely harvested a portion of their crop to capitalize on high prices, adding even more potential mid-crop problems. May Cocoa remains technically overbought, and the bearish crossover in the stochastics points to the possibility of still more downside. The crossover conflicts with the momentum indicator, which is showing slight bullish divergence. Support comes in at 2740, 2703 and 2668, while resistance can be found at 2812, 2847 and 2884.

Crude Oil – The Oil market has given back some of last week's gains over the past two sessions, with traders now thinking that OPEC may leave output unchanged. Many traders were previously banking on a production trim at the cartel's Wednesday meeting, which has prompted this most recent rally in the energy markets. Trading has been out of tune with fundamentals suggesting that the U.S. has ample supply, as illustrated by inventories rising for seven consecutive weeks. Trading may remain choppy ahead of Wednesday's meeting and release of inventory data. The market may be weak over the next two days, with longs lightening up positions in the event that OPEC doesn't make any adjustments. Technically, April Crude remains very bullish on the daily chart and the activity over the past two sessions may just be profit-taking. Prices seem to have comfortably settled above the $100 mark after initial rejections. Momentum is screaming higher, easily outpacing both price and RSI, suggesting near-term strength. Support comes in at 101.11, 100.39 and 99.43, while resistance can be found at 102.80, 103.77 and 104.50.

Rob Kurzatkowski, Commodity Analyst

March 5, 2008

OPEC Keeps Supplies Steady

Crude Oil – Crude Oil is higher this morning after a majority of OPEC ministers decided to keep output unchanged. This week's trading is a far cry from the bullishness that had been prevalent over the past two weeks, as illustrated by yesterday's sharp drop ahead of the cartel meeting. The petroleum market – like many commodity markets of late – has become detached from supply and demand fundamentals, with fund and investment money becoming the driving forces behind the push beyond $100 a barrel. The market is expecting a build of 2.3 million barrels of Crude Oil this week and a larger build may bring about a test of the century mark. The Crude chart is indicating that the market may be vulnerable to profit-taking pressure. After the spinning top formed by Monday's trading, the market formed a large down candle, which tested near-term chart support in the 99.00's. Another close below 100.00 could be bearish psychologically and a close below 97.00 would be considered bearish near-to-medium term. Momentum is showing bullish divergence from the RSI this morning, but is not particularly strong. Support comes in at 97.81, 96.11 and 93.35, while resistance can be found at 102.27, 105.03 and 106.74.

Cotton – The Cotton market is limit up once again this morning after being the lone bright spot during yesterday's broad commodity sell-off. Near record Crude Oil prices have many traders believing that demand for the fiber will rise, as synthetic fabric prices are likely to climb. There may be an acreage battle brewing this year due to the rising cost of Wheat, which may steal acres away from Cotton and pressure supplies. A positive outlook from commodities guru Jim Rogers has also helped attract spec buying. Many former and current floor traders are beginning to point the finger at the ICE exchange, which has made several moves that are perceived to have hurt both speculative and commercial shorts. The exchange expanded limits and raised margins twice in a 24-hour period, which put shorts on call and essentially forced them out of the market. Also, the elimination of floor trading in futures has some critics pointing out the fact that option traders and hedge funds are determining price and direction in a market that has traditionally been driven by commercials, making a strong argument that some markets are simply not suited for electronic trading. The technically overbought conditions, along with the possibility that traders do not want to get locked into a position ahead of Tuesday's USDA report, may make the market vulnerable to profit-taking. Given the high volume of fund positions, sell-offs may be as dramatic as those seen in the Wheat market in recent weeks.

Gold – The Gold market is unable to get any footing this morning after falling almost $18 an ounce yesterday. The market flirted with the 990 area the previous two sessions and some longs may have become frustrated that prices did not test the $1,000 mark. Yesterday's broad sell-off in commodities – namely energies – and stabilization in the Dollar also helped spur long liquidation. The fundamentals for the precious metals market have not changed, as the equity markets remain weak and inflation risks remain. This may just be the healthy near-term correction the Gold market needs after five consecutive positive sessions. Yesterday's sell-off caused little if any chart damage and April Gold remains in a strong uptrend. The market has recovered from overbought conditions on the RSI, which is being outpaced by the momentum indicator, suggesting near-term strength. Support comes in at 953.00, 939.60 and 921.00, while resistance can be found at 985.00, 1003.60 and 1017.00.

Rob Kurzatkowski, Commodity Analyst

March 6, 2008

Crude Jumps to New Record

Crude Oil – April Crude Oil futures have rallied to a new record high on an unexpected drawdown in U.S. inventories and a new record low for the greenback against the Euro. Much of yesterday's broad rally in commodities can be attributed to the Dollar trading at all-time lows, attracting a huge inflow of funds from equity and fixed income markets. Even though Crude inventories fell for the first time in eight weeks, the market continues to completely disregard fundamentals, which are anything but bullish. Gasoline inventories are at 14-year highs and the drawdown in Crude Oil inventories can largely be attributed to increased refinery activity. While OPEC did not officially cut production quotas, the feeling among many traders is that some member states will begin to pull back their own production, fearing slow demand may lead to oversupplies. The April Crude chart remains bullish but vulnerable to selling pressure due to overbought conditions. Support now comes in at 101.06, 97.61 and 95.66, while resistance can be found at 106.46, 108.41 and 111.86.

Cocoa – A weaker Dollar and supply worries have sent the Cocoa market sharply higher in early trading. Rains in drier parts of the Ivory Coast, along with technically overbought conditions, have caused some consolidation in recent sessions, but fundamentals remain bullish. Cocoa, Coffee and the grain markets are the few markets that actually have extremely bullish fundamentals, while the rest of the commodity market seems to be banking on a weaker U.S. currency, inflationary pressures and speculation that fundamentals will shift. This disconnect between supply and demand fundamentals and prices may make some commodity markets vulnerable to selling pressure in the weeks and months ahead, which could adversely affect fundamentally strong markets, such as Cocoa. Technically, May Cocoa appears to be breaking out of the bullish consolidation pattern on the daily chart, but the initial rejection of Tuesday’s contract high of 2845 is somewhat troubling. Momentum remains strong and is outpacing the RSI, which remains technically overbought. Support comes in at 2729, 2681 and 2651, while resistance can be found at 2836 and 2885.

S&P – The stock market is set to open lower on continuing worries over the mortgage sector. Thornburg Mortgage, Inc. received a default notice for failing to meet a margin call issued by JP Morgan, and a bond fund managed by the Carlyle also failed to meet several margin calls. To make matters worse, banking giant UBS has reportedly shed a good chunk of its mortgage assets in what was widely regarded as a fire sale. UBS is expected to have write-downs of close to $20 billion due to the mortgage crisis. Due to the credit crunch, banks have been very tight with lending, which has exacerbated the problems in the housing market. This could have banks suffering the effects of the crisis much longer than previously thought. High inflation and a weakening consumer sector have even the most optimistic market observers worried. Equities may continue to suffer, as investors struggle to find stocks that have value in the current environment. March e-mini S&P futures have broken the downside of the bearish wedge formation and formed a bear flag on the daily chart, suggesting the possibility of further declines. The contract low close of 1309.25 is an important point for the market, as a new contract low may bring about long liquidation. Support comes in at 1322.25, 1308.75 and 1297.50, while resistance can be found at 1347.00, 1358.25 and 1371.75.

Rob Kurzatkowski, Commodity Analyst

March 7, 2008

Traders Nervously Await Non-Farm Data

Crude Oil – Profit-taking ahead of the weekend, along with some early reluctance among buyers, has Crude Oil futures trading lower in the early going. Today's release of non-farm payrolls, which are forecast to show a very small increase of 25,000 jobs for the month of February, has Oil traders a bit weary. Weaker-than-expected results could signal further slowdowns in demand for petroleum from U.S. consumers, especially if the figure shows further contraction in the labor market. A sharply lower U.S. Dollar could act as a buffer to any selling pressure the market may feel as a result of the data. Commodity markets – especially energies and metals – have risen sharply in recent weeks due to inflationary concerns, and the Oil market has become somewhat detached from supply and demand fundamentals. A strong figure could bolster some moderate buying, but traders may want to lock in profits ahead of the weekend, which could make it difficult to garner upside traction. The daily April Crude Oil chart remains bullish after breaking out to yet another new high yesterday. It would likely take sell-offs below 97.00 to reverse the recent trend. Support comes in at 103.55, 101.64 and 100.44, while resistance can be found at 106.67, 107.88 and 109.80.

Dow – Indecision among traders ahead of the non-farm payroll report has stock index futures little changed going into the number. Another month of contraction in the job sector may all but confirm that the economy is in a recession, which may adversely affect consumer behavior, even for those currently employed. Yesterday's release of foreclosure data suggests that distressed homeowners have lost hope and simply caved, which leads many to believe the housing market may get much worse before it gets better. The Fed's aggressive rate cut strategy may help bail out distressed banks, but banks have been reluctant to lend money after the sub-prime crisis, which may hurt them in the long run. The lack of buyers in the housing market may drive down the value of homes further, depreciating the value of foreclosed homes and thus compounding the woe for banks. The March Mini Dow chart shows a downside breakout of a wedge formation, signaling the possibility of even more downside. The move suggests the market may test the 11,000 mark before it rebounds. Weekly and monthly charts are much more ominous and hint at a more extended correction. Support comes in at 11950, 11831 and 11638, while resistance can be found at 12262, 12455 and 12574.

Platinum – The Platinum market has broken down this morning on South African authorities’ comments that electrical supplies to mines will be increased. This sparked a wave of long liquidation, which seems to have stopped out quite a few smaller traders that established longs late in the move. The thinness of the Platinum market certainly had an impact on the scope and swiftness of the drop in prices. The sharp losses over the past two sessions could also be the result of the market’s opinion that prices have risen too quickly. Today’s payroll report is a mixed bag for Platinum traders – on one hand, the metal could become more attractive as an investment vehicle and inflation hedge, but on the other, it could be a sign that demand will slow. If the market is unable to pare losses and regain the $2,100 mark, today’s sell-off will have done some chart damage. The violation of this support area could signal a reversal of the uptrend. The next significant chart support comes in at the first Fibonacci retracement area of 2003.90, with additional Fib support coming in at 1909.20 and 1814.50.

Rob Kurzatkowski, Commodity Analyst

March 10, 2008

Gold Loses Some Luster

Gold – Gold is trading lower for the third consecutive session on heavy profit-taking. The Dollar strengthened against the Euro Friday and in early trading today, which may have sparked some selling from European traders. The lower Euro and lower energy prices have kept the precious metals markets from gaining any fresh upward traction. Coming on the heels of new highs just below the $1,000 mark, the sell-off may be a healthy sign for the market, as advances beyond this critical level followed by heavy selling would likely be a huge psychological blow for traders. Friday will be a big day for traders in both the equity and commodity arenas with CPI data on the horizon, as further confirmation of a rampant inflationary environment could bring strong buying. The recent selling has not caused any major chart damage yet, but declines beyond the 950.00 mark in the April contract could spark a more extended confirmation. The RSI peaked prior to Gold making record highs, which is a bearish signal over the mid-term. Momentum has dropped more sharply than prices, opening the door for further weakness. Support comes in at 966.60, 958.90 and 948.80, while resistance can be found at 986.30, 998.30 and 1005.90.

Cocoa – A broad sell-off in commodities – particularly softs – has sent the Cocoa market lower in early trading. Cocoa has not seen the solid buying coming on dips, as it had over the previous few weeks. Traders seem to have lost some of their enthusiasm for softs and grains in light of speculation that prices may have risen too much too quickly. Growing regions in Ghana and the Ivory Coast have gotten much needed rain of late, although only sporadically. The Cocoa market has not sold off as much as other soft commodities, signaling that many traders may believe fundamentals are still relatively strong. The May chart appears somewhat bullish, forming a sideways-to-lower consolidation pattern. Two rejections of the 1845 area do not bode well for the market technically, and advances beyond this level may be needed to bring buyers back. The RSI is only now starting to recover from technically overbought levels, underscoring the fact that the market may have risen too sharply in recent weeks. Momentum has dipped, although to a lesser extent that the RSI and prices. Support comes in at 2692, 2646 and 2617, while resistance can be found at 2767, 2796 and 2842.

S&P – Stock futures labored to stay near unchanged levels in overnight trading. Friday’s non-farm payroll number gives further confirmation that the economy is nearing recession, if it hasn't arrived there already. There were rumors circulating prior to the release of the report that the Fed would make another emergency rate cut if the report showed a contraction in the labor market. This did not materialize, but Fed Fund futures are now pricing in a high probability of a ¾ basis point cut. Banking stocks are once again feeling the bulk of the heat this morning on more reports of margin calls issued to major credit market players. A flurry of important economic data is scheduled for release on Thursday and Friday, with retail sales and Michigan consumer sentiment set to give traders a better idea of how the recent downturn has impacted the American consumer. Positive data could give the market a much needed lift on value buying from investors. Friday’s chart setup was a bearish continuation after confirming a bear flag pattern on the March e-mini S&P chart. Support comes in at 1277.00, 1261.50 and 1241.00, while resistance can be found at 1313.50, 1334.00 and 1349.75.

Rob Kurzatkowski, Commodity Analyst

March 11, 2008

USDA Data Suggests Tight Bean, Wheat Stocks

Soybeans – Soybeans are expected to trade 15-20 cents higher on what is generally seen as a supportive USDA Supply and Demand report. The U.S. carryout figure for Beans was 140 million bushels, down from the February report suggesting a 160 million bushel carryout. The figure was at the lower end of expectations, confirming very tight supplies of the oilseed. Tempering the U.S. data, however, was world carryout, which was seen at 47.44 million metric tons, up from the February reading of 45.82, mainly due to increased South American production.

Wheat – Wheat is seen opening 20-25 cents higher on further declines in U.S. stocks. U.S. carryout is pegged at 242 million bushels, falling 30 million bushels from the February report. World carryover has been revised up to 110.4 million metric tons from the prior estimate of 109.7, but this small upward revision does not change the fundamental outlook of the old crop Wheat. The tight stocks may result in even more government intervention overseas, resulting in higher acreage for the new crop year. China has already increased allocations of land for farming the grain.

Corn – The Corn report was seen as neutral to bearish, but the market may find some outside support from Beans and Wheat to open higher. Today’s U.S. carryout estimate of 1.438 billion bushels was unchanged from the February report and higher than the consensus estimate of 1.435 billion bushels. World carryover was revised up to 104.0 million metric tons from last month’s 101.9 million metric ton figure. The report shows that unlike Beans and Wheat, the Corn market is adequately supplied due to high acreage even though demand has been solid.

Overall, the report confirmed the market’s suspicions that Bean and Wheat stocks will remain tight. The supportive prices of these grains may result in higher acreage for the new crop year at the expense of Corn and Cotton, respectively. Much of the drawdown in U.S. stocks was a result of robust global demand rather than pressured supplies, save for certain grades of Wheat. If export demand begins to cool, we may see a restocking of U.S. supplies. This is highly unlikely at this point due to the weak Dollar making the U.S. the global supplier of grain. Traders will soon begin to shift their focus toward planting intentions for the new crop year, and it will be interesting to see how this year’s battle for acreage will play out, both in the U.S. and globally.

Rob Kurzatkowski, Commodity Analyst

March 13, 2008

Crude Lingering Around 110, Gold Hits 1,000

Crude Oil – Crude Oil jumped to $110 a barrel yesterday despite the weekly EIA inventory report showing a much larger build than expected. The Oil market has been driven primarily by the freefall in the greenback, which is now trading at 12-year lows against the Yen and all-time lows against the Euro. Fresh overseas money seems to be coming in daily to take advantage of the battered currency, with the bulk of overseas traders establishing long positions. This is the driving factor behind Crude's recent detachment from supply and demand fundamentals. The market does appear to be a bit top heavy, which could make it vulnerable to profit-taking, especially if the dollar manages to find some near-term footing. The April Crude chart remains bullish, but the angle of the up move has steepened sharply, which could be a harbinger of a near-term correction. The RSI is overbought, as are the stochastics, suggesting near-term vulnerability remains. The question for the market now is whether new shorts will attempt to test the waters after getting burned so many times before. Support comes in at 107.94, 105.96 and 104.83, while resistance can be found at 111.05, 112.18 and 114.16.

Gold – The sharp decline in the U.S. Dollar relative to the major currencies has sparked a fresh wave of buying in Gold. The April contract traded at $1,000 an ounce, which remains the high of the session to this point. The historic levels in Crude and now Gold have offered strong outside support to other commodity markets, which could spark a new round of margin calls among shorts. This may force shorts out of the market, further fueling the solid buying the market has seen. If the April contract is able to hold current levels, it would signal a new breakout on the chart, which could be especially strong if we are able to close above the key psychological $1,000 mark. Momentum is outpacing the RSI indicator, suggesting further strengthening. Support comes in at 966.30, 952.20 and 934.80, while resistance can be found at 1015.10 and 1029.30.

Cocoa – Warehouse workers in the Ivory Coast extended a strike for increased pay and better working conditions, sparking a wave of buying. A weakening Dollar, along with the short squeeze, has exacerbated the buying situation. Shorts now appear to be moving to the sidelines for the time being, leaving no resistance for buyers. Commercial short hedges in the softs markets have been discouraged by the wild price action since the ICE’s move to electronic trading. Many short hedgers have either moved into the options market to avoid margin calls or simply left themselves un-hedged for the time being, leaving futures trading to the speculators. The May contract may be signaling a breakout if we are able to sustain current levels. Today’s early move has driven prices beyond the 2845 resistance area. Support comes in at 2714, 2656 and 2561, while resistance can be found at 2961 and 3020.

Rob Kurzatkowski, Commodity Analyst

March 14, 2008

Flat CPI Surprises Traders

S&P – Stocks have gotten a bounce from a flat CPI report, which may open the door for more Fed rate cuts. Given the recent climbs in Crude Oil and foodstuffs, the report caught traders off guard, inspiring skepticism that this low inflation scenario will develop into a pattern. Stock traders have lost faith in the Fed’s policy decisions of late, even though the central bank has used virtually every weapon in its arsenal to combat economic stagnation and revive the beleaguered banking sector. To put it in simpler terms, traders believe there are too many things broken to easily fix by simply injecting liquidity. The rate-cutting policy of the Fed has led to a plummeting greenback and has done little to improve either the banking or housing sectors, resulting in a sharp drop in consumer confidence, which has been evident at the checkout line. Banks will likely continue to be tight with lending due to their poor financial conditions and may not be as proactive in renegotiating the terms of home loans, which may lead to steeper foreclosure rates. Foreign investment in the U.S. has fallen due to the Dollar’s exchange rate – even if foreign entities make money on their investments, the result could be a net loss when converted back into their home currency. Overseas money has been tied up in commodities, which has contributed to the boom in those markets. If investors begin bargain hunting and the stock market can recover from current levels, consumers may begin feeling better about the economy and could begin spending again. This might lead to a mild recovery, but the loss of wealth from the housing crisis may be the 800-pound gorilla holding back a larger-scale rebound. The June e-mini S&P’s recovery from recent lows is somewhat encouraging for technicians. A solid close above the 1350 area could result in a bullish shift over the mid-term for the June contract, and rallies beyond 1400 could signal a longer-term recovery. Failure to move beyond 1350 could result in a continuation of the downtrend, possibly signaling that the market will confirm the bearish wedge continuation pattern’s measure of the low 1200’s. Support comes in at 1291.25, 1267.50 and 1250.75, while resistance can be found at 1331.75, 1348.50 and 1372.25.

Crude Oil – It appears that Oil traders are skeptical of the CPI report and stronger greenback as well, with April futures only posting minor losses in the early going. The tame report possibly signaling further expansionary policy by the Fed will likely continue to weigh on the Dollar, making commodities an even more attractive investment for overseas traders. The bias today seems to be neutral to lower, as profit-taking after this week’s run-up may rein in the market. We could see very choppy trading today due to a lack of fresh news. Yesterday’s candlestick formation showed much indecision among traders, which may hint at profit-taking in the near-term. The April contract is overbought on the 14-day RSI and slow stochastics, registering 73 percent and readings in the mid 90’s, respectively. Support comes in at 109.06, 107.79 and 106.82, while resistance can be found at 111.30, 112.27 and 113.54.

Gold – The CPI report has sparked some indecision among precious metal traders, resulting in little change in Gold prices this morning. The zero inflation report makes Gold somewhat less attractive as an inflation hedge, but the implications for the Dollar are bullish. April Gold may make another run at the $1,000, given the close proximity of the current price, but whether or not we can sustain a close above this level heading into the weekend remains to be seen. Yesterday’s move to new contract highs and rallies beyond the 1000.00 mark may be encouraging for traders. The April contract is now right at overbought levels on the RSI, registering 70 percent, which could hold back rallies. Support comes in at 983.80, 973.90 and 965.00, while resistance can be found at 1002.60, 1011.50 and 1021.40.

Rob Kurzatkowski, Commodity Analyst

March 17, 2008

Bear Stearns Shocks the Stock Market

S&P – A surprise announcement that JP Morgan Chase will be buying Bear Stearns for $2 a share rocked stock index futures. The news underscores the vulnerability of banks, which have been speculating on high risk mortgage investments. In its boldest move yet, the Fed is providing financing for as much as $30 billion of non-liquid assets owned by Bear. Furthermore, the central bank will eat any losses associated with the sale of these assets, which include a large number of mortgage-backed securities. The news will probably weigh on the stock market for the remainder of the session – particularly financials and banks, which are sharply lower in pre-market trading. The June e-mini S&P chart continues to look like a disaster, taking out both the relative and contract low. The market has not yet attained the measured move of the bearish wedge formation, which hints at low 1200’s as its target. Support now comes in at 1252.00, 1211.00 and 1169.00, while resistance can be found at 1335.00, 1377.00 and 1418.00.

Crude Oil – The energy sector is sharply lower on the fire sale occurring in the equities market. The trouble in the banking sector has some very ominous implications for both the corporate sector and consumers, with banks likely to continue being stingy in providing financing. Home values are likely to plummet and the loss of wealth will likely lead consumers to be much more conservative with their spending, which will impact the U.S. economy and possibly China. The market may begin moving more in line with fundamentals, especially if the overseas and fund money that has been flowing into the market begins to ebb. Wariness among shorts – after getting burned so many times during Crude’s historic ascent – may keep the market from completely collapsing unless they can muster the fortitude to test the waters once again. The lows reached by the April contract were flirting with forming a bearish engulfing pattern on the chart. There does appear to be solid support in the 103-104 area, but failure to hold this area could result in the market falling well below the 100.00 mark.

Rob Kurzatkowski, Commodity Analyst


March 18, 2008

Stocks Rebound Ahead of Fed Decision

S&P – Stock index futures are sharply higher this morning on expectations that the Fed will lower interest rates later today. The Fed’s quick action on the Bear Stearns meltdown seemed to have eased some of the worries regarding the banking sector, but the move could have set a dangerous precedent. If the central bank is going to bail out banks that have made poor decisions, there is little incentive to back off from engaging in risky ventures and trades. This morning’s PPI numbers showed inflation increasing briskly, which may put producers in a tough spot. They have to pass the rising costs on to consumers to remain profitable, but doing so may decrease sales due to economic conditions that are shaky at best. Inflation may continue to ramp up after today’s Fed decision, as funds and overseas investors may continue to divert capital into commodities. Fed Fund futures are pricing in a 90 percent chance of a 100 basis point cut and a 10 percent chance of a 10 percent cut. The June e-mini S&P chart remains bearish, despite yesterday’s spinning top followed by a strong morning. The chart has duped traders several times into thinking we have hit a bottom in the past two months, so it may take a significant upward move to restore confidence. Advances beyond 1340 would be encouraging in the near-term, but we may have to see prices move beyond 1400 before longs begin buying in full force. Support comes in at 1250.25, 1221.00 and 1189.25, while resistance can be found at 1311.25, 1343.25 and 1372.25.

Copper – The Copper market has recovered slightly this morning after dropping 15 cents yesterday. LME stockpiles continue to diminish, which has been the trend since the beginning of the year. Emerging market demand for the metal remains steady, but lacks the strength to support the sharp rise in prices since the market bottomed out in December. A rate cut could once again bolster commodity prices, but this positive news could be tempered by a decrease in building permits, which came in at 978,000, well short of the consensus estimate of 1.02 million. The upward revision in both housing starts and building permits for the month of January is somewhat encouraging, but not enough to convince traders that we are nearing the light at the end of the tunnel in the housing meltdown. Yesterday’s sharp sell-off in the May contract confirmed a downward breakout from a bearish consolidation pattern and drove the market below support at 3.75. Momentum continues to move lower despite the rise in prices, hinting that the market is continuing to lose strength. Support comes in at 3.5935, 3.5065 and 3.3635, while resistance can be found at 3.8235, 3.9670 and 4.0535.

Wheat – Wheat futures bounced back slightly in overnight trading after closing yesterday’s session limit down. Yesterday’s broad sell-off in commodities dragged the grain markets down, which could be seen in two different lights. On one hand, traders may believe that a sharp economic downturn coupled with tight lending could slow demand. On the other hand, traders may have pulled funds from commodities to make investments in the equity and treasury markets, indicating that we maybe approaching a bottom in the stock market and the Dollar. The first scenario has the potential to drag down commodity prices across the board and lead to more “normal” recessionary conditions of no growth and slow demand, while the second scenario could be supportive for the grain markets longer-term, as it hints at sustained demand. Time will tell which one of these scenarios will in fact play out. May Wheat bounced off of its uptrend line, suggesting the trend remains in tact for the time being. Breakdowns below1080 could confirm a double top formation and possibly a trend reversal. Support comes in at 1164.50, 1088.75 and 1046.25, while resistance can be found at 1282.75, 1325.25 and 1401.00.

Rob Kurzatkowski, Commodity Analyst

March 19, 2008


Crude Oil – An expected build of 2.3 million barrels has sent the Oil market lower in the early going. If inventories come in as expected, it would mark the ninth build in the past ten weeks. Despite economic uncertainties and an amply supplied market, Crude Oil has made a dramatic rise since August, primarily due to a tumbling Dollar and booming emerging markets. Due to the Dollar play, the market may be susceptible to selling pressure tied to the weak fundamentals. A larger-scale recovery in the stock market could also pull funds from the commodity markets, but a reversal in the greenback’s downtrend may be needed to bring the energy markets back in line with reality. Despite the sharp sell-off on Monday, no major chart damage was done and the May futures rebounded strongly from support near 102.00. The bearish crossover on the slow stochastics coupled with overbought conditions prior to the sell-off point toward possible weakness or consolidation in the near term. Support comes in at 105.53, 102.55 and 100.87, while resistance can be found at 110.19, 111.87 and 114.85.

Gold – The smaller-than-expected Fed rate cut continues to weigh on the Gold market in the early going. While the cut points toward a weaker U.S. currency, many currency and precious metals traders were pricing in a full point, leading to long liquidations. Today’s EIA energy inventory data will be closely watched by precious metal traders, with larger-than-expected inventories possibly further depressing prices in the near term on the thinking that inflation may not increase at the previously expected pace. April futures continue to drift toward the 960.00 support area on the chart. If the contract cannot hold this key support area, the market may see heavier long liquidation selling pressure and possibly even the emergence of shorts. Support comes in at 961.60 and 946.30, while resistance can be found at 1019.50, 1034.80 and 1056.10.

Dow – Stocks were strong through the entire session yesterday and rallied late to close near intraday highs, despite a smaller rate cut than the market was anticipating. A solid earnings report prior to the bell by Goldman Sachs set a positive tone for the day, as did the quick response from the Fed to the Bear Stearns crisis. Lehman Bros. profits tumbled, but the company remains solvent for the time being. Lehman seemed to be pegged as the next financial institution that could go under due to the subprime crisis, so the news was received as positive for financials. Adding to the collective sigh of relief after the Bear fiasco, Morgan Stanley posted record sales and trading revenue. Fannie Mae and Freddie Mac were cleared by regulators to purchase an additional $200 billion in home loans, which could aid the housing market. The cash Dow Jones index confirmed a W bottom formation, indicating the cash index could challenge resistance around 12,750 (12,770 in the June futures). This is by no means an indication that the market has completely turned around, but can be seen as a positive near-term signal. Support for the June futures comes in at 12127, 11849 and 11710, while resistance can be found at 12544, 12683 and 12961.

Rob Kurzatkowski, Commodity Analyst

March 20, 2008

Fire Sale

Gold – Gold futures are sharply lower once again on a broad commodity sell-off, which has been as swift as it has been brutal. Commodity markets may have gotten ahead of themselves, with prices driven up by speculation that supplies for raw materials will be tight and inflation will remain high, but without enough concrete evidence supporting these opinions. One also has to weigh the Bear Stearns meltdown into this mess, as Bear was a large player in the derivatives markets whose client base included many hedge funds, which may now be liquidating positions and adding fuel to the sell-off. The timid rate cut this week disappointed Gold traders and has led to a recovery in the Dollar Index, which is still not out of hot water. This week's Commitment of Traders (COT) report may clear up whether this is simply a long liquidation or if new shorts are indeed entering the market. Yesterday’s sell-off did some chart damage for the April contract, tumbling through support at 960 and 950. The market's ability to hold above 900 – the next relative low – after testing this area is somewhat encouraging. The market is now very oversold, which could bring some value buyers into the market and may result in some short covering.

Wheat – Wheat futures are sharply lower once again after finishing yesterday’s session limit down. The rebound in the Dollar has made Wheat more expensive to importers of U.S., which may slow demand. Commodities have lost their appeal as an inflation hedge, especially if a global slowdown looms. Fundamentally, not much has changed in the grain markets on the supply side or expected acreage figures, which are both price-supportive. Yesterday’s weak close signals a double top formation on the daily chart, suggesting the possibility that more downside lies ahead. A solid close below the $10 mark in the May contract would offer further confirmation.

Rob Kurzatkowski, Commodity Analyst


March 24, 2008

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March 25, 2008

Quiet Before The Open

S&P – Stocks posted solid gains yesterday on news that JPMorgan is increasing its bid for Bear Stearns and an unexpected rise in existing home sales. The better-than-expected home sales data has traders cautiously optimistic that we may be seeing a light at the end of the tunnel in the housing market crisis. Some of this bullish enthusiasm has waned in overnight trading, with futures posting only slight gains. Bank of America was downgraded by Merrill Lynch due to increasing loan delinquencies and the possibility that further write-downs are forthcoming. Today's only economic release is consumer confidence, which is expected to show a decline to 73.4 from 75.0 in February. Today's trading will likely be choppy and indecisive, with stocks vulnerable to selling pressure after the run-up over the last two sessions. The June e-mini S&P chart confirmed a W bottom formation, opening the door for more upside, possibly toward the 1400 mark. Momentum has moved lower this morning and is showing bearish divergence from both price and RSI, hinting that the bullish breakout could be a false signal. Support comes in at 1330.75, 1309.75 and 1294.50, while resistance can be found at 1367.00, 1382.25 and 1403.25.

Crude Oil – Despite the bounce in stock prices, Crude Oil futures have closed lower in five of the past six sessions on expectations that the U.S. economy will continue to falter. Fundamentals have been weak, but the recent selling pressure can largely be attributed to long liquidation, especially from overseas investors. The falling greenback has been the driving force behind the rally to new all-time highs in Oil, but the currency has managed to reverse course in recent sessions, helping spark the recent commodity exodus. Outside markets – especially precious metals – have put downward pressure on the energy market due to an extremely high volume of margin calls forcing traders out. Last week's EIA report was extremely bullish on the surface, but in reality it was not as supportive as a first glance would indicate. Demand for gasoline fell for the first time in over a month and the large drawdowns in gasoline and distillates could be attributed to lower refinery use. This week's inventory data may show a much larger-than-expected build in Crude Oil inventories considering the numbers in last week's report don't seem to add up. The May Crude chart shows a possible bear flag forming, suggesting further sell-offs toward the mid-90's are possible. Closes above 102.60 can be seen as bullish in the near term and a close above 105.00 could signal a new test of contract highs. Support comes in at 99.73, 98.61 and 97.26, while resistance can be found at 102.20, 103.55 and 104.67.

Wheat – Wheat futures are higher for the second consecutive session, aided by news that South Korea is removing tariffs on imports of the grain to curb inflation in food prices. High prices and the reversal in the exchange rate of the Dollar have weighed on Wheat prices in recent sessions. Governments may be looking to import more heavily in the near term in a bid to keep food inflation in check, but this may not last if the greenback is able to continue its recovery. The May Wheat chart confirmed a double top pattern and the rallies of the past two sessions look like consolidation due to some short covering. Momentum is sharply lower, outpacing both price and RSI, and signaling the likelihood of further corrections. Recent lows are near 980, which is solid support, and closes below this level could signal a reversal of Wheat's up-trend. Support comes in at 984.25, 948.50 and 909.50, while resistance can be found at 1059.00, 1098.00 and 1133.75.

Rob Kurzatkowski, Commodity Analyst

March 31, 2008

Buckshot in the Golden Goose?

Gold – After selling off sharply on Friday, the Gold market has managed to post modest gains in overnight trading on lower equity prices. Friday's PCE Inflation report showed much tamer inflation than previously thought, leading to heavy selling pressure. Lower energy prices combined with stabilization in stock prices and the U.S. Dollar have made Gold somewhat less attractive as an inflation hedge and investment vehicle. The lingering effects of the weak U.S. economy and Crude Oil prices north of $100 a barrel have prevented a larger-scale sell-off in precious metals, and longs seem to be waiting on the sidelines waiting for a recovery in commodity prices. A broad sell-off in commodities in recent weeks – namely in grains and softs – has put heavy downward pressure on the market. The June Gold chart shows that the market remains vulnerable to selling pressure. After making all-time highs on March 17th, prices have collapsed over a three-day period, followed by consolidation. Closes below Friday's low of 928 and 910 would be considered bearish in the mid-term, while advances above 960 could signal a reversal of recent bearish action. Momentum is showing bearish divergence from the RSI, hinting at further weakness. Support comes in at 924.20, 911.90 and 895.90, while resistance can be found at 952.50, 968.60 and 980.80.

Crude Oil – Oil prices are lower for the second consecutive session on news of a truce offer from radical cleric Moqtada al-Sadr, which has eased supply fears in Iraq. The key Basra pipeline was damaged by militants on Thursday, but was repaired by Friday. The truce offer from the cleric will not completely ease tensions over the Iraqi oil supply, and the attack underscores the vulnerability of the country's production capabilities. Recent economic data suggests that the U.S. economy is far from being in recovery mode, which could put further downward pressure on prices. Despite the U.S. slowdown, the past two inventory reports showed larger-than-expected declines in petroleum products and much smaller builds in Crude Oil. The reversal in the trend of large inventory builds and the vulnerability of the greenback suggest that prices could find solid support for the foreseeable future. Technically, the inability of the May contract to attach previous highs is somewhat discouraging, but the market does appear to be forming a bull flag pattern. If confirmed, the bull flag could indicate the market is ready to attack previous highs. Support comes in at 104.34, 103.06 and 101.42, while resistance can be found at 107.26, 108.91 and 110.18.

Rob Kurzatkowski, Commodity Analyst


Stocks Jump, Gold Melts Down on PMI Data

Stocks reacted favorably to the Chicago PMI report, which registered a 48.2, trumping consensus estimates of 46.0 percent. The news triggered a six-point jump in e-mini S&P futures and Gold futures pared earlier gains, as the precious metals market loses some of its luster as a safe haven. Signs that economic conditions are improving could have a negative impact on Gold, as traders have priced in further rate cuts, which may not be necessary to stimulate the economy. While the report was better than expected, it still indicates that the economy is contracting, but perhaps at a slower pace than previously thought. Traders will keep a close eye on tomorrow’s release of the ISM Manufacturing Index, which could offer further confirmation that economic conditions will be improving. If the ISM report contradicts the PMI report, today’s data could simply be taken as a slight regional improvement.

Rob Kurzatkowski, Commodity Analyst

Paulson’s Comments Indicate More Fed Oversight

Treasury Secretary Henry Paulson’s proposed plan to overhaul the financial system would include increasing the Fed’s powers. While saying that further regulation is not the answer, Paulson sent mixed signals by expanding the Federal Reserve’s powers to include regulating non-traditional banks – such as investment banks – and creating new bodies to regulate the mortgage industry. The timing of the new plan is interesting considering the Fed’s recent bailout of Bear Stearns – an investment bank. This bailout sent up a potentially troubling signal – large financial institutions have little disincentive to steer clear of risky investments, knowing that if they get into too much trouble, the government will be there to offer liquidity.

Tighter mortgage regulation may ultimately be in the best interest for home buyers, especially if regulators crack down on unscrupulous lenders or mortgage brokers who get borrowers into loans that are not in their best interests. In the short term, however, this may make the credit markets even more restrictive and ultimately drag out the housing crisis. Rates are at multi-year lows for mortgages and home loans, but lenders have become much more selective about who gets those loans, and many consumers are not seeing these low rates quoted. Down the road, this reform will not only be better for the consumer, but may ultimately save banks from themselves and ensure that loan portfolios are much more sound.

Incorporating the CFTC into the SEC has been something that the government has wanted to do for some time, but up to now it has had little luck in persuading the CFTC to cave in and essentially fire itself. A merger between the two regulating bodies would benefit clients of optionsXpress and similar firms by opening up the cross-margining of equities and derivatives. This would allow customers that have reduced their risk exposure by hedging to have more free capital to use on new investments. Also, fewer regulatory hurdles would likely encourage exchanges to create new financial instruments.

While Mr. Paulson’s plan aims to streamline financial regulators to make them better able to adapt to financial crises, it looks as though it would simply change nameplates and have very little impact on consumers. The plan may help prevent a credit crunch in the future, but offers no plans to help the current situation. It is also likely that the stronger points of the plan will be watered down when Congress gets through with them. The Federal Reserve has already flexed its muscles and expanded its roll in the financial markets recently, not only with the bailout of Bear Sterns but by working with other central banks to help soften the blow of the subprime bailout. Better regulation of lending practices and consolidation of equity and commodity regulators will ultimately benefit consumers if put into place, but the rest of the financial regulation may not hit its intended mark.

Rob Kurzatkowski, Commodity Analyst