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
