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
