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
