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
