Waiting
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
