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April 2008 Archives

April 1, 2008

April Fools' Gold

Gold – Gold prices continue to tumble on broadly lower commodity prices and a higher U.S. Dollar. Subprime write-downs by European banks have led to a stronger greenback, which could find further support if the ISM number comes in better than expected. Funds have significantly reduced the size of their positions in commodities, putting pressure on the precious metals market. Even today's indication by ETF Securities LTD that Gold investment with the firm has exceeded 1 million ounces has not been able to stop the slide. Recovery in the U.S. equity markets could further pressure prices, negating Gold's “flight to quality” effect. The June Gold chart confirmed a bearish consolidation pattern yesterday, signaling the market may be ready to test lows near 860. Momentum has shown bearish divergence from RSI, suggesting the possibility of further weakness. Support comes in at 910.50, 899.50 and 881.90, while resistance can be found at 939.10, 956.70 and 937.70.

S&P – Stock futures are trading higher this morning, despite UBS and Deutsche Bank both increasing their subprime write-downs. Some market observers believe the market is beginning to see the light at the end of the tunnel in the credit crisis. News that Lehman Brothers and UBS are raising new equity was seen as a positive sign that these companies' problems are nearing an end. Traders are awaiting today's release of the ISM manufacturing data after yesterday's surprising Chicago PMI report. Analysts are forecasting the index to register a 47.5 percent reading, which would be a signal that the economy is contracting. A stronger reading – especially above the key 50 percent mark – would be seen as a positive sign and could result in a strengthening U.S. Dollar on expectations that the Fed will not have to be as aggressive with rate cuts. The technical landscape for the June e-mini S&P contract looks to be improving. After confirming a W bottom formation, the daily chart shows a bullish consolidation pattern, which may bring about a test of relative highs at 1392.50 and 1402.50. Momentum has been outpacing RSI, suggesting near-term strength. Support comes in at 1312.25, 1300.25 and 1291.25, while resistance can be found at 1333.25, 1342.25 and 1354.25.

Wheat – Wheat prices continue to tumble on news that farmers will increase their spring plantings of the grain by 7.8 percent. Fund liquidation has driven the July contract down by over three and a half dollars from contract highs, fueled by speculation that global supplies will not be as stressed as they have been over the past two years. The stabilization of the greenback, or rather its inability to make new lows, may be a sign that the currency is ready to recover, which could significantly hurt exports. The July Wheat chart remains bearish. After reversing sharply from contract highs, the chart shows the contract violating a triangle pattern that measures a move to relative lows at 893.75. Failure to hold this level could result in further liquidation and may result in a reversal of the uptrend. Support comes in at 909.25, 881.75 and 827.25, while resistance can be found at 991.25, 1045.75 and 1073.25.

Rob Kurzatkowski, Commodity Analyst

April 2, 2008

Big Ben, IMF Report in Focus

Dow – Stocks posted strong gains yesterday, with the Dow recording a gain of over 300 points on a stronger-than-expected ISM number and signs that the subprime fiasco may be nearing an end. Futures have retreated in overnight trading on a lower growth forecast for the U.S. economy from the International Monetary Fund, which reduced its outlook to 0.5 percent for the year. More troubling than the U.S. outlook, however, is the fact that the IMF slashed its global growth outlook to 3.7 percent from 4.1 percent and suggested that there is a one in four chance of a global recession. Today's factory orders report is expected to show a drop of 0.8 percent, which is also weighing on the market early. Traders will focus most of their attention, though, on the testimony of Federal Reserve Chairman Ben Bernanke before the Joint Economic Committee, which is his first such engagement since the proposed financial oversight plan was laid out. The Fed has worked overtime to try to keep banks and the credit markets liquid and his testimony on these subjects will be keenly watched. June mini Dow futures broke out of a sideways-to-lower consolidation pattern on the daily chart and closed above the near-term relative high close. This suggests a possible test of the next relative high of 12722, with a close above this level possibly signaling a longer-term recovery. Support comes in at 12330, 12032 and 11870, while resistance can be found at 12790, 12952 and 13250.

Gold – Gold futures jumped this morning on the IMF report, which signals weakness in the global economy and makes the metal appealing once again as a “safe haven” investment. The report was especially skeptical of the U.S. growth outlook, sending the greenback lower and commodity prices higher. Gold has had its share of struggles recently due to the recovery in the equity markets, which along with a slight rebound in the Dollar has pulled capital away from commodities and led to a collapse in Gold prices. Failure to make further advances in the major stock indexes could result in a recovery in precious metal prices. If economic data continues to surpass analyst expectations and the U.S. economy shows signs of recovery, it could lead to a larger sell-off in Gold, as traders would continue to pull their funds out of commodities and buy equities. Also, this scenario could lead to a larger-scale recovery in the U.S. Dollar, resulting in overseas money leaving the precious metals market. The daily June Gold chart shows a bearish reversal from contract highs, but has not given an indication of bear market conditions to this point. Closes below 860 could signal that the bull run may be over, and sell-offs beyond 830 would signal a technical bear market. Support comes in at 867.50, 847.20 and 818.10, while resistance can be found at 916.90, 946.00 and 966.30.

10-Year Notes – Notes fell sharply yesterday, as money flowed into the equity markets at the expense of commodities and treasuries. The recent rebound in equity prices from lows has put some pressure on Note and Bond prices, leading to sideways congestion on the daily chart. Today's testimony by Bernanke will give traders better insight into the Fed's mindset and may give a clearer picture of what the central bank's interest policy may be in the near-term future. If the testimony is dominated by talk of inflation and recovery, it would likely be seen as bearish for interest rate instruments. On the other hand, if the session is marked by talk of economic uncertainty and the housing and credits crises, it would likely be seen as Bond and Note friendly. Yesterday's close below recent lows of 117-26.5 can be seen as bearish short-term, but June T-Notes have chart support at 117-14, 116-21 and 116-05 to buffer the downside. The 9-day moving average looks to be crossing the 18-day to the downside, which is a bearish signal short-term. Support comes in at 117-01, 116-11 and 115-10, while resistance can be found at 118-24, 119-25 and 120-15.

Rob Kurzatkowski, Commodity Analyst

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April 3, 2008

Crude Continues to Dance Around the Century Mark

Crude Oil – In early trading, Crude Oil has given up some of yesterday's strong gains on economic worries. Despite a substantial build in Oil inventories, futures rallied sharply on the much larger-than-expected drawdown in Gasoline inventories. Oil traders were also undeterred by a global economic downgrade by the IMF and Fed Chairman Ben Bernanke's testimony before Congress, where he stated that the U.S. economy is still at risk for recession. The IMF report reduced the expected growth rate of the U.S. economy from 1.5 to 0.5 percent, leading to a slide in the U.S. Dollar that helped contribute to yesterday's rally. This morning's trade has been marked by pessimism over the state of the global economy, which could quell demand for petroleum. The May Crude Oil chart looked as if it was going to confirm a double top, but yesterday's rally negated the pattern. If prices cannot break through the near-term high of 108.22 before selling off, it may signal vulnerability at the 100.00 mark. Oil bulls seem to start value buying when the market flirts with the century mark, but if the May contract cannot hold these levels a larger correction may loom. Support comes in at 101.41, 98.00 and 96.15, while resistance can be found at 106.67, 108.52 and 111.93.

Silver – Silver futures are slightly higher in early trading, but do not seem to be able to build on yesterday's momentum. Lack of follow-through buying in energies has weighed on the precious metals market, as has the recent strength of the U.S. Dollar. Despite indications that the U.S. economy is cooling and relatively dovish testimony from Ben Bernanke, recent weakness in precious metals underscores how much the Dollar weakness contributed to the sharp rise in commodity prices. Even though economic fundamentals suggest that Silver would be a “safe haven” investment, the strength of the greenback has held price advances in check. Tomorrow's non-farm payroll data will be keenly eyed by traders and further weakness in the labor market may result in the mindset that the Fed will again begin slashing rates with reckless abandon, which would likely be considered friendly to Silver. The daily May Silver chart shows that the market is vulnerable to selling pressure if prices cannot advance beyond the 18.685 mark. The chart shows the formation of a bearish flag pattern, which, if confirmed, could result in a test of the 15.50 support area. Momentum is showing bearish divergence from both price and RSI, suggesting near-term weakness. Support comes in at 16.755, 16.330 and 15.945, while resistance can be found at 17.565, 17.950 and 18.375.

Copper – Copper has given back about a third of yesterday's gains on a sharp increase in LME inventories. LME inventories jumped 500 metric tons, or half a percent. Shanghai inventories have also climbed over 4.5 percent for the week, showing a reversal in the de-stocking pattern that has taken hold since the beginning of the year. The economic uncertainties laid out by the IMF – suggesting we may be cooling on a global scale – and the greenback rally have weighed on prices in early trading. Copper has benefited from the tumbling greenback and reductions in LME and Shanghai inventories since the beginning of the year, but a reversal in these two trends may hold back prices. After trading sluggishly for over a week, yesterday's rally seemed to have shifted technicals to the upside, only to disappoint this morning. The market's failure to advance beyond the 4.00 mark could be met with selling pressure. Support comes in at 3.7990, 3.7210 and 3.6750, while resistance can be found at 3.9235, 3.9690 and 4.0475.

Rob Kurzatkowski, Commodity Analyst

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April 4, 2008

Job Contraction

S&P – The March Non-Farm Payroll report showed a loss of 80,000 jobs, underscoring the weakness in the labor market. The report included a downward revision of the February figure from a loss of 63,000 jobs to a loss of 76,000. The unemployment rate surged to 5.1 percent from 4.8 percent the prior month. Stock index futures sold off sharply immediately after the release of the data, but have bounced back to positive territory. While the recovery in the index futures defies common logic, traders may actually be pleased with the report, believing the Fed may continue injecting liquidity via rate cuts. Banking stocks got a boost in pre-market trading, which seems to go along with this mindset. Traders may also have been prepared for the report after yesterday’s large initial claims figure and are now looking beyond the report, hoping for an economic recovery later this year. If the market continues to move higher, the June e-mini S&P may show a breakout from a two-day bull flag pattern. A breakout could signal that the market may be ready to attack early February highs of 1402.50. Momentum continues to outpace both price and RSI, suggesting near-term strength. Support comes in at 1362.75, 1352.00 and 1344.50, while resistance can be found at 1381.00, 1388.50 and 1399.25.

Crude Oil – Oil futures have bounced back after selling spurred by the release of the payroll report. The demand outlook continues to look weak based on the data, but the possibility of a reversal of the recent upturn in the U.S. Dollar is friendly to commodities. The Oil market continues to play off of the currency markets instead of fundamental data. Even though the last two EIA reports were supportive of petroleum prices, the market is well off of highs because of the resurgence of the greenback. The daily and weekly May Crude Oil charts show consolidation and indecision. It is apparent when looking at the chart that there is reluctance to push prices beyond $110 a barrel, but at the same time, bulls seem to step up the buying pressure when the contract flirts with $100 on the downside. A breakout of this congestion will likely determine the direction of the market over the next several months after either the bulls or bears gain a decisive edge. Support comes in at 102.55, 101.26 and 99.32, while resistance can be found at 105.78, 107.72 and 109.01.

Bonds – Bond futures got a lift from the payroll report, as traders flocked to safer investments. While the report can be seen as very Bond-friendly, the implications for the U.S. Dollar may stymie treasury buying from overseas investors. Overall, the report could stop the recent slide in Bond prices. The solid economic data earlier this week hinted toward the Fed possibly pausing rate cuts, or at the very least being less aggressive with them. This report may change that mindset among traders. June Bonds found support at 117-00 and are currently trading above chart resistance at 118-23. Closes above 118-23 and 119-19.5 may be seen as bullish in the near term. Support comes in at 117-05, 116-25 and 115-28, while resistance can be found at 118-14, 119-11 and 119-23.

Rob Kurzatkowski, Commodity Analyst

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April 7, 2008

Optimism to Start the Week

S&P – Despite disappointing job data, equity futures start off the week on an upbeat note on news that Washington Mutual will get a cash infusion from investors. The Fed is said not to be involved in the plan to shore up capital, which is good news for lenders, as it shows that there are private sector investors who see value for mortgage lenders and may see risks mitigating. Merrill Lynch’s comments that the credit markets may be “past their worst” added to the bullish sentiment in financial stocks. Stronger Crude Oil prices have driven energy company shares higher in the pre-market hours. Yahoo offered a stern rejection of Microsoft’s recent offer, citing declining share prices of the Redmond giant, and stood strong against the threat of a proxy fight. The technical outlook for the June e-mini S&P has improved significantly over the past two weeks. If the June contract is able to rally past resistance at 1392.50 and 1402.50, it would be a strong longer-term sign for the market. Momentum continues to move sharply higher, outpacing both price and RSI. Support comes in at 1361.50, 1351.00 and 1337.75, while resistance can be found at 1385.25, 1398.50 and 1409.00.

Dollar Index – The Dollar is slightly higher this morning after posting losses the past three sessions. The optimism from the stock index futures seems to have spilled over to the greenback. While employment data may be a black cloud over the greenback, recent signs that the economy may be improving suggest the Fed may not have to cut rates as aggressively as previously thought. Technically, the June Dollar has made some progress, rebounding from all-time lows, but failure to attack recent highs at 73.50 to this point is somewhat discouraging and could lead to further consolidation. The pattern has shifted from a possible double bottom to an equilateral triangle, which could signal a sharp breakout in either direction. Momentum has moved higher, despite the selling pressure late last week, signaling a somewhat positive near-term bias. Support comes in at 72.09, 71.82 and 71.545, while resistance can be found at 72.635, 72.91 and 73.18.

Rob Kurzatkowski, Commodity Analyst

April 8, 2008

Metals Meltdown

Copper – Tumbling U.S. shares and a stronger Dollar have sent Copper futures sharply lower in early trading. Outside markets – namely precious metals and energies – and profit-taking have also weighed on Copper prices. Yesterday’s reluctance to break through the $4 mark, though not all that bearish technically, may have sparked some of the profit-taking. Despite last week’s somewhat positive economic data, many uncertainties remain for the U.S. economy, underscored by the terrible employment data last Thursday and Friday. The May contract remains bullish on the daily chart even though the market failed to break through the psychological $4 mark. A close below 3.87 may be seen as bearish near-term and could lead to further profit-taking. The market was overbought as of yesterday’s close and the slow stochastics crossed over to the downside, both of which can be viewed as negative in the near term. Support comes in at 3.94, 3.90 and 3.87, while resistance can be found at 4.01, 4.04 and 4.08.

Gold and Silver – The rebound of the greenback against the majors has weighed on the precious metals in early trading. Lower energy and food prices have cooled the inflation outlook, making precious metals less appealing as an inflation hedge. Fears of recession in the U.S. economy are not only pointing to tamer inflation, but may impact jewelry demand. If emerging economies like India and China that have caused an increase in jewelry demand falter, precious metal prices may feel more downside pressure. The IMF announcement that it is selling over 400 metric tons of Gold has dragged slightly on the market thus far and could potentially pressure prices to a much larger extent when the sale is made, especially if physical demand is weak at that time.

June Gold prices have rebounded after testing support at 880, but the chart indicates that the market is vulnerable after failing to hold advances beyond chart resistance at 930. Advances beyond 930 and 945 may be needed to attract buyers, but the near-term relative high of 959.60 may offer stout resistance. Support for June Gold comes in at 916.20, 905.70 and 896.90, while resistance can be found at 935.50, 944.30 and 954.80

The May Silver chart continues to show weakness, but the market’s ability to hold support at 16.850 is somewhat encouraging. After breaking down further than the double top’s measure, the market has twice closed below the $17 mark only to rebound in ensuing sessions. A close above the relative high close of 18.55 may shift the technical bias to the bulls, while a solid close below 16.85 could signal more downside, possibly even triggering moves below $15. Support comes in at 17.805, 17.49 and 17.25, while resistance can be found at 18.36, 18.60 and 18.915.

Rob Kurzatkowski, Commodity Analyst

April 9, 2008

Crude, Products Pop on EIA

Today’s EIA report showed a surprise drawdown of 3.2 million barrels in Crude Oil inventories versus expectations of a 2.5 million barrel build. Further bolstering the bullish Oil data, gasoline and distillate inventories both dropped by much more than expected. Given MasterCard’s report indicating gasoline demand has fallen more than 6.8 percent from the same period last year, the data suggests what many had suspected – while OPEC has not officially cut quotas, individual member nations may be curbing exports to avoid a supply glut. The report really threw a red cape in front of the bulls, with prices surging over two dollars thus far. There is a decent chance that Oil prices will set a new intraday record, but whether or not the market is able to hold above these new record highs remains to be seen. Former Fed Chairman Greenspan’s comments that the U.S. economy is probably in a recession right now has pushed the greenback lower, further supporting commodity prices in general.

Rob Kurzatkowski, Commodity Analyst

April 16, 2008

China Sparks Raw Materials Rally

Crude Oil – Oil futures are little changed ahead of the weekly inventory report, which is expected to show a rise of 1.8 million barrels of Crude Oil, while gasoline and distillate inventories have forecasted drawdowns of 1.7 and 1.5 million barrels, respectively. News that China’s economy grew at a brisk pace of 10.6 percent, and that the world’s second largest petroleum consumer is expected to increase diesel imports by 50 percent in May, could support prices even in the event that the inventory report is perceived as bearish. Reports that Mexican ports have re-opened after bad weather forced closures may be seen as negative for prices. Yesterday’s sharp rally validated a bullish pennant continuation pattern on the daily chart, signaling a positive near-term bias. Momentum continues to climb this morning, despite the sluggish price action, further bolstering positive technicals. Support comes in at 112.37, 110.94 and 110.09, while resistance can be found at 114.65, 115.50 and 116.93.

Copper – Copper futures have jumped almost three percent in early trading on the stellar Chinese GDP figure. The sharp growth rate, combined with a large reduction in inventories over the past four months, has more than offset housing and manufacturing weakness in the U.S. In addition to China, other emerging nations such as India, South Korea and Russia have invested heavily in new infrastructure, fueling price growth. Even with today’s rally, the May Copper chart remains congested. Closes above prior highs of 4.04 would signal a technical breakout and might force shorts to cover. Momentum is outpacing both price and RSI, suggesting the market may be ready to test contract highs. Support comes in at 3.83, 3.79 and 3.75, while resistance can be found at 3.91, 3.95 and 3.99. The May contract has already rallied through the first two resistance areas this morning.

Rob Kurzatkowski, Commodity Analyst

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April 17, 2008

Standard & Poor's (Earnings, That Is)

E-mini S&P – Stock futures have given back a third of yesterday’s gains on weak earnings data from blue chips Pfizer, Merrill Lynch and Nokia. Nokia’s earnings fell short of street estimates for the current quarter, and the mobile phone bellwether lowered its guidance for the latter part of the year. Merrill posted a large quarterly loss of $1.96 billion, which was not entirely unexpected given the current banking climate. The Wall Street giant plans to write off an additional $6.5 billion of bad debt and reported a 40 percent drop in investment banking fees. On a positive note, IBM posted a 26 percent rise in profits and increased its earnings outlook for the remainder of the year. Recession fears still dominate trading and most of the recent buying has come on breaks, as investors try to scoop up stocks at bargain prices. The near-record price of Crude Oil and sharp increase in food prices may cause the Fed to re-think its current rate-cutting strategy. Today’s Initial Claims report showed an increase in jobless claims, but fell short of street estimates. The prior week’s claims were revised down by 12,000, which is somewhat encouraging.

June futures continue to trade in a sideways congestion pattern on the weekly chart and are now trading at the middle-to-upper end of the range. Weekly momentum studies have been falling – despite futures being higher for the week – and are currently showing bearish divergence from the RSI. This suggests that near-term highs around the 1390 mark may offer stout resistance. The daily chart shows that the rally may not have run out of steam yet. Stochastic and RSI indicators are neutral for daily and weekly timeframes.

Rob Kurzatkowski, Commodity Analyst

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April 18, 2008

Market Googled

S&P – Stock index futures got a lift after Google beat the Street and defied earlier reports that its paid click business was cooling. The company posted profits of $4.84 a share (excluding special items) versus analyst estimates of $4.55 a share – news that sent the company's stock as much as $80 higher in extended hours trading. Citigroup reported a loss of $5 billion for the quarter due to write-downs of $12 billion and a 48 percent decrease in revenues. While the loss of $1.02 a share missed Street estimates of a $0.95 loss, the company will continue to “divest non-strategic assets," according to CEO Vikram Pandit, meaning the company will try to package and sell its more risky investment products. Investors took news of Citi going back to its core business as a positive and shares were higher in European trading. Dampening the relatively upbeat Citigroup announcement, analysts have suggested that Merrill Lynch may need a capital infusion to stay afloat, citing the fact that the company has already used up most of the capital it raised in 2007. With no major economic releases, corporate earnings and option expiration may lead to volatile, choppy trading for much of today's session. June e-mini S&P futures have flirted with near-term highs at 1389 in early trading, but closes above 1402.50 may be needed to spark extended rallies. Momentum is starting to turn lower despite today's rally, suggesting it may be running out of steam. Support comes in at 1362.25, 1352.50 and 1346.25, while resistance can be found at 1378.50, 1384.50 and 1394.25.

Eurodollars – Eurodollar futures are lower for the fifth consecutive session on technical weakness and changes in interest rate outlooks. Interest rate traders have shifted their outlook on Fed policy this week, with the rate cut bias going from half a point down to only a quarter point. With energy and food prices rising at their fastest pace in 17 years, the central bank may be forced to address the inflation issue, meaning less aggressive interest rate policy. The sharp rise in commodity prices can be directly attributed to two factors: tight supplies and a weak U.S. currency. While the Fed can do little to address the first issue, moderation of its recent aggressive rate-cutting policy can lead to stability in the greenback and aid in slowing down the commodity freight train. June Eurodollars broke support at 97.26, which has aided in accelerating the downside move. The next significant chart support areas are found at 96.835 and 96.40, suggesting further declines may be possible. Momentum has begun to move lower at a slower rate that the RSI, suggesting the market may find some stability in the near term. Support comes in at 97.0250, 96.9275 and 96.7925, while resistance can be found at 97.2525, 97.3875 and 97.4825.

Crude Oil – Oil futures are lower this morning on profit-taking and stabilization in the U.S. Dollar. Here too, the possibility that the Fed may begin backing off of its aggressive rate cutting strategy in order to shore up the slumping greenback can be viewed a negative for energy prices. On the other hand, fundamentals have improved recently and the driving season is beginning to approach, making a price collapse in energy prices unlikely in the near term. Technically overbought conditions and lack of fresh news has led to profit-taking over the past two sessions. Momentum remains flat – despite the market being lower this morning – suggesting near-term strength. Support comes in at 114.15, 113.45 and 112.75, while resistance can be found at 115.55, 116.25 and 116.95.

Rob Kurzatkowski, Commodity Analyst

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April 22, 2008

Crude $120?

Crude Oil – Oil prices reached a new milestone in early trading, briefly breaking through the $118 mark for a barrel. Shell Nigerian operations were disrupted due to stepped up attacks on pipelines – the Oil giant indicated that the attacks have reduced production by 169,000 barrels a day. Further bolstering prices, the union at a Scottish refinery in Grangemouth has threatened to strike, which could further put the squeeze on UK supplies. The Dollar is also trading lower against most of the majors, helping to support higher price levels. Oil fundamentals remain bullish ahead of the official start of the driving season. While demand has been lackluster, gasoline supplies remain somewhat tight at the moment, with analysts forecasting tomorrow's EIA number to show another drawdown in inventories. The daily Crude chart remains bullish, but the market is now in technically overbought conditions, which could spark some profit-taking later this week. Momentum has moved lower this morning – despite the market being higher – suggesting the trend may be weakening in the short term. Support for the June contract comes in at 115.42, 114.21 and 113.41, while resistance can be found at 117.43, 118.23 and 119.44.

Gold – Gold prices are slightly higher this morning on a weak greenback, but prices for the precious metal are well off of overnight highs. The Gold market has not been able to mount a sustained rally after reversing sharply from all-time highs. It looks as though some money has flowed back into the equity markets and that energies have stolen Gold's thunder. The inability of food commodities to hold rallies and worries that the Fed may address the inflation issues facing the U.S. have tarnished the appeal of precious metals as an investment vehicle. Next week's policy statement from the FOMC looms very large for the metal prices, with mentions of inflation and/or restrained rate cuts being bearish for prices. The June Gold chart shows a coiling congestion pattern, which points to a great degree of indecision among traders. The recent failure to make a run at late-March highs can be seen as bearish. Since the mid-March breakdown, momentum has not been able to get above the zero line, indicating sluggish conditions. Support comes in at 91.40, 903.30 and 892.50, while resistance can be found at 928.30, 939.10 and 946.20.

Rough Rice – Rice futures continue to trade near record high prices on slow planting progress. Vietnam, China, Egypt and several other large rice producers made efforts to reduce exports, which has helped fuel this run-up in prices. Thailand, the world's largest exporter of the grain, has decided against curbing exports, stating that high prices will curb demand and eventually lead to stable prices. Thai officials indicated that they see exports falling as much as 30 percent by the end of the year due to the high prices. Rice is in the midst of a short-term supply squeeze similar to Wheat, which may result in increased plantings in the future. While fundamentals remain bullish at the moment, increased U.S. plantings could put some major downside pressure on prices if the weather cooperates. The July Rice chart remains bullish, but two consecutive spinning top patterns may be a sign that the market may be reversing course or consolidating in the near term. Momentum continues to move lower, even though the market is up in overnight trading, suggesting this booming commodity may have chinks in its armor. Support comes in at 23.21, 22.72 and 22.01, while resistance can be found at 24.40, 25.11 and 25.60.

Rob Kurzatkowski, Commodity Analyst

April 23, 2008

Tough Times to Come?

S&P – Stock index futures are lower this morning on credit concerns and the $1.66 billion loss posted by bond insurer Ambac. Financial stocks have suffered the bulk of the damage thus far, but Oil and mining stocks are not far behind on losses in energy and metal futures. Further adding to the bearish sentiment, Boeing, UPS and Delta have all posted disappointing earnings figures. Due to a lack of economic data being released, today's trading will be earnings focused and volume should be fairly heavy. If the petroleum inventory report comes out bearish for Oil futures, the market may be able to stave off these early losses. On the other hand, a bullish report could send the market spiraling lower by mid-session.

The June e-mini S&P chart shows some promise, hinting that the market may be prepared to test the upper end of chart congestion at 1402.50. The market has held up better than it previously had at these levels, suggesting some of the panic and paranoia over recession has dissipated and traders are now focusing on forward earnings guidance instead of current economic conditions. Momentum is showing positive divergence from RSI at the moment, which is bullish over the near term. Support comes in at 1370.75, 1060.75 and 1050.75, while resistance can be found at 1390.75, 1400.75 and 1410.75.

Euro – The Euro is lower this morning on profit-taking and comments from ECB member states voicing their displeasure in the Dollar's sharp drop. The Eurozone may be forced to raise interest rates despite the credit crisis, which would likely lead to an even stronger Euro in the near term. A strong Euro would make EU countries less competitive in the global marketplace, which could lead to a slowdown in economic activity and a significant drop in the currency down the road, similar to what has happened with the Dollar. The declines in the Dollar have been a hot topic of discussion for the EU, with some states favoring the position of a strong currency versus the greenback, while others pointing out the loss of competitiveness for member nations. The largely socialist zone already has very high labor costs, and a loss of this competitive advantage may be the straw that breaks the camel's economic back.

The June Euro chart remains bullish and has held above the 9-day moving average in early trading. The pattern has been higher highs and lows, but the momentum indicator has been moving lower since peaking in mid-March and is a lackluster +0.0082 at the moment. This indicates that the uptrend remains vulnerable to selling pressure, but no reversal pattern has appeared to signal a correction. Support comes in at 1.5848, 1.5733 and 1.5664, while resistance can be found at 1.6032, 1.6101 and 1.6216.

Crude Oil – Oil is trading slightly lower this morning on the stabilization in the U.S. Dollar and talks to head off a strike at the Grangemouth refinery. Today's EIA report is expected to show a build in Crude Oil inventories of 1.5 million barrels, but a decline of almost 2 million barrels of gasoline. The gasoline figure has been a big driver for the market over the past several weeks and a large drawdown will likely continue this trend. On the flip side, if gasoline inventories show a much smaller draw than expected or a surprise build, a profit-taking sell-off may ensue.

June Crude is signaling the possibility of a reversal from record-high prices, but technicals can largely be thrown out the window in the early going due to the EIA report. Momentum has taken a sharp turn south, outpacing the RSI indicator and price to the downside, a bearish sign. Support comes in at 116.35, 114.62 and 113.31, while resistance can be found at 119.39, 120.70 and 122.43.

Rob Kurzatkowski, Commodity Analyst

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April 25, 2008

Pipeline Shutdowns Spark Crude

Crude Oil – Crude Oil futures have pared over a third of yesterday's losses on two major pipeline shutdowns. BP is temporarily closing down the Forties Pipeline System – which supplies the UK with 40 percent of its Oil – due to the work stoppage at the Scottish Grangemouth refinery. Although the stoppage is said to be for only 48 hours, in reality it takes over a week to fully restart a pipeline. Militants in southern Nigeria have also sabotaged one of Shell's major pipelines, marking the second such attack this week. It appeared that the market was ripe for a profit-taking sell-off prior to the news of the shutdowns, but the market seems to keep finding fresh news to push prices higher over the past few weeks. Prices still may ease going into the close given the solid gains this week, which could indeed lead to profit-taking after all. The June Crude Oil chart was signaling a strong reversal possibility prior to today's rally. Yesterday's sharp sell-off followed the inability of the market to post solid gains on Wednesday which, when coupled with overbought levels, seemed to be pointing lower. Now it appears that June futures may continue their uptrend, provided we do not see a sell-off below yesterday's low of 114.25. Support comes in at 114.11, 112.15 and 110.06, while resistance can be found at 118.16, 120.25 and 122.21.

Gold – Gold futures are down once again this morning on the continued recovery in the U.S. Dollar. Investment in the yellow metal has been lackluster over the past several weeks, with investors forsaking commodities in favor of stocks. Traders are now betting that the Fed will at the very least pause rate cuts after next week's policy meeting, which does not bode well for precious metal prices. The rising cost of food may force the central bank to rethink its interest rate policy, especially with the increased press coverage that food inflation has received recently. This may cause some backlash against the Fed politically, as many analysts have partially blamed the bank for this phenomenon. The technical outlook for June Gold may be turning positive if the market is able to hold relative lows at 876.30. The market sold off to 880 in the early going before making a recovery, suggesting buyers are waiting for an opportunity to get in at relatively cheap prices. Momentum has made moves to the upside, diverging from price and RSI, and suggesting the possibility of a reversal. Support comes in at 880.10, 870.80 and 856.20, while resistance can be found at 904.00, 918.60 and 927.90.

Bonds – Bonds may be poised for their biggest three-day decline since early February and their biggest two-week loss in almost 26 years. With traders now thinking that the Fed may pause or completely stop cutting rates after next week's FOMC meeting, Bonds have suddenly lost their appeal. According to many experts, the worst of the credit crisis may have passed, which suggests the Fed will be much less aggressive in the future. The weak greenback only adds to the downside pressure for Bonds, with overseas entities shying away from U.S. treasuries because of the currency risk. June Bonds look bearish on the daily chart, having confirmed a downside breakout from a bearish pennant pattern on the daily chart. The breakout suggests that the market may test February 20th lows of 113-31. Support comes in at 115-13, 114-23 and 113-27, while resistance can be found at 117-00, 117-28 and 118-18.

Rob Kurzatkowski, Commodity Analyst

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April 29, 2008

Holding Pattern for Metals, Financials

Gold – June Gold is trading lower this morning on a rosier outlook for the U.S. Dollar. Tomorrow's FOMC policy statement is expected to be hawkish in nature due to the rising costs of food and energy, which should bolster the greenback. The weakness in the currency is the primary reason for the exponential rise in energy prices over the past year and a half, and the Fed has come under political pressure to stem the tide. Trading figures to be fairly light until the statement is released tomorrow afternoon, and the language of the report will likely be the focus of traders more than the actual rate decision. Any hints at future rate cuts can be seen as bullish for the Gold market. The June Gold chart shows that the market may be vulnerable to selling pressure, as we trade near major support at 880. Furthermore, the contract failed to get any traction from the spinning top pattern, suggesting further weakness. A positive technical development is the bullish divergence between momentum and RSI, which hints at recovery. Support comes in at 890.20, 884.80 and 880.90, while resistance can be found at 899.50, 903.40 and 908.70.

S&P – Stock index futures are slightly lower in overnight trading, dragged down by disappointing earnings from Visa. The company – which had the largest IPO on record – reported a 28 percent increase in profits over last year, but missed the almost unattainable earnings expectations of many. Today's consumer confidence and tomorrow's GDP figures will give traders a better grip on economic conditions, but trading will probably be light prior to the FOMC decision. The consumer confidence figure is expected to drop to 61.0, its lowest level in 14 years. The June e-mini S&P chart remains bullish near term, but the market is in for a test as we approach major resistance in the 1390-1400 area. Solid advances beyond the 1400 mark may signal a larger recover for the market, while a rejection suggests sideways-to-lower action for the market. Support comes in at 1392.50, 1387.25 and 1381.00, while resistance can be found at 1403.75, 1309.75 and 1415.00.

Corn – Corn futures continue to charge forward due to slower-than-expected planting progress. Only 10 percent of this year's crop has made it into the ground so far, well below the 35 percent average. Yesterday's USDA report slashed the acreage figure to 86 million acres from the prior estimate of 90 million acres. With acreage expected to come in much lower than last year, it is imperative that farmers get as much of the crop planted as early as possible to stay above the trendline yield. The December Corn chart remains bullish, spiking to open higher on the overnight session and making new contract highs. One technical damper is the bearish divergence between momentum and RSI, suggesting that the trend may begin to weaken. Support comes in at 618.50, 606.25 and 599.75, while resistance can be found at 637.25, 643.75 and 656.00.

Rob Kurzatkowski, Commodity Analyst

April 30, 2008

Oil Braces for EIA, Fed Announcements

Crude Oil – The Oil market is little changed ahead of this morning's EIA inventory data, which is expected to show a rise of 1.6 million barrels for the week. Once again the Crude Oil component of the report will take a back seat to gasoline inventories, which are expected to show a drawdown of 800,000 barrels. Tighter gasoline stocks have driven prices higher in recent weeks ahead of the summer driving season. The FOMC interest rate decision and policy statement released this afternoon will have longer-term implications for food and energy prices. A consensus of market observers is expecting a quarter point rate cut and a hawkish statement. A dovish statement, or one not perceived as very hawkish, may spark a late day rally, as it would signal the Fed will continue to take a soft approach to inflation. The June contract remains bullish on the daily chart, but Monday's spinning top followed by yesterday's sharp sell-off could signal a near-term correction. Momentum continues to outpace price and RSI to the downside, also signaling a possible reversal of the uptrend or stagnation. Support comes in at 114.12, 112.61 and 110.25, while resistance can be found at 117.99, 120.35 and 121.86.

Gold – Gold continues to tumble, falling another $7.00 in early trading. The precious metal has lost its luster as an inflation hedge of late, but could get a boost if the chain deflator component of today's GDP report shows higher inflation and/or if the Fed statement is seen as dovish. Gold may have a long, rocky road ahead if one of these two things does not happen. A large chain deflator number may work against precious metal prices if the central bank signals an end to cheap money. June Gold closed below support at 880, signaling a bearish downside breakout. Gold has stout support on the downside, suggesting sell-offs may be slow and drawn out rather than swift and brutal. Support comes in at 866.10, 855.50 and 840.60, while resistance can be found at 891.60, 906.50 and 917.10.

Rob Kurzatkowski, Commodity Analyst

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