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June 2008 Archives

June 24, 2008

Crude Continues to Climb

Crude Oil – A workers' strike in Nigeria and a plummeting dollar have led to higher petroleum prices in overnight trading. Militant attacks have already disrupted production by roughly 300,000 barrels a day in embattled Nigeria and the strike threatens to cut output by an additional 350,000 barrels a day. The U.S. Dollar, meanwhile, has given back a small portion of yesterday’s gains, helping to support Crude Oil prices in the early going. The market has largely shrugged off news that Saudi Arabia will be increasing production by 200,000 barrels a day, viewing it as a token gesture to appease U.S. politicians who have been lobbying the nation to open up the spigots. Supply disruptions have had much more of an impact on trading recently than any bearish news – such as the Saudi supply increase or China raising domestic fuel prices – underscoring the fact that this most recent rally has been driven largely by fear. These fears will likely continue given the current situation with Iran nearing a boiling point and the inability of Nigeria to get production back online. Technically, August Crude Oil continued to trade in a coiling congestion pattern on the chart, hinting at the possibility of an upside breakout on a new contract high close. Momentum is outpacing both price and RSI to the upside, adding to the bullish technical sentiment. Support comes in at 134.48, 132.22 and 130.39, while resistance can be found at 138.57, 140.40 and 142.66.

Gold – Precious metals started off the week on a sour note due to yesterday's sharp rally in the U.S. Dollar and heavy fund selling. The greenback has not been able to hold rallies beyond critical resistance areas but also has not suffered any significant setbacks, causing precious metals to remain in a holding pattern. If the Dollar is unable to gain any sort of upward traction in the coming days and weeks, it could embolden precious metal bulls on the thinking that the Fed will not be able to stave off inflation, at least in the near term. Heavy selling yesterday by funds was mainly due to the inability of the market to rally beyond near-term resistance. Given the economic conditions in the U.S. pointing toward stagflation and strong physical buying in the cash market, prices figure to find ample support north of the $850 area. That being said, the market may become vulnerable if the Fed is able to moderate inflation and/or energy prices somehow cool. August Gold has not been able to find a clear direction of late as stout near-term support and resistance areas have caused prices to ping-pong back and forth. Momentum has outpaced the RSI, suggesting a near-term positive bias. Support comes in at 873.20, 859.20 and 840.90, while resistance can be found at 905.50, 923.70 and 937.80.

Corn – Corn prices are lower overnight on dryer weather across much of the Midwest. Flood waters have yet to recede, but the dryer weather suggests that the worst has passed and growing conditions for some farmers will have improved when all is said and done. On the flip side, little is known about current crop conditions, as many of the flooded farmlands near the Mississippi River remain inaccessible. The floods may actually be a blessing in disguise for some farmers, as yields and crop quality may improve. December Corn remains within a stone’s throw of all-time highs, failing to suffer any major technical setbacks. Momentum and prices have leveled off in recent sessions, giving traders little in the way of near-term direction. Support comes in at 744, 729 and 720, while resistance can be found at 768, 776.50 and 791.25.

Rob Kurzatkowski, Commodity Analyst

June 25, 2008

Report Day

S&P – Stock index futures are higher in overnight trading on strength in European shares and hopes that today's FOMC policy statement will focus on curbing inflation. Many believe the central bank has focused so much of its attention on the credit market crisis and attempting to stave off inflation, that it has created an inflationary firestorm that constitutes the single biggest threat to the economy. Yesterday's consumer confidence figures give concrete evidence that consumers are having a difficult time grappling with higher food and fuel prices. As the prices of these necessities continue to climb, consumers are left with less purchasing power, making a recovery unlikely. While the Fed must take steps to bolster the U.S. Dollar in order to slow rising prices, weak economic data may prevent the committee from making an overly hawkish statement. In addition to the FOMC policy statement this afternoon, durable goods orders and new home sales data will be released in the morning. Durable goods orders, released at 8:30 AM EST, are expected to show zero growth following a drop of half a percentage point last month. New home sales, released at 10:00 AM EST, are expected to fall to 510,000 from 526,000 last month. Estimates for both of these economic indicators are low enough that an upside surprise may be more likely than one on the downside, which could set a positive tone for the market going into the FOMC statement. The September e-mini S&P formed a spinning top pattern on the daily chart, suggesting the market may get a bounce near-term. This view may be supported by the momentum indicator outpacing both price and RSI to the upside, which can be viewed as short-term bullish. Support comes in at 1304.50, 1293.50 and 1281.75, while resistance can be found at 1327.25, 1339.00 and 1350.00.

RBOB – Gasoline futures are slightly lower this morning ahead of the weekly inventory data, which is forecast to show a decline of 750,000 barrels. Demand for gasoline has been very weak given the state of the U.S. economy and rising costs. MasterCard's Spending Pulse survey indicated that demand for motor fuel was down 2.7 percent last week versus the same period a year ago, and the 4-week average of the survey is down 3.6 percent versus the same period last year. China, which has recently raised its subsidized fuel prices, has had strong fuel demand, leading to higher global prices. Traders will now focus on the Asian giant's demand figures to see if the rise in prices was simply a token gesture or if it will actually curb demand. RBOB prices could be susceptible to declines if global demand continues to cool and the greenback strengthens. Otherwise, the trend of rising prices may continue or, at the very least, stabilize at these high levels. The August RBOB chart shows that the market is consolidating and traders are uncertain of where the market will move next. Momentum is showing slight bearish divergence from RSI, suggesting that the market may be vulnerable in the short term. Support comes in at 3.4474, 3.4217 and 3.3919, while resistance can be found at 3.5029, 3.5327 and 3.5584.

Wheat – Wheat prices are higher for the second consecutive session on news that heavy rains have slowed the harvest. The sharp rise in Corn prices has forced Japan and South Korea to hike imports of Wheat to feed cattle. Japan, which is the world's largest importer of grains, could follow the South Korean model and replace half of its Corn requirements with feed-Wheat. This rally could be short-lived if Japan fails to substantially increase its imports of the grain, as the U.S. harvest is more than sufficient to meet domestic demand. December Wheat recently saw the 18-day moving average cross the 50-day average to the upside, while can be seen as bullish mid-term. If the market fails to advance beyond near-term resistance at 954, prices may fall below the key 900 market and beyond. Momentum is showing strong bullish divergence from the RSI indicator, suggesting strength in the short- to mid-term. Support comes in at 901, 890 and 878, while resistance may be found at 924, 936 and 947.

Rob Kurzatkowski, Commodity Analyst


June 27, 2008

Another Crude Milestone

Crude Oil – Energy prices are extending yesterday's gains due to struggling equity markets and a falling U.S. Dollar. As global economies are forced to deal with climbing food and energy costs and stocks, demand for Crude Oil as an investment may increase. In essence, Oil has become the new Gold for investors, underscoring the fact that prices are wildly out of line with fundamentals. Recent news on the fundamental front has been mixed. Nigeria has had major supply problems because of militant attacks and labor turmoil, but this bullish development has been tempered by slowing demand, Chinese fuel price increases and increases in Saudi output. Energy prices figure to take a bullish hue from the ECB meeting next week. The August contract set a new record high close yesterday and prices continue to climb above previous intra-day highs today. Barring a late reversal into negative territory, today's action could be seen as a breakout. Support comes in at 135.42, 131.19 and 128.71, while resistance can be found at 142.13, 144.61 and 148.84.

Gold – Gold prices have hopped on the coattails of the Oil market, rallying over $12 in early trading. Precious metal traders have been emboldened by what can be seen as a dovish FOMC statement and a strong ECB bias toward a rate hike of 0.25 percent next week. The FOMC did itself very few favors by not releasing a hawkish statement, as currency traders took this as a signal that the Fed may talk a big game when it comes to strengthening the greenback, but the bank has done little in the way of policy to back up the rhetoric. With equity markets and the Dollar plummeting, traders have flocked to the relative safety of the commodity markets. August Gold looks as though the daily chart will signal a bullish breakout from nearby resistance at 912.50 barring a sell-off into negative territory. Momentum seems to be flattening during this session, hinting that the market may have a difficult time trying to cross the next resistance area at 940.00. Support comes in at 894.40, 873.60 and 860.70, while resistance can be found at 928.10, 941.00 and 961.80.

Rob Kurzatkowski, Commodity Analyst

June 30, 2008

When Will It End?

Crude Oil – Like a broken record that keeps repeating, Crude Oil futures surged to another record high. Prices have now surpassed the $143 level, with traders considering possible supply disruptions from Iran amid continued frustration over the country's nuclear ambitions. Persistent militant attacks on the oil infrastructure in Nigeria and a weak U.S. Dollar have also contributed to higher Oil prices. Active trade in Oil futures is expected today as large traders square their books ahead of the close of the second quarter. August Crude broke out of its nearly 3-week consolidation pattern on Friday, which may have helped spur further technical buying this morning. The next major resistance level is seen at $144.00 and again at $145.00. The first line of support is found at $140.40, with additional support seen at Friday’s lows of $138.60.

Corn – Grain bulls might be “corncerned” about their positions after the USDA raised its estimates of planted Corn acreage this morning. The USDA estimated U.S. Corn plantings at 87.327 million acres – well above the pre-report estimates of something closer to 85.35 million acres, as well as the March estimate of 86.014 million acres. Also deemed “bearish” by traders was the Corn stocks figure, with the USDA estimating Corn stocks as of June 1st at 4.028 billion bushels, up nearly 0.500 billion bushels from this time last year. New-crop December Corn just missed reaching the $8 per bushel level on Friday, and today’s seemingly bearish report looks to cement this area as a level of strong resistance. Support is seen at the recent lows made on June 23rd at $7.38.

Mike Zarembski, Senior Commodity Analyst