Point, Counterpoint
Crude Oil – Just as Israel tested its new interceptor missile, Iran went forward with its own long-range missile test – one capable of reaching Israel – further escalating tensions in its ongoing standoff with the West. This news sent Crude Oil futures $1.50 higher in early trading after falling more than $9 over the past two sessions. In addition to the new geopolitical development, traders will get to digest U.S. inventory data today, as the EIA is expected to show a decline of 2.5 million barrels for the week. Despite the bullish slant expected from today's report, Oil traders have begun to express their doubts about the global economy and commodity prices. Indicators outside of the U.S. are beginning to look more ominous, suggesting that inflation may begin to cool on weak demand for raw materials. Traders will continue to focus on Iran and possible supply disruptions, but the poor economic news may prevent the explosive rallies that we have seen in recent weeks. The August contract closed below the 18-day moving average yesterday, signaling that a near-term high may be in place. The chart pattern signals that the market may be in store for a correction, but weary bears may wait for a close below 132.00 before jumping into the market. Countering this bearish view, momentum remains above the zero line and continues to show bullish divergence from the RSI indicator. Support comes in at 133.31, 130.57 and 126.01, while resistance can be found at 140.61, 145.17 and 147.91.
S&P – Stock index futures are trading slightly lower this morning after posting solid gains yesterday. The news of Iran's missile test and the ensuing rise in Oil prices has weighed on the futures market in overnight trading. Airlines and retailers are expected to continue their pattern of disappointing earnings, which has overshadowed upgrades in U.S. metal manufacturers. The bottom line is that there is plenty of risk and uncertainty hanging over the market and many investors are simply not willing to stomach this risk until the economy shows more solid signs of improvement. The enthusiasm over the Fed suggesting that it will keep emergency funds open to banks may be short-lived, as the sector has stabilized but shows no signs of improvement. There are no major economic releases today, so the stock market may take its cue from the energy market after the release of the weekly inventory data. The September e-mini S&P chart shows a bullish engulfing pattern, suggesting a positive bias. Adding to this bullish view, momentum is outpacing the RSI indicator to the upside. While the chart shows potential, technicians would probably like to see the market close above the 1300 level before declaring a bullish reversal. Support comes in at 1248.25, 1222.75 and 1209.00, while resistance can be found at 1287.50, 1301.25 and 1326.75.
Rob Kurzatkowski, Commodity Analyst
