Fundamentals

Not even a 60+ percent decline in Crude Oil prices from all-time highs is apparently enough to convince OPEC oil ministers that further production cuts will be necessary to prevent Oil prices from tumbling. At the emergency meeting in Cairo, Egypt on Saturday, OPEC ministers agreed to wait until their next scheduled meeting in Oran, Algeria on December 17th before deciding on any additional production cuts, preferring to see if the 1.5 million output cuts announced last month will have any effect on prices. Weak oil demand by western nations as well as Japan, which are mired in a recession, is the key factor to the rather unexpected tumble in Crude prices this year. There are even some analysts calling for a decrease in world oil demand in 2009, which, if true, would be the first year-on-year decrease in demand in over 25 years. Even if OPEC agrees to further production cuts in its December meeting, actual member compliance to their official quotas would be needed to have any meaningful effect on supplies. Additional cuts by non-OPEC oil exporters such as Russia, Norway and Mexico would also be supportive to oil prices, but are not guaranteed by any means -- especially from Russia, who may need all the oil revenue it can get to keep its own economy functioning. So how low can Oil prices go? Well it was not too long ago, a mere 10 years back in 1998, that Oil prices approached $10 per barrel, as the Asian financial crisis combined with OPEC indecision on quotas among its members allowed Oil prices to plunge to this currently unthinkable level. While there is no way to know if Oil prices can reach this level in 2009, traders should be aware of the history of Oil prices and the extreme moves that can occur.

Technicals

Looking at the daily chart for January Crude Oil, we notice prices have started to stabilize a bit after making contract lows of $48.25 back on November 21st. Since that time prices have rallied nearly $8 per barrel, mostly due to short-covering buying tied to an improvement in the equity markets of late. Despite the recent rally, prices still remain below the 20-day moving average and a close above this widely watched indicator would be needed to spur additional short-term momentum buying. The 14-day RSI has moved out of oversold territory and now reads a more neutral 40.0. $50.00 looks to be minor support for January Oil, with the contract lows at $48.25 acting as major support. Should the recent price recovery continue, the 20-day MA at $58.32 looks to be the next level of resistance, with $60 acting as major psychological resistance.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Stock Index futures have consolidated since lows were made on November 21st, despite a slew of weak economic data recently. However, all eyes will be on today's release of November non-farm payroll figures, with the current consensus estimate that 350,000 jobs were lost last month. The unemployment rate is expected to jump to 6.8%, with some analysts fearing rates could top 7%. Not even an unexpected drop in weekly jobless claims, falling 21,000 last week, brought much cheer from economists, as the closely watched 4-week average of new claims rose by 6,250 to 524,500-the highest level in nearly 26 years. So why are the indices holding their own despite the dismal economic news? One reason may be position squaring before the NFP release, with traders lucky enough to short the indices covering their positions. Another reason might be that some traders and investors believe we may be near "value" levels for stocks, and bargain-hunting buyers are coming into the market. A third more interesting theory, especially for those who study the "psychology" of the market, was the announcement by the National Bureau of Economic Research "officially" dating the start of the recession back to December of 2007. So if that is the case, the "recession " has already been in place for at least 1 year already and may, in fact, be a bit "long in the tooth". It also seems that the recent fall in Oil and Gasoline prices is not getting the same attention as the sharp-run up in prices did earlier this year, even though this should give consumers a bit of a "stimulus" effect with lower energy expenses freeing up funds for other uses. If one only pays attention to all the gloom and doom in the media, the current economic turmoil still has quite a way to go. However, since futures markets tend to be forward looking, the old adage "it's always darker before the dawn" may be prophetic!

Technicals

Looking at the chart for the December E-mini NASDAQ 100 futures, we notice the market beginning to enter a consolidation period, with prices making lower highs and higher lows the past several sessions. Trading volume has declined as well, signaling a lack of conviction among bulls and bears. Though the 14-day RSI remains in neutral territory, it has been several months since it has risen above the 50 level and a move above this point may spur additional buying by momentum traders. Minor resistance is seen at the recent highs of 1199.50 made on November 28th, with near-term support found at the 12/2 lows of 1089.50. Major resistance is seen at 1389.00, with major support at 1017.75.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Moving from one extreme to another, market pundits have recently extolled the deflationary aspects of the commodity markets, as fears of a continued worldwide economic slowdown have put a negative spotlight on commodity prices. This comes just months after "inflation" was all the rage, and the seemingly unquenchable thirst for commodities from the emerging nations of Asia were sure to keep physical commodity prices on the rise. So how is the average trader to know where commodity prices may be heading? A clue may be found in the metals sector, especially if one looks to the price ratios between Gold and Silver and Gold and Platinum. Although all the "precious" metals are off sharply from the highs made earlier this year, Gold percentage-wise has fallen the least, down only 25% or so from 2008 highs. Silver is down approximately 50% from its highs, and Platinum is down a whopping 63%. This has caused the price ratio between Gold and its more industrial cousins to rise sharply in Gold's favor. At the beginning of the year, it took approximately 56 ounces of Silver to buy 1 ounce of Gold. Just yesterday it took almost 75 ounces of Silver to buy 1 ounce of Gold. Platinum has gone from being more than double the price of Gold to closing in on parity. The current stress in the financial markets has had a greater effect on the industrial metals, particularly Platinum, whose demand is keenly tied to the health of the auto industry. With auto sales down sharply and further cut-backs likely, the demand for Platinum is expected to be weak. Gold, on the other hand, has the benefit of being a "store of safety" in times of economic stress. This has kept retail demand for Gold robust -- especially Gold coins -- despite the current deflationary environment. Even the recent strength in the U.S. Dollar has failed to depress Gold prices as much as many analysts had expected. Until the more industrial precious metals prices begin to gain on Gold, the deflationary environment should continue. However, should Silver and Platinum prices begin to gain on Gold, it may be a sign that economic recovery has begun and rising commodity prices may not be far behind.

Technicals

Looking at the daily chart for February Gold, we notice the market starting to show a bullish bias, as we are now making higher highs and higher lows. The market is trying to remain above the 20-day moving average, and the 14-day RSI has moved into neutral territory. To remain in its bullish bias, February Gold should not close below last Friday's lows of $741.20, which appears to be the climax of the recent sell-off. To strengthen the uptrend, we would need to see a close above the 100-day moving average, currently near the $824 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

As I am writing today's Xpresso, I am looking outside and noticing that winter has definitely arrived early here in Chicago, as temperatures are hovering in the high single digits and snow is starting to fall. However, looking at my gas bill, it seems that the usual winter price surge is a bit delayed this season. Natural Gas prices continue to remain depressed, as curtailed industrial usage tied to continuing weak economic conditions has kept prices depressed, despite "bullish" weather forecasts. The National Weather Service is calling for below normal temperatures in the Midwest and Great Plains next week, which normally would lend some support to gas prices as heating demand increases. However, it appears that traders are more focused on the losses in industrial demand. In its December short-term energy outlook, the Energy Information Administration (EIA) is forecasting that industrial sector demand will fall by 2.4 percent in 2009, due to weak economic conditions. In the most recent EIA Natural Gas storage report, gas in storage fell by a less than expected 67 Bcf, to stand at 3,291 Bcf as of December 5th. This is 3.5% above the 5-year average. Large speculators continue to add to short positions, with the most recent Commitment of Traders report showing large non-commercial traders increasing their short position by a whopping 20,580 contracts as of the week ending 12-9-08. Though the current price outlook for Natural Gas prices looks bleak, we must remember the potentially volatile nature of this market. Should the demand outlook start to improve, short-covering by large specs could provide the fuel for a sharp bear market rally, especially with commercial hedgers unlikely to be sellers at least until prices move sharply higher.

Technicals

Looking at the daily chart for January Natural Gas, we notice the market once again in a consolidation phase, with prices trying to hold above the 5.450 level. Volume has begun to fall the past few sessions, as the lack of volatility is discouraging short-term trading. The 14-day RSI is also displaying a fairly large bullish divergence going back to the beginning of the commodity price collapse in late July, which may be signaling a bullish correction is near. Support remains at contract lows at 5.458, with resistance seen at the 20-day moving average near the 6.150 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Wheat futures prices are beginning to stage a comeback after hitting contract lows earlier this month, as a weakening U.S. Dollar and the building of a "weather premium" have traders marking the blue side of their trading cards again. The recent weakness in the U.S. Dollar is beginning to make U.S. Wheat more attractive to foreign buyers, who have gone to Europe and Canada to meet their needs lately. U.S. weekly Wheat export sales totaled 262,300 metric tons for the week ending December 11th, and it is believed that Pakistan, Morocco, and Jordan are also in the market for Wheat this month. To major Southern Hemisphere Wheat exporters, Argentina and Australia are experiencing production problems, with the Argentinean crop estimate falling to 9 million metric tons from 16 million tons last year due to drought-like conditions. Australia is facing the opposite problem, with heavy rains affecting the quality of the Wheat crop and stalling harvesting efforts. Here in the U.S., traders are starting to fear possible "winter kill" for parts of this season's crop, with dry conditions and bitterly cold temperatures in parts of Kansas and the Southern Plains sparking the concern. However, it is still early in the season for Wheat, and any additional forecasts for snow will help elevate the current concerns. Both large and small speculative accounts are net-short Wheat futures according to the most recent Commitment of Traders report, which may spur additional short-covering buying should the rally continue.

Technicals

Looking at the daily chart for March Wheat, we notice price moving back into the center of the recent consolidation pattern that's been forming since late October. Prices proved to be unstable below $5.00 per bushel, as short-covering buying emerged. Before saying that the lows are in, notice the declining volume on the recent upward price move, which may be a sign that little fresh buying is emerging, despite prices moving above the widely-watched 20-day moving average. This leads to the assumption that the rally is strictly based on short-covering. Major support is seen at the contract lows of $4.71, with resistance found at the top of the consolidation at $6.08.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Copper futures have shown some life to start the holiday shortened trading week, as strong buying interest in Shanghai due to a surprising increase in Chinese Copper imports last month has put a at least a temporary halt to the steep sell-off in the red metal. Chinese Copper imports were up 37.7% last month vs. October's totals. Analysts believe the increase was due to several factors, including possible restocking of reserves by the Chinese government and arbitrage between the Shanghai Futures Exchange and the London Metal Exchange (LME), but not from actual industrial demand, which has dampened traders' optimism for a sustained price rebound in early 2009. Copper producers are reacting to the sharp drop in prices by cutting production and shutting down mines, with the latest coming from Zambia's Luanshya Copper Mines, which announced it is closing all mines in that country due to low prices. Though production cuts bode well for higher Copper prices in the futures, currently the worldwide economic slowdown is taking center stage, and Copper supplies remain more than adequate to meet reduced worldwide demand. Copper supplies in LME warehouses continue to climb, with inventories rising by 3,200 metric tons on Monday to stand at 327,500 mt, which is an increase of nearly 50,000 tons since this time last month. Both large and small speculative accounts believe prices will continue to move lower, as the most recent Commitment of traders report shows non-commercial traders are holding a combined net-short position of 19,380 contracts as of 12/16/2008. The speculative short position may lend credence to the belief of Copper bulls that a short-covering rally is overdue, especially going into the end of the year. However, it will take a true pick-up in industrial demand to really set the stage for a rebound in Copper prices, and it remains to be seen whether the economic stimulus programs announced in China and the U.S. will be the catalyst for a rally or just another opportunity for Copper bears to add to winning short positions.

Technicals

Looking at the daily chart for March Copper, we notice the failure of the sharp run-up in prices on Monday tied to the Chinese imports report. Prices failed to move above the 20-day moving average and may signal that the move over $1.40 was due to illiquid conditions on Sunday's market re-opening. Also notice that volume has been declining the past week, as traders are reluctant to establish new positions ahead of the end of year holiday season. The 14-day RSI is showing a bit of a bullish divergence and may lend some bullish technical support. Support is seen at the recent lows of 1.2865, with resistance found at the 20-day moving average near 1.4830.

Mike Zarembski, Senior Commodity Analyst