Crude Futures Log Large Declines on Demand Concern

Crude futures have posted significant losses since dropping below June lows on Friday.  Investors are becoming more concerned with the unemployment situation and its impact on present/future consumption of crude.  The increasing uncertainty in regards to the demand side of the equation is taking its toll on price as investors ignore declining crude inventories.  We believe the near-term pullback may have more room to go before crude experiences a more concrete bottom due to the overwhelmingly negative volume we’ve witnessed over the past week.  Our new $61.68/bbl bottom-end support should serve as a reliable cushion.  If not, the $60-$61/bbl range should act as a strong defense because of its historical, psychological weight.  Meanwhile, our uptrend lines are fading into the distance and $65/bbl is working to become a psychological barrier.  Therefore, technical constraints are forming to the upside, making a quick turn-around in crude less likely.  With the S&P futures trading on the edge of June lows, commodity traders will be paying particularly close attention to the performance of U.S. equities over the coming week before deciding how far to take the selloff in crude.

Second quarter earnings season begins on Wednesday with Alcoa.  Corporate earnings and 3rd quarter outlook should be a driving force for the near-term performance of crude and equities.  If corporations project lower earnings, this implies a decline in production, manufacturing, and consequently overall consumption of crude.  On the flipside, should corporations provide a rosy outlook for the upcoming quarter, crude futures could bottom and begin a substantial rebound.  Crude futures are in a vulnerable position trend-wise, reflected by the technical setbacks in the GBP/USD, EUR/USD and S&P.  However, the futures are making a little bounce right now due to the positive ISM non-manufacturing PMI release, which should relieve some immediate-term anxiety.  The question becomes whether the present downturn in crude is merely a setback in the commodity’s uptrend, or whether it indicates the beginning of a new bearish leg.  Once again, the true near-term driver will be the outcome in 2nd quarter earnings, so we’ll have to wait and see.

Present Price: $64.10/bbl

Resistances: $64.37/bbl, $64.86/bbl, $65.20/bbl, $65.49/bbl, $65.89/bbl

Supports: $63.47/bbl, $62.93/bbl, $62.59/bbl, $61.99/bbl, $61.68bbl

Psychological: $65/bbl

Gold Retreats towards June Lows with Appreciating Dollar

Gold has ducked from our previous 1st tier uptrend line, which we noted as an important technical level in our previous analysis.  The precious metal is currently flirting with the concept of testing our second important technical level, June lows.  If our new 1st tier uptrend line and June lows don’t hold, we believe a retracement towards the psychological $890/oz-$900/oz zone is likely.  The importance of the moment is reflected in the dollar, crude, and the S&P futures.  Gold will likely take its cue from its positive correlation with U.S. equities.  The S&P futures are trading right at June lows, and any retracement below here and May lows could spell a similar downturn in gold.  The 2nd quarter earnings season kicks off on Wednesday as the G8 Summit convenes.  Therefore, the news wires are heating up, and we believe the S&P could finally deviate from the consolidative pattern it has established over the past couple months.  Meanwhile, near-term momentum remains to the downside, and all investors need is a concrete confirmation in the markets to make a large commitment to the downtrend.  Though investor sentiment is turning sour, the uptrend has a presence, so we will wait for further confirmation before taking a stronger stance ourselves.

Present Price: $923.03/oz

Resistances: $923.59/oz, $926.30/oz, $928.15/oz, $930.52/oz, $933.43/oz

Supports: $921.41/oz, $921.41/oz, $918.65/oz, $916.27/oz, $910.99/oz

Psychological: $900/oz

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