Crude oil buckled under the pressure of plummeting stock
markets, but the commodity remains well above key support near
$69.50, and the May lows near $64.00. Prices are near initial
support at $75.50; whether this level holds or not will be decided
by the fate of broader financial markets.
Commodities - Energy
Crude Oil Testing $75.50 Support
Crude Oil (WTI)
$77.58 -$0.26
-0.34%
Crude oil got slammed in Tuesday's session, spurred by plummeting
stock markets around the world. The S&P 500 declined 3.1%,
while the VIX, a measure of expected volatility, spiked 18% to
settle over 34. The benchmark U.S. stock index broke down to the
lowest levels since November of 2009.
Given this backdrop, it was little surprise that crude oil buckled
under the pressure. The commodity shed 3%, sending prices briefly
under the key $75.50 support level before rebounding slightly. We
have been writing about the inherent strength of crude oil
recently, both on an absolute and relative basis. We have also
warned that further steep losses in equities would likely spillover
into crude oil eventually. While crude oil has sold off
significantly from levels above $79 on Monday, it is still strongly
outperforming other risk assets. When the S&P 500 was last near
these levels, crude oil was under $70, even close to $64 at one
point. Clearly, the Gulf of Mexico situation has given the
commodity a bit of a boost. Nevertheless, financial markets are at
a critical juncture. If the double dip thesis gains traction and
stock markets continue to sell off, crude oil will likely crumble
from here.
From a technical perspective, however, current levels near $75.50
would be the area to begin accumulating long positions if one were
a believer that the damage to broad financial markets has largely
been done.
Commodities - Metals
Gold Inches Higher on Safe Haven Appeal
Gold $1241.85
+$1.20 +0.10%
There was no follow through to Gold's Monday sell off on Tuesday,
as the metal caught a break on a day of steep equity losses. The
rise of a little over $1 was nothing significant, but it allowed
gold to hold above the steep upward trendline that it finds itself
resting upon. Assuming stocks continue to sell off, it is likely
that gold will once again approach the all-time highs near $1265,
but price action at those levels will be extremely critical.
Capital flows into gold ETFs will need to maintain an accelerated
pace in invalidate the potentially bearish rising wedge that is
forming on the daily chart. We maintain an extremely cautious
position on gold in the near-term. Even in the event equity markets
continue to sell off, there is a distinct possibility that gold
declines anyway, as traders liquidate to raise cash.
Silver $18.53
+$0.04 +0.22%
Silver decoupled from gold on Tuesday, falling 1.5%. In an
environment of significant economic uncertainty, there was not
enough room for two safe haven metals. We would avoid silver here;
with gold momentum fading on the one hand and equities sinking on
the other, there is little to get excited about.
Please send any questions/comments about this article to
sroy@fxcm.com
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