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Crude Oil May Rebound with S&P 500, Gold Stalls Near $1900 Again

Crude Oil May Rebound with S&P 500, Gold Stalls Near $1900 Again

2011-09-06 11:43:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil May Rebound as S&P 500 Corrects Higher After Selloff
  • Gold Stalls on Waning Safe Haven Flows, Weakness Unlikely to Last

WTI Crude Oil (NY Close): $83.60 // -2.70 // -3.13%

Crude prices are retracing higher along with a bounce in S&P 500 stock index futures ahead of the opening bell on Wall Street, hinting that bargain-hunting may force a correction to relieve short-term oversold conditions. The US ISM Non-manufacturing Composite gauge headlines the calendar, with expectations calling for service-sector growth to register at the weakest pace in 19 months in August.

Most critically, it remains unknown whether another bit of soft economic datais enough in and of itself to generate significant selling after the blood-letting already witnessed across the financial markets and derail the apparent bounce now underway. With that in mind, a counter-intuitive scenariois possible whereby risky assets (including the WTI contract) edge higher on the release as signs of slowdown bolster the perceived likelihoodof another round of stimulus from the Federal Reserve.

On the technical front, prices broke support at a rising trend line connecting major lows since August 9 to stall ahead of 23.6% Fibonacci extension level at $83.12. Renewed selling from here will aim to target the 38.2% Fib at $79.48. The trend line, now at $85.22, has been recast as near-term resistance.

Crude_Oil_May_Rebound_with_SP_500_Gold_Stalls_Near_1900_Again_body_Picture_3.png, Crude Oil May Rebound with S&P 500, Gold Stalls Near $1900 Again

Spot Gold (NY Close): 1900.23 // +17.35 // +0.92%

Gold is edging lower in European trade as the spectrum of risky assets begins to correct higher, sapping safe-haven demand for the yellow metal. Weakness may not prove lasting however if, as we discussed in our weekly forecast, another bit of soft US economic data stokes bets on further easing of monetary policy and helps gold find support as a store-of-value alternative to paper currencies.

Sizing up the technical landscape, prices are testing key resistance at $1912.05, the August 23 wick high. The barrier is reinforced by the 76.4% Fibonacci extension at $1909.75. A break above these levels exposes the measured Fibonacci extension target at $1973.79. The 61.8% level at 1870.14 lines up as near-term support.

Crude_Oil_May_Rebound_with_SP_500_Gold_Stalls_Near_1900_Again_body_Picture_4.png, Crude Oil May Rebound with S&P 500, Gold Stalls Near $1900 Again

Spot Silver (NY Close): $42.92 // -0.34 // -0.77%

Silver seems to be following in the footsteps of its more expensive counterpart once more, with prices on the defensive as a recovery in risk appetite ahead of the opening bell on Wall Street saps safe-haven demand. As with gold, the critical point item of interest will be the way traders interpret a weak ISM Non-manufacturing result, with swelling stimulus bets likely to encourage silver higher.

Prices are testing below the Andrew’s Pitchfork midline, with initial support lining up in the $40.85-41.70 region. Below that, the pitchfork bottom stands at $39.90. Near-term resistance remains at $43.72, the August 22 closing high.

Crude_Oil_May_Rebound_with_SP_500_Gold_Stalls_Near_1900_Again_body_Picture_5.png, Crude Oil May Rebound with S&P 500, Gold Stalls Near $1900 Again

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