Wall Street closed in red territory on Wednesday. U.S. stocks dropped sharply as commodities stumbled and the euro’s decline further frayed investors’ nerves. After dropping as much as 183 points, the Dow Jones Industrial Average closed down 130.33 points to 12,630.03. The retreat broke three days of gains. The Standard & Poor’s 500 Index declined 15.08 points, or 1.1%, to 1,342.08, with energy and natural-resource stocks hardest hit among its 10 industry groups. The Nasdaq Composite Index fell 26.83 points to 2,845.06.
We seem to be in the process of resuming last week’s sell-off. The heavy hitter of the day was crude oil which went limit down and energy trading was halted to increase its limits. This response from the exchange was similar to what we saw last week, which opened the door for further deterioration. The tops are in for most markets, and any bounce needs to be sold, regardless of how much prices have already depreciated. With the Euro taking out last week’s low, we remain open to a test of 1.40 which should prop the US dollar as commodity prices continue to slide.
The CME Group briefly halted trades in oil, gasoline and heating-oil futures after the June gasoline contract hit its daily price limit. Crude oil tumbled $5.67, or 5.5%, to $98.21 a barrel, and gold for June delivery settled down $15.50, or 1%, at $1,501.40 an ounce.EIA inventory data was bearish for the energy sector with gasoline limit down, and we expect further weakness to close out the week with unemployment claims, PPI, and retails sales due today. In our experience, when markets become lock limit, the craziness spills over into outside markets that still have room to go.
Today’s Important Economic Announcements (GMT)
8:00 AM EUR ECB Monthly Bulletin
8:30 AM GBP Manufacturing Production m/m
9:00 AM EUR Industrial Production m/m
12:30 PM CAD NHPI m/m
12:30 PM USD Core Retail Sales m/m & PPI m/m
12:30 PM USD Unemployment Claims & Retail Sales m/m
2:00 PM GBP NIESR GDP Estimate
2:00 PM USD Fed Chairman Bernanke Testifies
Crude-oil futures rose in electronic trading during Asian hours Thursday, recouping some of the heavy losses suffered overnight but stopping short of the $100-a-barrel level, as the U.S. dollar weakened a little. Light, sweet crude-oil futures for delivery in June rose 86 cents, to $99.07 a barrel. The move higher came after the contract slumped $5.67, or 5.5%, in the regular U.S. trading session overnight, prompting the CME Group to take the unusual step of briefly halting trade in order to allow the market to settle down. It seems speculators are slowly being squeezed out. Major support for crude is at $92, but we’ll have to see how she reacts to the 96.50 support basis June to get a better understanding of the wave count. To clarify our position, we are bearish with caution.
Stop Loss: 101.02
Take Profit: 96.50
Corn futures for July delivery dropped 20.75 cents, or 2.8 percent, to close at $7.0875 a bushel in Chicago. On Wednesday, we had a bearish USDA crop report which sent corn and wheat limit down. The market has seen good blender demand but profit margins have been under pressure due to high corn prices. Corn supplies also are running thin in some areas. One bushel makes at least 2.75 gallons of ethanol. Ethanol output has been declining and in mid-April slid to its lowest since September, before rebounding in the week ending April 22. The technical picture shows nothing but clear downtrend. It would be wise to open a long-term short position using trailing stops as backup.
Stop Loss: 690.95
Take Profit: 650.70
The S&P suffered some liquidation while the energy sectors slid 2.2 – 3.0 % due to the EIA Inventories report reflecting increased inventories this week. The US Dollar rose, strengthened by its safe-haven qualities as traders liquidated some of their tangible commodities. The Wholesale Trade Balance reflected imports/exports growing to $48.2 billion deficit in March from $45.4 billion in February. The weaker US Dollar had made US goods more appealing while the imports grew due to the increased energy prices. We look for a long-term potential down-trend, or at least more than a day session. Traders are encouraged to enter the market with short positions.
Stop Loss: 1,344.48
Take Profit: 1,331.61
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