Talking Points

  •  Crude Oil Looks to US ISM Reading for Direction Cues
  •  Gold Chart Hints Prices May Be Starting to Form a Top

WTI Crude Oil (NY Close): $88.81 // -0.09 // -0.10%

Crude prices were little changed yesterday as an unexpected jump in official DOE inventory figures counterbalanced better-than-forecast US Factory Orders and Chicago PMI results. Looking ahead, all eyes are on the ISM Manufacturing report as speculation about another round of Federal Reserve stimulus continues to define price action across financial markets. Expectations call for the reading to show the US manufacturing sector contracted for the first time in over two years.

Notably, the markets are likely primed for a weak reading after the dismal outcomes recorded on most regional Fed surveys over recent weeks, meaning an upside surprise or a particularly disappointing result would be needed to stir meaningful volatility. Furthermore, it remains to be seen whether a relatively better outcome is interpreted as good for sentiment (and thereby crude) in terms of its implications for growth or weigh on confidence as it dims hops for additional Fed easing, and vice versa. Finally, trading volumes have withered dramatically since the beginning of August, so an erratic response in thin conditions is not out of the question.

Prices put in a Doji candlestick below support-turned-resistance at $89.59, the June 27 wick low, pointing to indecision and hinting bullish momentum may be fading. A reversal lower from here sees initial support at a rising trend line set from the August 9 swing low, now at $83.86. Alternatively, a break higher sees resistance at a multi-month channel top established from early May ($92.69).

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Spot Gold (NY Close): 1825.72 // -9.70 // -0.53%

Gold's response to yesterday's upside surprises on the US data front appeared relatively straight-forward, with prices edging lower on diminished QE3 expectations. More of the same is likely if the ISM reading proves at least no worse than expected, with a generally soft print likely priced in already. Alternatively, a downside disappointment will probably produce the opposite effect.

Sizing up the technical landscape, prices appear to be forming a bearish Head and Shoulders top below the $1900/oz figure. The setup requires confirmation on a break the formation's would-be neckline at $1732.54 and would expose a measured target at $1553.18. Near-term support lines up at $1808.22, with a break below that exposing $1788.09. Initial resistance stands at $1840.75.

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Spot Silver (NY Close): $41.56 // +0.25 // +0.60%

Silver's response to the macroeconomic trends playing out elsewhere in the financial markets continues to be uneven, with prices moving nominally higher yesterday to decouple from the metal's more expensive counterpart. Still, a significant inverse correlation with the S&P 500 suggests a broadly safe-haven role is likely to dominate, although firmly betting on such an outcome given how erratic recent price action has proven seems ill-advised.

On the technical front, consolidation continues above Andrew's Pitchfork support ($39.47) and its midline ($42.25). A Bearish Engulfing candlestick pattern formed below the $44.00 figure argues for a broadly bearish bias over the medium term. A break below support exposes the $37.53, the August 9 closing low. Alternatively, a break higher targets the Engulfing high at $44.18.

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