Crude drops off a cliff

Sentiment toward crude oil appears to have changed decidedly negative in the wake of two developments this morning. First, press reports started to circulate, suggesting that talks to end the fighting in Gaza may be making progress, possibly reducing some of the political risk that had apparently been driving trading recently lately. Second, US DOE crude inventories rose by 6.6 million barrels, well above the 0.8 million barrel increase reminding investors that there appears to be more than adequate supply at the moment relative to demand. On this news, UK crude fell below the $50.00/bbl level, while US crude fell toward a test of $45.00, an emerging significant support/resistance level. Should that fail to hold, or if political tensions were to ease, crude may be at risk of another retest of $40.00 support.

The crude declines appear to have also taken the wind out of the sales of other commodities as well. Copper has dropped back to retest $1.50/lb once again, soybeans have fallen back under $10.00/bushel, gold has dipped below $850/oz and silver has broken back under $11.00/oz.

Equity markets also appear to be coming under pressure today. In particular, selling pressure appeared to increase following the release of the ADP private sector payrolls report. The data suggested payrolls fell by 693,000 in December, worse than the 495,000 decline investors had been expecting. This suggests that the US non-farm payroll data due on Friday may also be weak. This morning, we have seen the Dow Industrials (US30 CFD) break down through 8,800 with a test of 8,600 support now possible, the S&P 500 (SPX500 CFD) break down through 925 setting up a possible test of 900, the NASDAQ 100 (NDAQ100 CFD) break down through 1,250, opening a possible retest of 1,200 and the S&P/TSX 60 (Toronto60 CFD) break down through 565 making a 4etest of 520-530 possible. These turns lower also suggest that while sentiment may have become less negative in recent weeks, there does not seem to be enough good news for bulls to overcome key resistance levels. This suggests that markets remain vulnerable to downdrafts within current trading channels in the near term.

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This commentary is based upon technical analysis. Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.

CMC Markets Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada and Member CIPF. CFDs are distributed in Canada by CMC Markets Canada Inc. dealer and agent of CMC Markets UK plc. Trading CFDs and FX involves a high degree of risk and investors should be prepared for the risk of losing their entire investment and losing further amounts. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. CFD and FX trading is available in jurisdictions in which CMC is registered or exempt from registration, and may be available to Accredited Investors only in certain jurisdictions.

Note that any references to CFD prices or price changes are sourced from CMC Markets' proprietary trading system Marketmaker™.

ABOUT THE AUTHOR

Colin Cieszynski, CMC Markets

Colin Cieszynski,CFA, CMT is a Market Analyst and Manager of Education with CMC Markets Canada. Currently, Colin provides daily technical commentary on North American equity markets and selected commodities. Colin has provided market commentary to individual investors for the last ten years and daily technical notes since 2001 and with CMC Markets since 2007. Colin is frequently mentioned in the press by a wide variety of publications such as the Globe and Mail, National Post, Dow Jones and stockhouse.com. He also is a frequent guest on CP24, BNN and CBC offering commentary on breaking market conditions.

Colin has completed both the Chartered Financial Analyst and Chartered Market Technician programs. He is a member of the Market Technicians Association, the Canadian Society of Technical Analysts, the CFA Institute, the Toronto CFA Society and the Prospectors and Developers Association of Canada.

About CMC Markets

CMC Markets is Canada's leading online CFD provider and was the first company in the world to offer online FX trading. With offices in Toronto, CMC Markets has been offering CFDs and FX to Canadian traders since 2005. The company now operates over 15 offices worldwide, and represents clients in over 85 countries. CMC Markets was founded in 1989 by Peter Cruddas and in December 2007,Goldman Sachs acquired a 10% stake.

For more information on CMC Markets visit www.cmcmarkets.ca

CMC Markets Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada and Member CIPF. CFDs are distributed in Canada by CMC Markets Canada Inc. dealer and agent of CMC Markets UK plc. Trading CFDs and FX involves a high degree of risk and investors should be prepared for the risk of losing their entire investment and losing further amounts. CMC Markets is an execution only dealer and does not provide investment advice or recommendations regarding the purchase or sale of any securities. CFD and FX trading is available in jurisdictions in which CMC is registered or exempt from registration, and outside of Ontario and Quebec is available to Accredited Investors only.

Note that any references to CFD prices or price changes are sourced from CMC Markets' proprietary trading system Marketmaker™.

Copyright 2009, CMC Markets. All rights reserved.

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