Crude, Gold Breaks Below 200-Day Moving Average, What's Next?

Within the last couple of days, there has been a major sell-off in risky assets. Precious metals, energy commodities, and equities alike, have fallen on heavy volume. Benzinga's Weekly Radar shows the technical levels, which crude USO and gold GLD traded to, following the decline. This pressure on gold comes mainly after Fed comments from the FOMC meeting on Tuesday. The Federal Reserve released its last FOMC statement of the year on Tuesday, which stalled a 100+ point rally in the Dow Industrial Index, and also caused precious metals to move lower. The cause for this risk-off trade was because the Fed did not hint at any more quantitative easing. The Fed pointed out that inflation has moderated since earlier this year, and that long-term inflation expectations are stable. The Fed ended its inflation commentary, saying that they expect inflation to settle at an acceptable level and will pay attention to changes in inflation expectations going forward. Without hints at a new quantitative easing program and comments about inflation, risky assets across the board sold off. Gold fell over $35 per ounce after the 2:15 p.m. announcement, and even more in the days following. Benzinga Professional covered the events in real-time so subscribers could take advantage. On Wednesday, the Organization of Petroleum Exporting Countries set a new production target for the first time in three years. The new supply target is set at 30 million barrels per day, which is roughly in-line with current production. OPEC has not been able to agree to production targets for the past three years. The primary reason for the disagreement has been Saudi Arabia clashing with other OPEC nations over production quotas. Wednesday's decision represents a "shot-in-the-arm", if you will, as the decision caused the price of crude oil to tumble below $100 per barrel. As crude trades lower, the airline and automotive industries both benefit. The U.S. economy in general also benefits as most input costs from oil are now cheaper. Both commodities are trading below their respective 200-day moving averages. According to most technical analysts, this is a very bearish move. The 200-day moving average is seen as the most important moving average, generally speaking, to market technicians, and sentiment of its underlying security depends on which side the security is trading on. Above the 200-day, the general sentiment is mostly bullish, and below it, is mostly bearish. Currently, crude oil is trading at $93.52, or 2.4% below its 200-day moving average. Gold is currently trading at $1572.60 per ounce, or 2.8% below its 200-day moving average. Benzinga reached out to Brian LaRose, technical analyst at United-ICAP, to get his perspective on where we currently stand. "Commodities and Equities are sitting at a critical juncture," LaRose said. "The S&P 500, Gold, WTI Crude are sitting at major support levels and the U.S. Dollar is sitting at major resistance. We could see a short-term turn higher in risk assets, however, I believe it will be just corrective in nature." The U.S. Dollar Index has risen dramatically in the midst of all the global issues as investors flock to non-risky assets, mainly the U.S. Dollar and U.S. Treasurys. At current levels, the U.S. Dollar is less than $1 away from yearly highs. "Big picture, riskier assets such as commodities and equities are likely to come under continued pressure due to their current relationship versus the U.S. Dollar," LaRose continued. "The global debt problems still exist and commodities like gold and silver do not help pay down debt, U.S. Dollars do." LaRose concluded, "Ideally the U.S. Dollar holds above 79.700, before continuing its rally higher to 84.000-85.000 . If this happens, most riskier assets like commodities and equities will suffer a severe pull back. Gold could easily sink to $1425, even 1300 and WTI Crude could fall all the way to $64."

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