* Latest Market Developments *

World stock markets have stabilized Wednesday following Tuesday’s big shudder. Asian and European equity markets were mixed and the U.S. stock indexes were not trading far from unchanged in early, pre-market action.

Crude oil prices are lower and at or near five-year lows Wednesday. It’s understood by most that rising U.S. crude oil production is a main factor in the recent slide in world oil prices. What may be less obvious to many is that while not only is the higher U.S. production adding to world oil supplies, but at the same time the rising U.S. oil production has knocked most, if not all, of the “war premium” out of the price of a barrel of crude oil. This is very significant. Just five years ago it could be argued the price of a barrel of crude included a war premium of anywhere from 10% to 25% of its price. The war premium had nothing to do with actual supply and demand, but was an added value to the price of a barrel of crude based upon worries of potential serious military conflict in the oil-rich and major oil exporting Middle East.

A feature in the market place Tuesday was the big rally in gold prices, which hit six-week highs on safe-haven demand, short covering and bargain hunting. There are now early clues gold prices have bottomed out. One can extrapolate that if crude oil prices have bottomed out there must not be much more upside left in the U.S. dollar index. The U.S. dollar index has bumped up against some major longer-term technical resistance around the 90.00 level.

The German government auctioned two-year notes (Schatz) Wednesday for an average yield of minus 0.04%. The negative yields on recent German bond auctions underscore the ill health of the European Union economy. Germany is considered the safest haven of the EU countries. Central bank watchers can make an argument that it could be hard for the U.S. Federal Reserve to begin raising its interest rates when the European Union is on the verge of falling over the cliff into deflation—and when the European Central Bank has embarked upon more quantitative easing of its monetary policy.

In other news, China’s consumer price index rose by 1.4% in November, year-on-year, following a 1.6% increase in October.

U.S. economic data due for release Wednesday is light and includes the weekly mortgage applications survey, the weekly DOE liquid energy stocks report, the monthly Treasury budget statement.

(Note: Follow me on Twitter–@jimwyckoff–for breaking market news.)

Wyckoff’s Daily Risk Rating: 6.0 (Geopolitical risks are mostly on the back burner of the market place…for now. However, the falling price of oil and some fresh European Union sovereign debt issues have traders and investors a bit nervous this week.)

(Wyckoff’s Daily Risk Rating is your way to quickly gauge investor risk appetite in the world market place each day. Each day I assess the “risk-on” or “risk-off” trader mentality in the market place with a numerical reading of 1 to 10, with 1 being least risk-averse (most risk-on) and 10 being the most risk-averse (risk-off), and 5 being neutral.

–Jim Wyckoff

U.S. STOCK INDEXES

S&P 500 March e-mini futures: Prices are near steady in early trading. Bulls have faded a bit, technically, this week. The shorter-term moving averages (4-, 9- and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Today, shorter-term technical resistance comes in at Tuesday’s high of 2,055.00 and then at the record high of 2,071.50. Buy stops likely reside just above those levels. Downside support for active traders today is located at last week’s low of 2,041.25 and then at Tuesday’s low of 2,026.25. Sell stops are likely located just below those levels. Wyckoff’s Intra-day Market Rating: 5.0

Nasdaq index futures: Prices are near steady in early trading. Bulls are fading a bit this week. Shorter-term moving averages (4- 9-and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day average is above the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance is seen at Tuesday’s high of 4,300.00 and then at this week’s high of 4,320.00. Buy stops likely reside just above those levels. On the downside, short-term support is seen at the overnight low of 4,284.25 and then at 4,262.50. Sell stops are likely located just below those levels. Wyckoff’s Intra-Day Market Rating: 5.0

Dow futures: Prices are near steady in early U.S. trading. Bulls are fading a bit this week. Buy stops likely reside just above technical resistance at 17,850 and then at 17,900. Sell stops likely reside just below technical support at 17,750 and then at 17,700. Shorter-term moving averages are still bullish early today, as the 4-day moving average is above the 9-day and 18-day. The 9-day moving average is below the 18-day moving average. Shorter-term oscillators (RSI, slow stochastics) are bearish early today. Wyckoff’s Intra-Day Market Rating: 5.0

U.S. TREASURY BONDS AND NOTES

March U.S. T-Bonds: Prices are near steady early today, on some consolidation after good gains seen Tuesday. Bulls have the overall near-term technical advantage. Shorter-term moving averages (4- 9- 18-day) are bullish early today. The 4-day moving average is above the 9-day. The 9-day is above the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bullish early today. Shorter-term technical resistance is seen at the overnight high of 143 19/32 and then at Tuesday’s seven-week high of 143 22/32. Buy stops likely reside just above those levels. Shorter-term support lies at 143 even and then at 142 16/32. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 5.0 March U.S. T-Notes: Prices are slightly lower in early trading. Bulls have the slight overall near-term technical advantage. Shorter-term moving averages (4- 9- 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral early today. Shorter-term resistance lies at the overnight high of 126.24.5 and then at Tuesday’s high of 126.28.0. Buy stops likely reside just above those levels. Shorter-term technical support lies at 126.10.0 and then at the overnight low of 126.03.5. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 4.5

U.S. DOLLAR INDEX

The March U.S. dollar index is slightly higher in early trading. Bulls still have the solid overall near-term technical advantage amid a price uptrend. Short-term oscillators for the dollar index are neutral to bearish early today. The dollar index finds shorter-term technical resistance at Tuesday’s high of 89.530 and then at the contract high of 89.785. Shorter-term support is seen at the overnight low of 88.750 and then at Tuesday’s low of 88.395. Wyckoff’s Intra Day Market Rating: 5.5

NYMEX CRUDE OIL

January Nymex crude oil prices are lower in early U.S. trading and hovering near Tuesday’s five-year low. Bears remain in strong overall near-term technical control. Look for buy stops to reside just above technical resistance at the overnight high of $63.43 and then at $64.00. Look for sell stops just below technical support at Tuesday’s low of $62.25 and then at $62.00. Wyckoff’s Intra-Day Market Rating: 3.0

GRAINS

Grain futures markets were mixed in overnight trading. Traders are awaiting Tuesday’s monthly USDA supply and demand report for fresh news. Grain market bulls are hanging tough this week. The key “outside markets” continue to be generally bearish for the grains—a stronger U.S. dollar and lower crude oil prices.