ALERT: SENTIMENT GLOOMY, RISK AVERSION HIGH AS CONTAGION NOW TARGETS ITALY.
 
PETROLEUM MARKET

Capital flows into the dollar at the expense of the euro are weighing on crude prices, which have now surrendered more than last week's gains. Debt woes in the US as well, have led to a rush to reach a deal before the August 2 debt ceiling deadline. Republicans refused to accept an Administration proposal of a $1 trillion tax increase, both Obama and the Congressional leadership sticking to their respective well-worn talking points of  "millionaires, billionaires and corporate loopholes'" versus "job creators". Contributing to the gloom, China's crude oil imports fell in June and inflation accelerated to a three-year high, raising the probability of more monetary tightening. The long, the tall and the short of it is that none of this is going to be very good for energy demand growth going forward and market participants see this, driving prices to below 94.00 in the overnight session. Traders get it; the recovery is coming off the tracks.
 

TECH TALK

The neckline of the inverse head and shoulders formation, the breach of which heralded last week's rally, has now been convincingly pierced. If the potential rise measured from the head (about 90.00) to the neckline breakout (about 96.00 ) put a target at 102.00 then conversely, a fall potentially could carry 4.00 (roughly 100.00-96.00) to 92.00; the extent of the break back to the neckline. With that more than halfway completed, the bias has flipped back to lower from neutral as the move down from the early May high of almost 115.00 continues. The late June low of 90.00 is targeted. A bounce there would be a pronounced double bottom a powerfully bullish signal. But a break lower will target the September 2010 lows near 77.00.
 
 
NATURAL GAS

The onset of particularly hot temperatures along the east coast allowed gas prices to drift higher,despite the well know imbalances of ample supply and high production. A break from the heat, later this week, will dissipate this support. Essentially it is hot everywhere, and the physical market has been significantly above futures, Henry Hub cash as much as .08. But right now, there are no immediate storm threats to Gulf of Mexico gas output, and later today EIA will release its short-term energy outlook, which last month predicted  marketed gas production this year to surpass record levels. Ergo, a test of 4.00 could come despite the heat.           
 

TECH TALK

Gas broke key support last week and fell to a three-month low of $4.064, but lacked follow on momentum. Even so, the fall from 4.983 is expected to continue so long as resistance at 4.411 remains intact. A breach however, will create an upward bias and target the previous high at 4.983. A break  down through the recent low at 4.064 will signal the completion of the move, earlier this year from, the 3.731 low to 4.983, and consequently target that low again. A break there could bring 3.00 under pressure rather quickly. Prices are, at the moment, just above the 13-day EMA  and just below resistance at 4.269 which suggests some short term strength.

source: KilduffReport.Com