ALERT: CHINA SEES ENOUGH RED; URGES NATIONS TO SUPPORT MARKETS.  
 
PETROLEUM MARKET

The losses suffered in the market, yesterday, were thorough, complete, and extraordinary, and did not cease with the closing bell. Evening trading saw crude oil losses extend all the way down to 75.71. The final catalyst came as Chinese CPI and PPI were released around 9:30PM (EDT), which gave slightly higher-than-expected readings. The narrative being that the inflation readings remain above the planners comfort zone, and the recent tightening regime will be maintained resulting in demand contraction. While plausible, the steadiness of the selling also had the look of undesired liquidation. Equity markets in Asia accelerated their losses on the release with the South Korean market leading the pack with a nearly 10% decline. Crude oil prices have climbed back to the $80 level -- a rebound of some magnitude is to be expected. The US Federal Reserve meets today, and their comments will likely be market-moving. We expect a third round of quantitative easing to be broached, along with other easing measures. In a sign of the times, China's Premiere Wen is on the news wires calling on "...nations to work together to the support the markets." Get that man a Coca-Cola! We had been looking for this price break for several weeks. It came. And we do not expect the 75.71 overnight low to be the bottom for this move despite the relief bounce currently underway. --John Kilduff
 

TECH TALK

The down slope is so extended it as the look of weeping willow tree branch. The overnight low of 75.71 satisfies our downside objective for now. The fact that the price action came in the overnight, thin-volume environment makes it somewhat less convincing. Prices are back above the previously identified $80 support level. The 50% retracement from the high on July 26th of 100.62 and last night's low of 75.17 is 87.62. That is the likely upside target and resistance point. The chart is somewhat broken, so that, to us, is a good level to work against on the upside. On the downside, renewed selling pressure will likely carry prices beyond our 75 support down to the 71.30 area. The wide bars on the chart allow for extended prices ranges until the volatility is quelled. -JK
 

NATURAL GAS

Natural gas prices did not participate in yesterday's rout, having gotten its price break out of the way late last week. Prices were oversold, and the persistent heat in the South provided support. Temperatures are moderating, as the summer heads into its final stage. While inventories are below year-on-year and the 5-year average, they are ample with little concern over the sufficiency of supplies. The year-on-year gap has closed considerably in recent weeks. Now, concerns over the faltering economy will further the bearish sentiment. Given the growth of inland shale production, it also difficult to see how a hurricane could land a knockout blow a la to supply levels ahead of winter. Still, if December gas trades below 4.30, it is likely a worthwhile purchase at that level. Finally, it was not your imagination: population-weighted, July cooling degree days were the highest on record according to the folks at MDA EarthSat. -JK
 
 
TECH TALK

The chart is showing signs of stabilization and consolidation around the 3.95 level. Yesterday's low of 3.855 looks to be initial support with 3.80 and 3.73 our downside target. The major moving averages remain arrayed well-above current levels. On the upside, 4.00 represents significant, albeit psychological, resistance, with 4.064 being the next level. We expect prices to test 3.80 later this week, which should get prices back into last year's familiar congestion zone between 3.60 and 3.80. Ultimately, a longer-term move lower has us projecting a downside target of 3.369. Yesterday saw the most limited daily range in several sessions, and the relative price stability removed some of the oversold condition. -JK
 

source: KilduffReport.Com