ALERT: LOW CAPITAL LEVELS IN FRENCH BANKS CAUSE HIGH ANXIETY.  
 
The U.S. equity markets took another hard fall, yesterday; the latest anxiety induced by concerns over the capital adequacy of the major French banks. France's Societe Generale was rumored to be insolvent, which, in a circa 2008, Bear Stearns-like moment, was roundly denied by its Chairman. "We have everything we need," he said on CNBC. Gulp! High-frequency traders are getting the blame for the latest bout of volatility rather than the creeping reality of the global balance sheet. It may be overdone to the downside, but the markets are clearly discomforted by the debt situation in Europe and the US.
 

PETROLEUM MARKET

Oil prices did not participate in the selling thrall that gripped the equity markets, yesterday. The main pillar of support came from a surprisingly bullish report from the EIA, which showed that oil inventories declined by 5.3 million barrels. Additionally, Brent North Sea crude oil output difficulties are continuing. This furthers the idea that despite the economic woes, the outages from Libya, the North Sea, and, intermittently, Nigeria are combining to create some a sense of tightness in the crude market. Refiners have cranked up production to just over 90% of capacity, which is adding to the crude oil demand picture. The French banking concerns, referenced above, are troubling. A nationalization of either BNP-Paribas or Societe Generale would push Europe to the edge, and be incredibly damaging to France's pride and consumer confidence. If the fears are not rapidly extinguished, oil prices will join in the sell-off and the recent lows will be revisited. If you were around for the 2008 debacle, you will recall that anxiety met reality over the weekends. Tomorrow is Friday. There is some underlying fundamental strength to oil prices, but there seems to be a growing wave of selling coming to the markets shores. We continue to advise maintaining a smaller commitment to the market than usual.  
 

TECH TALK

Prices continue to consolidate in the 80-84 area, which was the extended zone of congestion from late September to December of 2010. Price did briefly top 84 in overnight trading, but quickly retreated. Our upside target of 87.62 remains intact. This is the 50% retracement from the high on July 26th of 100.62 and the recent low of 75.17. A break above $84 opens up the next range of 84-88 and possibly back above $90. On the downside, $80 continues as a key support level with Monday night's low of 75.17 as representing a critical support point. A break of 75.17 would set us up for move to the 71.30 area.
 
 
NATURAL GAS

The good-economy, bad-economy trade is back at work in the natural gas prices. After reaching 4.08, yesterday, prices are back below 4.00. The natural gas market is not parochial enough to avoid the headwinds buffeting the overall markets. Prices got some support from extended weather forecasts showing above-normal temperatures in the Northeast in the 6-10 day outlook. This morning's inventory report should show an injection of 42 bcf. There are three tropical systems being observed in the Atlantic, and NOAA has actually raised its forecast for the current hurricane season: they are anticipating 14-19 storms with 3 to 6 big storms. If the storm conveyer belt kicks in to gear, prices will easily maintain themselves above $4.00, and drops to the recent lows should invite buying.

 
TECH TALK

Yesterday's high of 4.081 looks like an important resistance point. Juxtaposed against last week's high of 4.119, a developing down trend channel can be discerned and appears to flatten, somewhat, the steepness of the chart's recent plunge. Prices are back below $4.00. And support is seen at 3.979-3.972. Next support is seen at 3.915. The prominent low remains 3.855 and break of that argues for further declines to 3.80, 3.73. Ultimately, a longer-term move lower has us projecting a downside target of 3.369. Upside resistance is seen 4.058 and 4.063. Next up is 4.09, which would presage a return to the extended range between 4.10-4.30 that dominated much of the price action over the past several months.
 

source: KilduffReport.Com