IntroView

 The euro zone saga continues to dominate the market sentiment and produce significant gyrations. China is, once again, being touted as the solution to Europe's liquidity. Late, yesterday, there were rumored to be the buyer of last resort for upcoming Italian bond offerings, which is good, but we thought Greece was the crisis du jour. The unfortunate reality is that the round-robin of market focus lurching from one secondary country to the next will be with us, until the increasingly unavoidable end solution emerges. That is, of course, a full-on Greek default, and a various exits from the common currency. The recent speculation over a possible German withdrawal has represented the greatest threat to date, and it's still there. The numbers just do not add up to anything Greece can do but default. And the Germans do not seem to want to be liable for a continent-wide debt issuance. This should favor the dollar and gold, while dollar-denominated consumable commodities and oil should whither. Equity markets are shaken by the fears surrounding the unknown consequences of these machinations, but there is also some clear solace in coming out the other side.

 
Petroleum Markets

At the outset of trading yesterday, it looked like the end of the world was at hand. But with the opening of the New York session, trading was marked by an upswing that lasted through the day. It boils down to a dollar play. As commentary from the G-7 meeting seeped into the Asian session, Sunday night, the euro faltered badly to the benefit of the yen and especially the dollar. Where else could capital flow? Consequently prices of basic commodities fell, causing oil to post the 85.00 low. US participants, realizing that there is probably also going to be a prolonged period of economic strain here as well, drained the rewards assigned to the greenback from the growing Euro-pocalypse. The reality of the situation though cannot be ignored. The failure of policymakers in both regions to make the hard decisions to necessary for the crisis' reversal can only translate lagging aggregate demand. Still, political dithering may increase investor preference for hard assets.


Petroleum Tech Talk

While fundamentals still suggest lower prices, crude oil maintains a measure of strength. The series of higher highs and higher lows has created a discernible upward trend channel. There is also an ascending triangle with the horizontal holding just at the recent highs near 90.00 with a base off the bars extending to the recent lows. With the base measuring about 15.00 (approximately 90.00-75.00) against a move of about 40.00 (approximately 115.00-75.00) argues for a reversal, where most ascending triangles usually lead to an upside breakout. Be careful!


Natural Gas  

Even as temperatures begin to moderate into autumnal cool, and bearish sentiment settles over financial markets, gas continues to meander in a range and refuses to post new lows. Also, EIA last week raised its estimate for domestic gas production this year, and this week's stockpile report is expected to record injections between 85 bcf and 100 bcf. Daytime highs in the high consumption regions will only reach into the 70s with overnight lows dipping into the high 50s later this week as well, so subsequent injections should remain quite high. About the only thing holding prices is the increased tropical activity of late. Most of this activity though has steered clear of Gulf of Mexico productive infrastructure anyway, and its importance to overall supply has diminished as onshore fracking increases. Ergo, the seasonal low may be in, but as long as price action remains isolated below 4.00 we will reserve judgment.


Natural Gas Tech Talk    

As we mentioned above, the market has every reason to break down to new lows, and the chart picture supports this. Prices are still under the 13-day EMA. Price action, so far, has been on either side of today's pivot of 3.879, and is currently, just below. There looks to be a descending triangle forming with the base extending just below today's pivot and the hypotenuse falling from the recent high near 4.14. In that this is less than 10% of the preceding trend it is probably a continuation type pattern and suggests that the potential for another short-covering rally is building as long as the base remains intact and the market stays saturated with short positions.

source: KilduffReport.Com