IntroView

Markets are quiet following yesterday's raft of economic data and the coordinated move by global central banks to prop up Europe's financial system. This pause is likely only temporary, however. The weekly jobless claims number was even worse than we anticipated, and two key Federal Reserve inidcators - NYS Empire Index and the Philadelphia Fed index -- were also diappointing. The numbers keep adding up to a looming economic contraction. The three year anniversary of the collapse of Lehman is rattling in everyone's head causing parallels to be made to then and now, especially as it relates to Europe. There is plenty to be concerned about, but it is difficult to see a repeat of 2008 in the making. For one thing, you cannot burn the same scorched earth twice. A Euro-bond (really, a Euro-Bund) will eventually get rolled out, and a euro TARP and TALF will as well. It has come to that. Over the next several weeks, the fate of Greece and the euro zone will play out with all the attendant volatility.


Petroleum Markets

Narrowing ranges and lower highs over the past few sessions show that the inconclusive price action may be coming to a an end. Which way will it break? The price fulcrum is the measure of the opposing forces of supply that is tightening versus demand that quantifies ongoing economic malady. The former is easier to calculate, there is a physical body of "stuff" that can be quantified. The only significant unknown, at this point, is how quickly Libyan oil will come back on the market which we think will be fairly quickly. Demand, on the other hand, is a bit more difficult because it involves perception which is a subjective measurement. If European equity markets are a gauge, it would seem that perception today holds that "Merk-kozy" support for central bank coordination is making the markets think there may be a pan-European master plan. But unrest within their respective constituencies show that is not the case. Policy is hardly settled in the US either, as the chasm between Boehner and Obama over jobs clearly shows. The worst has decidedly not passed, nor is the bottom in for the year for crude oil, either.
 

Petroleum Tech Talk

Crude oil put up a lower high yesterday which shows that the bulls may be faltering. The recovery from the 75.71 low has been steady but choppy, and so, appears corrective in nature. Prices are above the 13-day EMA but still below on weekly and monthly charts. Still, this is not enough evidence to shift the bias back to lower, as long as support in the low 80s holds. Chart patterns are conflicting. There is a clear upward channel off the 75.71 low and an ascending triangle off August 22nd's 81.13 low both of which should have come to resolution by now. Open interest has been migrating to the November contract but shows a net loss suggesting bulls are exiting. We know that new directional bets are necessary to keep a move alive and the current rally is losing strength without a new high.


Natural Gas  

After pressing close to a breakout area, all it took was a marginally higher stockpile report to get shorts to re-establish positions. EIA reported an 87 bcf build to stocks, just past upper end of projections of an 81-85 bcf increase. The steep decline likely reflected the market releasing the pressure of the week's rise as weak shorts exited. Now that prospective sellers have rearmed, prices may have further to fall, particularly with subsequent reports expected to show the effects of recent temperate weather, and lack of threatening tropical activity. A tropical storm in the Gulf of Mexico earlier this month only slightly curtailed offshore gas production, highlighting the dwindling significance of the Gulf region for domestic gas, most of which now comes from the onshore shale formations that have pushed production to record highs.
 

Natural Gas Tech Talk      
 
Gas has dropped well back into its consolidation. In fact, it has temporarily rejected a breakout higher and is testing the bottom end of the range. However this does not mean that a break down is imminent. Consolidation within the range may continue with more sideways action, further tracing out a bottoming formation. What this actually shows is the inherent weakness of profit-taking, as little new length was established during the brief rally. New positions require conviction and this round of buying was tentative, at best. Prices are again under the 13-day EMA and today's pivot at 3.944, which points lower. With 4.13 resistance intact, we're still favoring more downside and an eventual break of 3.78, which will resume the fall from 4.983 towards the 3.255 low. But until that occurs we will keep the bias neutral. On the upside, however, a break of 4.13 resistance will in turn argue that the fall from 4.983 is over and turn the bias higher.

source: KilduffReport.Com