IntroView

The markets have not responded well to the Federal Reserve's underwhelming attack on the slow economy. The so-called Twist manuever is on, but not as much as had been expected, and no sign of QE3 was given. Poor PMI data from China overnight has compunded the ill feelings. Euoropean equity markets are down 4%, as is gold. Silver is down over 7%, and crude over 5%. It is a complete rout. The desired effect of the twist is at work. Long-term US bond rates are plummeting, as buyers battle the Fed for supply. These declines are pointing to significant economic deterioration and slowing demand. A positive catalyst is difficult to envisage at the moment.
 

Petroleum Markets   

Three keys words the Fed used in its statement yesterday, "significant downside risk" has finally driven home to market participants what we have been saying for months, it is not going away. Consequently, global markets have been under pressure all night. With equities and basic commodities tumbling, investors have clearly cast votes for the rising possibility, actually probability, that the global economy will slip back into recession. This is surely a negative for energy demand growth. With the FOMC meeting over, the market focus will probably be shifted back to the sovereign debt problems in the euro zone, which continues to burn while policymakers fiddle. Crude oil prices jumped after EIA echoed the earlier API report, both of which showed significant drawdowns. The front-month contract rose to as high as 87.99 as crude inventory plummeted more than expected. But those gains were quickly pared as broad market sentiment remained weak.


Natural Gas  

The temperate weather has accentuated the low, inter-seasonal demand. After record heat over the summer, which helped to somewhat erode stockpiles, autumnal demand has dropped sharply. Across the U.S., falling temperatures prompt consumers to turn off their air conditioners. But they likely won't be turning on the heat for several weeks. Against the backdrop of comfortable inventories, record high gas production and concerns about a weak economy it will be difficult for potential buyers to mount a sustainable rally. However, a bout of cold weather in the next couple weeks or a tropical event would likely bring a sharp rebound especially as short positions proliferate, particularly with the market approaching technical support levels. The front month contract has lost nearly 8 percent in a week, the biggest five-day decline in three months.


Natural Gas Tech Talk     
     
As long as the market keeps posting fresh lows, we will keep the bias bearish for the time being. There should be significant support at the psychologically important level of 3.70, but if it does not hold, 3.58 could come under challenge quite quickly. This would put the market through a frequent congestion zone referenced many times on longer term charts between 3.60 and 3.80. this would open the way for a test of our target at 3.255. More downside though will be increasingly difficult though as the lower end of the trading range but has not broken down convincingly yet. The 14-day relative strength index in the low-30s though shows the growing oversold condition and could presage a bounce.

source: KilduffReport.Com