IntroView

It was to say the least, yesterday, when we wrote, "the markets have not responded well to the Federal Reserve's underwhelming attack on the slow economy." Losses in every asset class were incurred, losses as significant as the Fed's warning of "significant" downside risk to the economy. Gold, silver, copper, equities, were throttled. More selling has ensued overnight. The rotation has the look of major players liquidating everything to buy dollars ahead of the Fed's move to purchase long-dated securities. The old axiom is don't fight the Fed; it has morphed for the moment into "do front-run the Fed." Not to be overlooked, as well, was the steady, elevated weekly jobless claims. There is no retreat below the 400k level, and the markets will have to brace for another poor monthly report in two weeks. Policymakers and Central bankers are nearly out of silver bullets, and we may be reaching the point where the only alternative is to bite the bullet. To wit, there is more talk of Greece defaulting and recapitalizing euro zone banks -- 16 of them! There are also more losses. It would seem like we are due for a weekend surprise or some coordinated intervention. Trade well.
 

Petroleum Markets    

Crude oil lost more than 4% on Thursday responding not only to the Fed's bleak economic outlook, but also to shockingly weak Chinese industrial data. China, one of the most important sources of energy demand, reported that manufacturing contracted for a third consecutive month. Additionally, the euro zone's dominant service sector shrank in September for the first in two years, intensifying anxiety about another global setback. This set investors worrying that policymakers' latest plans would have little effect and that there appeared to be few solutions to sluggish worldwide demand. A bearish stampede on most asset classes ensued. Comments from officialdom around the world seem to confirm a slowdown is at hand, but how deep will it be? Keep an eye on OPEC comments. As prices approach $70.00 there will be comments about cutting supply which could add a positive tone to trading as they monitor the global recovery and the return of Libya's output.  

Petroleum Tech Talk   

Crude oil's fall from 90.52 continues as expected and reaches as low as 79.70 so far today. As noted before, choppy rebound from 75.71 should have completed at 90.52 already. Decline from 114.83 is possibly ready to resume. Intraday bias remains on the downside for retesting 75.71 low first. On the upside, break of 90.52 is needed to confirm resumption of rebound form 75.71. bias remains to the downside with a convincing break of support. Current decline should target psychological support at 70.00, but momentum could carry through to the mid-60s. A sustained break, from a purely technical perspective, could point to a retest of the 33.2 low, but the probability of that is very low. On the upside, a break of 100.62 resistance will indicate that fall from 114.83 has completed.


Natural Gas

Gas prices weakened further on Thursday, caught up in a global retreat for most asset classes which accentuated the pressure by too much supply, weak industrial demand and seasonal doldrums in residential heating or cooling demand, with moderate temperatures forecast into early October. Virtually all price drivers of both the supply and demand have converged to weigh heavily on prices. The Federal Reserve's warning on Wednesday of a significant downside risk to the economic outlook, stirred new fears about the prospect for industrial gas demand. Yesterday's EIA storage report showed total domestic gas inventories rose last week by 89 bcf to 3.201 Tcf. While this was actually neutral in that it was only slightly below expectations it well above the year-ago gain of 78 bcf and the five-year average of 72 bcf for this particular week. Wider spreads to winter months have allowed for an increase in the pace of injections. Spreads to winter months have widened sharply over the last week. For example, the January premium to October, through Wednesday was up 32% in one week.

Natural Gas Tech Talk               

The market hit its lowest level since late October on Thursday. Even though another new low for this move was posted, which keeps our bias to the downside, the settlement at 3.705 kept the market in a range between 3.70 and 4.15 that has bound trading for the last seven weeks. A settlement below 3.70 is necessary to keep the downward momentum going. Conversely, a settlement above 4.15 could ignite an upward move to challenge resistance. But as long  as the market keeps posting fresh lows, we will keep the bias bearish for the time being. I f 3.70 does not hold, 3.58 could come under challenge quite quickly. This would put the market through the frequent congestion zone referenced many times on longer term charts between 3.60 and 3.80. It would also 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 has not broken down convincingly yet.

source: KilduffReport.Com