IntroView

The markets have experienced late day weakness the past two sessions, only to see buying emerge in the traditional day session. One possible explanation is that the buyers are leaving promptly at 4:00 to join the Occuppy Wall Street protest.  Look for more pressure on the commodity sector, as copper will have difficulty exerting leadership for some time. It was revealed, yesterday, that China has upwards of 1.9 million tonnes of copper, 30% more than previously thought. That bounty coupled with the expected slowdown in the Chinese housing sector and the outlook is quite poor. Continuing jobless claims remained over 400k for another week, which reinforces our view that the economy cannot recover until we see improvement in employment. We understand that this may be a simplistic view, but we are sticking with it. On the horizon, the US budget committee has yet to come together and the euro zone plan for a plan remains unfulfilled. Beware the rallies and the hopeful analysis.
 

Petroleum Markets   
     
In what appears more and more like a counter trend rally, crude oil shrugged off the surprise 3.8 MM bbl build reported by API last night. In the final analysis, the market's judgment has to be about demand, and there is precious little that is going to help that right now. IEA further cut its global oil demand growth forecast, joining OPEC's lowering of its own and EIA which also pared its forecast. But the markets have apparently taken some relief from recent pronouncements from European policy makers as they continue to wrestle over the region's sovereign debt debacle. Taking a long view, the market is at the bottom of a trading range that prevailed in the Q4 '09-Q1 '10 period when there many more hopeful signs of recovery than there are now. The Arab Spring in the ensuing months pushed prices up to the highs from which the market broke in May. As risk premium is extracted, the calculus must necessarily focus on the purely economic and there are fewer positive elements to hold that focus, particularly with the Sino-juggernaut stumbling.


Petroleum Tech Talk  
 
Yesterday was an inside day with a lower close. This can be either an early indication of directional change or a pause before the current move continues. Near term resistance will be at this week's high of 86.64 which the market rejected yesterday. But a break of 81.36 is now required before we can conclude that the move off recent lows at 74.95 is over. A break of either 90.52 or 74.95 will put the bias up or down accordingly. Although there has been the normal position migration to the December contract there is a net decline showing that more positions are being closed.


Natural Gas       
 
Gas is staying in its familiar pattern. New lows, loss of momentum, short-covering, then more selling. The counter trend did not run all that much this past time, staying within technical markers. Market participants braced for a likely build in inventories when EIA reports, later this morning. Last week's unusually mild temperatures, the likely reason behind the build, which we estimate will be 101 bcf added to storage. However, weather forecasts have begun to shift in recent days and now call for cooler weather ahead. Lower-than-usual temperatures are projected for much of the country over the next six to 10 days, according to NWS. We remind again that seasonal lows are frequent during this period which may inhibit further selling. But, the still very bearish fundamentals will need a lot more than a shot of overnight cold, in parts of the country to ignite a sustained rally.


Natural Gas Tech Talk  
            
While we are far from convinced that a seasonal low is in place, the market may have set consolidation markers by price action over the last few days. The market came very close to the first resistance barrier at 3.64 yesterday, posting a high of 3.63, before staging a sharp reversal, closing lower on the session. Prices barely touched the 13-day EMA and price action, so far, remains below today's pivot of 3.533; all bearish indicators. But we are keeping our bias neutral until there is a settlement break above 3.853 or below the target price of 3.416. A break higher will suggest a sustained move above 4.00 and a fall to our target will open the way to our ultimate goal of 3.255.

source: KilduffReport.Com