IntroView

Economic optimism keeps meeting economic reality: this morning the Fed's Empire Manufacturing Index was quite poor and well below expectations. Also, capacity utilization showed no improvement, and with downward revisions for the Summer, it was disappointing, as well. Of course, the focus has been on Europe, the primary driver of all the markets of late. And the rally has been impressive on what we had called the hopes of a euro zone debt deal.  Others, more clever than us, have referred to it as "hopium." But, not to be out done, Germany's Chancellor Merkel, dismissed these notions as "dreams." Nice. If you bought into the hope, it appears you may be in for a bad dream. We continue to observe the employment data and the other coincident indicators and see little growth in economy. Yet, we also see other economists looking for as much as 3% growth in the Q3. Here's to hoping that they are right and we are wrong. Pleasant dreams.

 
Petroleum Markets        

Just two weeks ago it was Armageddon. All it took to reverse this view was for policymakers to begin talking about recapitalizing the banks. The euro took off to the detriment of the dollar sparking bargain hunting in US equity and commodity markets. But wait! After posting new highs for the move off recent lows this morning, markets have fallen on comments from German Chancellor Angela Merkel's chief spokesperson, Steffan Seibert that EU leaders will not be able to provide the complete fix to the crisis by the October 23rd deadline, and that discussions will carry into next year. We wonder how anyone could have thought that the recapitalization of Europe's banks could have been carried out in a coordinated way. Even if a formula emerges, the spread of the Occupy Wall Street movement, the outbreak of violence in Rome over the weekend and continued demonstrations in Greece show how politically difficult a resolution will be. Thus, the European economy moves one step closer to recession; which affirms the continued lowering of future energy demand growth by EIA, IEA and OPEC, and why we are still only able to characterize the move off $75.00 as a counter-trend rally.


Petroleum Tech Talk    

The rough equilibrium the market seemed to have staked out last week was broken in the final hours of New York trading on Friday as the market posted new highs in the after-market. In sympathy with global markets in Asia and Europe, new highs were posted again today. For the December contract, which will be our focus, as of this morning, price action came very close to first resistance at 88.42. For the moment we will keep our bias neutral until the market bests the previous high at 90.52. In fact, the 38.2% retracement of the move from 114.83 to 74.95 is 90.18, so buyers should start to become cautious as prices approach these markers.


Natural Gas         

The alacrity of the reversal off a bearish stockpile report last Thursday drew participants' focus. So much so that Friday's price action burst upward through important technical markers. It may be that the seasonal low is in place. It may also be a function of misplaced optimism that global economic policymakers are moving closer to resolution. Certainly the thermometer is beginning to fall in the northern third of the nation and that speaks to heating load which invariably rises at this time of year. But one day's rise of 5% when the weekly change was a positive 6% shows that sentiment is shifting and, in the final analysis, perception is the motivation for directional shifts. It did not hurt that US retail sales rebounded in September at their fastest pace in seven months either. But one piece of hopeful data is not a full blown recovery and structural imbalances of ample supply, overproduction and constrained demand still persist.


Natural Gas Tech Talk             
   
We are more convinced that a seasonal low may now be in place. Resistance at 3.64 was broken convincingly on Friday. We are shifting our bias to higher accordingly. The upside target is close at 3.854, the point from which the last leg down broke. Surpassing that mark will open the way to the next previous high at 4.143, and target 4.983. however, if the market slips below 3.64 again before posting 3.854, then the decline to the ultimate target of 3.255 is probably still underway. Range trading between the two technical markers may also dominate, to further confuse the issue but an almost .20 cent range will provide ample opportunities.

source: KilduffReport.Com