IntroView  

The rebound in equity and other markets continued apace, yesterday. The popular press latched on to trader's ascribing the rally to a slight improvement in Chinese economic data, as measured by HSBC. This data should have been more than offset weaker European data, but it was not. Also, a major shift in the structure of the crude oil futures price curve ocurred, which installs an additional bullish bias there. We do not like to fight the tape, but, given how much of the recent rally appears to be predicated on a resolution of the euro zone debt crisis, this may a significant "buy the rumor, sell the news" moment in the making. Equity futures are lower this morning, but crude oil continues its tear. There is one solid basis for the rally, however: corporate profits have been strong -- mostly beating estimates and hardly a earnings warning to be found. We remain skeptical overall, however.   

 
Petroleum Markets            

The market has changed the temper of its affirmation from tepid to enthusiastic. Along with a perception that supplies may be tightening, the perception that policymakers will produce some eleventh hour accord in Europe unleashed buyers yesterday. Total domestic oil stocks have tightened, and are about 8% lower than the same time last year at 332.9 million barrels, according to the EIA. Yesterday's price action witnessed the front and second month NYMEX crude contracts switch to backwardation, after a prolonged period of contango. This action occurred as volume soared as the day's range went well outside of averages. Rising open interest also showed new longs were being opened, as well. With technical markers violated on the upside it seems that the fundamentals and technicals are pointing in the same direction which normally produces very strong move. However, one powerful caveat; we do not trust the political leadership to be able to make the hard choices required to diffuse Europe's debt crisis and even if they do, if they can be implemented. Also we have the same concerns we did in 2009; we have yet to see a growing body of incontrovertible evidence that a sustainable recovery is underway.


Petroleum Tech Talk   

Important resistance at last week's highs has been broken, and rather convincingly, as well. This now opens the road for an assault at the late July/early August highs just over 100.00.So our bias now switches to higher. There will be an important barrier at 94.89, which is the 50% retracement of the move from 114.83 to 74.95, and second resistance today, right behind at 94.93. however, the break above 90.52 completes a double bottom (75.71 and 74.95) reversal suggesting that the fall from 114.83 has probably concluded. However, it is important to remember that the reversal off any directional move is at a point of it most convincing price action, so be careful.


Natural Gas

Important resistance at last week's highs has been broken, and rather convincingly, as well. This now opens the road for an assault at the late July/early August highs just over 100.00.So our bias now switches to higher. There will be an important barrier at 94.89, which is the 50% retracement of the move from 114.83 to 74.95, and second resistance today, right behind at 94.93. however, the break above 90.52 completes a double bottom (75.71 and 74.95) reversal suggesting that the fall from 114.83 has probably concluded. However, it is important to remember that the reversal off any directional move is at a point of it most convincing price action, so be careful.


Natural Gas Tech Talk   
                   
The market keep moving away from overhead resistance at 3.64. in fact, it has been violated and rejected so many times that it is losing its effectiveness as a directional cue. We prefer now to use 3.77 as resistance. Overall though, gas is still bounded in sideways trading above 3.446, and so, we will keep our bias neutral. A break above 3.77 will open the way to 4.00 and beyond but any rally should be well contained by the recent high at 4.143. A new low settlement below 3.446 will open the way to our eventual target of 3.255 but inconclusive sideways action could prevail in the short term.

source: KilduffReport.Com