IntroView
 
And then there was France. Just like Agatha Christie's Ten Little Indians, the countdown of the fallen continues. Italy's new technocrat leadership is already coming under scrutiny. Germany and France's economy grew slightly in the third quarter, about 0.5% and 0.4% respectively, and this is being spun as "solid" in some quarters. We say, again, data points that are just lousy pass for "solid" given recent history. The outlook for Q4 and Q1 are worse -- excuse us -- less good. As a result, equity markets are under pressure this morning. The talk about a smaller euro zone or a two-tiered euro zone is on the rise. The deadline for the US Super Committee looms, as well. Some arguing that they will do the bare minimum, which will upset the fragile markets. We think they fail to agree on anything, allowing the mandated cuts to take effect. That will hit the markets too... until the realization hits that the cuts do not take effect until 2013, giving us countless 11th hour opportunities to strike the very deal that has eluded lawmakers for the past year. Volatility has ebbed, for now, take advantage of that.
 

Petroleum Markets
       
Crude oil came under pressure yesterday, the first in several sessions, as participants reconsidered perceptions of relief over leadership changes in Europe and supply tightening. A 2% fall in industrial production in the eurozone and Italy's having to pay a euro era high for five year money put pressure on the currency to the benefit of the dollar and cast a dim light on energy demand growth going forward. Monday's session turned in a lower close after registering fresh highs on Friday. Market participants are beginning to realize that mere changes in political leadership will not substitute for a substantive resolution and realistic implementation methodology. Additionally, perceptions of increased output have put pressure on the front of the curve causing a reversal into contango from backwardation. Destocking, particularly at Cushing, has helped propel prices off recent lows and is probably the impetus for speculative interests to ramp up length as characterized in the Commitments report. Growing recessionary fears and a slowing Chinese economy may make reconsideration of those wagers imminent.


Petroleum Tech Talk   

The crude rally picked up momentum towards the end of last week but a new high yesterday followed by a lower close, tepid volume and a very tight daily range may be early signs of a reversal. Consequently then, we will shift our bias to neutral. The 100.00 psychological resistance is eminently reachable and there should have been follow on buying. Taking profit on already established length may be prudent and we would be very wary of adding to or opening fresh length until the market settles over 100.00, which if it occurs, might generate enough momentum to challenge 114.83. A few days of consolidation may occur while the market considers the next directional push.


Natural Gas         
 
Gas is posting contract lows and through important technical markers. Hardly surprising, with production high, a fragile recovery keeping industrial consumption flat and a shoulder season extended by mild weather. Weekly injections highlight supply far outstripping demand and with builds projected for the next few weeks, a seasonal bottom could come a lot later than it normally occurs. The nearby contract has lost 7.7% in the last four sessions, the biggest slide in six months and the 12-month strip settled on Monday at 3.699, its lowest finish since September 2002. Potential buyers will not even receive solace from the Baker Hughes data, which showed a rig count dropping to a 3- ½ month low of 877, but which is still far ahead of a level needed to cut supply. With storage likely to hit a record with this week's EIA report and demand usually slow during Thanksgiving, there should not be much upside movement unless Mother Nature intervenes.


Natural Gas Tech Talk   
             
The market has crashed through the previous low of 4.446, opening the way to our 3.255 target. Obviously then, we will keep our bias for lower, as downward momentum should accelerate but the probability drops as the calendar progresses towards winter. Kinetic energy is building up though as open interest gets heavily weighted to the shorts. Our key stop remains at 3.77, and a reversal that extends up and over 3.978 will put the bias back to higher. Disappointing demand after the holidays will bring consideration of concluding seasonal totals and that could really weigh on prices. Adding to short positions and new shorts may want to use a stop at the previous low of 3.446

 

source: KilduffReport.Com