IntroView

The markets are posting some slight gains this morning, after yesterday's reversal of the acclaim given to the euro zone debt summit on Friday. The next pivotal moment will come later today, when the US Federal Reserve bares its cards and viewpoint of the economy. The data series have likely been good enough to allow the Fed to avoid talk or the announcement of QE3 for now. While things are not that great, the view will be toward Europe and whether or not the EZ can take us all down with them, economically. Better to leave some slack in the Fed's arsenal than to expend it all now, despite the robust actions now being undertaken by the ECB. We will be watching to see if there is a mention of slowing conditions in the BRIC countries figuring into the Fed's calculus. The BRIC country storyline has been monolithic in its growth narrative, and now that is being challenged. It's almost been unnoticed that the Brazilian BOVESPA index is down over 20% for the year, as is Russia. We have noted the problems in China, and we are beginning to feel that China's problems cannot be fixed through the mere lowering of bank reserve requirements. Is it ever that easy? The next move is Ben Bernanke's.
 

Petroleum Markets    
    
With prices below 100.00, participants are stating by consensus that recent steps by European policymakers have insufficiently addressed the bloc's current maladies. Make no mistake, the EU is heading into recession, whether it morphs into a depression remains to be seen, but it is a real possibility. No matter the calculus, this can not be very good for energy demand growth. OPEC will have to consider this as they gather for their quarterly conclave. Moments of global political or economic stress can sometimes result in greater unanimity within the usually contentious group, but the pressure has not yet reached a level conducive for greater harmony. Iran, not unexpectedly, is calling for production cuts. The Saudis are set to block them, implying that they will make up any shortfall resulting from possible sanctions. Still, the media-induced guessing game of, "What will they do?" has begun. Do not expect much more than the usual bluster. Neither should much more be expected from the Federal Reserve, meeting later today. The US is still struggling, but starting to show signs that a 3% growth rate may be possible in the current quarter. For today, the upside of the recent range looks like it is going to be probed, but like yesterday, no new territory should be opened.


Petroleum Tech Talk   

Yesterday's price action can only be characterized as inconsequential. The relatively narrow range and lower volume, while trending lower, broke no new ground. The temporary low of 97.36 was struck on Friday and trading should be contained within that mark for the moment. The market is in consolidation within a range defined by 102.00 and 95.00. We are keeping our bias for lower until the upper level is breached. If minor support at 97.36 is breached there may be enough momentum generated to test the recent low at 94.99, which if broken could lead to a further test of 90.52, the point at which the last leg higher broke from. It should also be noted that the 50% retracement of the move from 74.95 to 103.37 is 89.16 so we will look at that as a band of support. A break above last Monday's high of 102.44 should rapidly put 103.37 to the test and if broken will open the way for another run to last summer's high near 115.00. But with the quarter and year winding down we expect price action to be contained within a relatively narrow band. An exogenous event though would change that quickly. No aggressive positions.


Natural Gas          

The story for natural gas continues to be one of ample supply and a temperate start to winter failing to generate meaningful demand. These facts are well known, what is not is how much lower can prices carry. Yesterday's opening gap in prices shows consensus sentiment favors much lower prices and subsequent action did not disappoint, posting the largest two day drop in seven months. With storage and production at or near records, this seems only logical. But crowd psychology makes us nervous; especially when directional momentum accelerates into new territory. The only buying rationale comes from a desire to garner profits from previous sales. A perception of a structural shift in fundamentals will be required for a significant reversal to occur. EIA will report a draw on Thursday, but it will probably not be close to historical norms. However, beware of a sudden shift in weather, or a surprise stockpile report, at these levels reaction could be violent.


Natural Gas Tech Talk  
              
Yesterday's opening gap and new contract low add to the bearish picture. Most price action, so far, has taken place above today's pivot of 3.247. Still, we will keep our bias for lower, at least until support, now turned resistance at 3.44 is breached. Our target now becomes 3.00. Based on the move from 3.987 to 3.285, when measured from the latest break at 3.689 actually puts it at 2.996, and close to the psychological level so we target a zone defined by 2.996/3.00. For momentum to build, new ground below 3.217 needs to be probed. Do not be alarmed if this does not occur every session. The lower the market goes, the greater the possibility that weak shorts will want to cash out, as evidenced by the corrective rally from mid to late November. Clearly though, as the chart indicates, the move down from the late September highs is intact.

source: KilduffReport.Com