IntroView

Prices were pushed lower, uniformly, yesterday, but none so spectacularly as gold and silver. Oil was down more on a percentage basis than those the precious metals. The realization of how little was accomplished at the EU summit and the Federal Reserve's failure to pile on along with the ECB got to investors. Euro zone yields also rose. Spain was able to pull off a good auction this morning, though, which is helping a rebound of the equities occur. Our warnings over China were punctuated last night with a double-digit decline in foreign direct investment. The China PMI held steady, as did European readings, but the anxiety underlies the sentiment. Yesterday's plunge in gold had the look of fund liquidation, but the chart is now broken. These moves point to renewed worries of deflation, not inflation and a troubled outlook for 2012 for the euro zone and China. Amazingly, the US may emerge as an oasis of growth for a while.
 

Petroleum Markets  
      
Crude oil prices are staging a tepid recovery from the sharp fall yesterday, registering the lowest close since November 4th. Besides a rejection of the previous day's rumors concerning possible Iranian martial action, a rally in the dollar, weak global equities and metals markets and renewed European debt concerns contributed to what appears more and more like a liquidation trade. Additional weakness accompanied OPEC's decision to raise their output quota to 30MM bpd. Clearly the market has decided it will more than ample to meet demand from a Europe heading into recession. Yesterday's stockpile report, while supportive, was overwhelmed by the weak macroeconomic tone. Signs continue to mount of the gathering storm. Manufacturing activities have been affected negatively in both advanced and emerging economies. Last week's Euro-summit, a continuing partisan struggle in the US and China's struggles with monetary policy are increasingly being viewed by financial markets as demonstrative of policymaker's inability to achieve a substantive resolution with attendant negative outcome for aggregate demand. It is going to get worse before it gets better. Weekly unemployment data and the latest producer price index calculation will probably add volatility to a crude oil market still swooning from yesterday.  


Petroleum Tech Talk   

Price action crashed through an important technical marker at 94.99 yesterday. This was the low posted after the market rose to 103.37. Subsequent retreats have reversed to highs of 102.44 and 101.45 before retreating again. A pattern of successively lower highs and lower lows is emerging. This will keep our bias for lower. Now that it has been breached the next level of support comes in at a zone of congestion from late October between 90.00 and 94.00. The most important upcoming level of support though will be at 90.52, the point from which the last leg higher to 103.37 broke from. A reversal that carries over that old high will change our bias to higher for a possible test of the Spring highs near 115.00. We note again that the momentum oscillator remained basically flat for the entire last leg up, but this move has it falling dramatically. Stay with shorts, but be cautious about adding to or opening a new positions here. A corrective bounce may produce more advantageous levels to sell. But remember, dwindling volumes before year end holidays usually skew price action.


Natural Gas   
       
Gas continues its sharp slide and as we predicted, gathering downside momentum, as well. The market is not only making year to date lows, but astonishingly enough, in the middle of December. That alone should speak loudly about the state of the market. The fundamentals are well known. The shift in perception is now that abundant supply and overproduction are going to overwhelm, particularly as winter has not really arrived in the highest consumption regions. According to NOAA, only a small portion of the South expecting below normal temperatures. This phenomenon leaves a dwindling amount of time for consumption to naturally ramp up enough to make a significant dent in stocks flirting with records. We expect EIA's report to reflect this, later this morning, posting only a 61 bcf pull. But even this extraordinarily bearish result will widen the total to historical averages. The only potential positive for the market is the growing shorts, particularly among speculative interest which make the market vulnerable to covering spikes, especially as expiration nears.


Natural Gas Tech Talk
                
The markets fall into fresh lower regions will keep our bias for the downside. So far, the market could only muster a recovery to 3.149 and has explored lower territory to 3.10, well below today's pivot at 3.183, but support at 3.079 has not been approached. The gap to the 13-day EMA has widened, as well, as the chart clearly shows. Be wary if a reversal approaches our old target of 3.255. A settlement above this mark should cause the most recent, weakest shorts to cover. However, it will require a settlement above 3.44 to shift bias back to neutral for a test of 3.77. As we mentioned before, using the move from 3.987 to 3.689 to calculate a projection for this move would target 2.996. With a psychological barrier just above at 3.00, support here may prove fairly stiff and spark short covering. Until such activity breaches 3.44 use these as opportunities to sell.

source: KilduffReport.Com