IntroView

The markets diverged again, yesterday, with gold and crude oil down, as equities and fixed income rallied. The euro is clinging to the 1.30 level, and the US ten year note looks to have installed a sub-2% coupon for now. The CPI readings this morning gives the Fed further cover to maintain the easy money policies that need to get even easier. Apparently, a meeting of euro zone ministers is on tap for Monday. So, we will have to continue on headline watch, in case one of these folks gets near a  microphone. The tone of the markets, overall, appear to be moving toward a diminished holiday mode. Today is equity options expiration and even the Washington politicians appear to be in the holiday mode settling their differences and heading home. The concerns for 2012 abound, although the concerns reside outside the US, and the big question remains: can the euro zone tke us all down? Keep in mind, the problems are spreading to China and the other BRIC nations. Collectively, that is more than the fragile US recovery can handle.
 

Petroleum Markets   
     
Despite a brief foray into positive territory yesterday subsequent to better than expected US labor market data and an improvement in manufacturing activity, the day concluded at the lowest level in five weeks. A relatively successful Spanish bond auction momentarily took some of the grimness off the European saga, as well. Despite Fitch downgrades to several important global financial institutions, there is currently a mild correction taking place. While there is no change in underlying fundamentals, and the US CPI report later this morning is not expected to be a market mover, there are, perhaps, more pedestrian concerns motivating participants. Quadruple witching, occurring on the third Friday of quarter-ending months, where stock and currency futures and options expire, sometimes produces inordinate volatility. Additionally, tension between Europe and geopolitical flux in or near major oil producing regions at the start of the volume contracting, holiday shortened final two weeks of the year may skew price action even more. Ergo, buying at the end of a week of strong decline should hardly surprise. Still, do not underestimate the effect that Europe's quagmire, and the puerile partisan struggles in the US will have on aggregate demand unless substantive resolutions are found, and quickly.


Petroleum Tech Talk  
 
Despite a brief attempt at some upside action, crude oil finished lower again yesterday, and posted fresh lows for the move off the recent 103.37 high. Consequently, we will keep our bias to the downside, for a test of 90.52, the mark form which the final leg to 103.37 broke out. As we noted yesterday, temporary reversals produced highs of 102.44 and 101.45 before the slide continued starting a pattern of successively lower highs and lower lows. Therefor, prices could rally to over 100.00 without substantially changing the look of the chart. The momentum oscillator is still falling dramatically. The next level of significant support does not appear until prices approach a zone of congestion from late October between 90.00 and 94.00. While we think this is where the market is heading, the next two weeks may be problematic as volume dwindles with the approaching holidays. Stay with shorts, but be cautious about adding to or opening a fresh short here. A temporary corrections may produce more advantageous levels to sell. Although we do not expect it, a reversal that carries over 103.37 will change our bias to higher for a possible test of the Spring highs near 115.00.


Natural Gas       
   
Gas came out of the overnight session having already posted its low at 3.10 yesterday. Later on, EIA put up an unexpectedly bullish report showing that 102 bcf was pulled from stocks. Well above market expectations, particularly ours. While there was no extraordinary weather demand, well freeze offs in parts of Texas and the Southwest were the likely cause of the aberration, as it forced storage operators to lean more heavily on inventory to meet demand. Even so, it was well below historical norms and a small short-covering rally was short lived. The reason, quite simply, is the fact that even as the third net draw of the season was being recorded,storage totals are still hovering near a record levels and the overhang is growing when it should be contracting. With little demand inducing weather forecast for the rest of the year, this phenomenon will continue. So participants' obvious concern is an eventual bottom. Until production is curtailed or the mercury dips, the fundamentals will remain overwhelmingly bearish. But the slightest change in either of these elements could reverse the market quickly.


Natural Gas Tech Talk    
            
Gas put up a fresh low for this particular move at 3.10 yesterday, so our bias remains for lower targeting the 2.996-3.00 zone. We use the measurement of the move from 3.987 to 3.285, from 3.689 to calculate this projection. As close as it is to an important psychological level support here may be quite stiff and inaugurate a significant bout of short covering. However, if the price action moves through this zone easily, a much deeper decline may be anticipated. On the upside, use the former target of 3.255 as a potential early indicator of a bottoming and a place to cover the most recent shorts. A settlement break of 3.299 will change our bias, and may have enough momentum to carry through 3.44, which would serve as confirmation of a reversal. Make no mistake though, the market is oversold and due for a correction.

source: KilduffReport.Com