IntroView

The US equity markets did not hold onto their early morning gains, yesterday, banks led the sell-off, as the uneasiness, of late, gripped the sector with increased focus on increased capital requirements looming in their collective future. All is quiet, for now, on the Korean peninsula, and, depending on the pundit, this is either an opening for the West to prod them with food aid or a great moment to take it to them. The latter, of course, ain't gonna happen: when you think about the rap sheet of bellicose acts by the North against the South -- attacks on the SK President in 1983, airliner shooting, attacks on naval vessels and an island -- we are reminded of the incredible tolerance for pain of the diplomatic set. Banking or trading on the imminence of hostilities rarely works out well. China's difficulties were highlighted by Paul Krugman in the New York Times, yesterday. The article cited the property bubble that we have chronicled here. More and more observers are awakening to the over built landscape there that stretches all the way to Inner Mongolia -- recall the high rises being built for all the soon to be wealthy coal miners, which stand built but empty.  Optimisim from a German business survey and an excellent Spanish bond auction have the markets on the rise this morning. Santa and his namesake rally are striving to have their day.
 

Petroleum Markets   
     
Crude oil has recovered over $2.00 off recent lows. This correction is probably an expression of prudence consequent to discussions of possible sanctions on Iran. France and Britain recently presented to the EU a plan for an embargo on Iran's exports and a group of countries calling themselves a, "coalition of like-minded countries", is meeting in Rome today for further discussion of this topic. US and EU officials have also been quietly polling Saudi Arabia, Kuwait and the UAE about increasing exports if an embargo is enacted. Media outlets are forecasting as much as a $40 leap in prices resulting from such an action. We have always been of the opinion that $147.00 prices in 2008 was never given the proper credit for crushing the global economy at the outset of recession. A price spike now will snuff a nascent recovery in the US, push Europe over the brink and bring the ire of Asian countries, the significant destination of Iran's exports. Iran must be particularly cognizant of this, giving them some extraordinary skin in an increasingly dangerous game of geopolitical chicken.


Petroleum Tech Talk   

With expiration looming, our focus will shift to the February contract. The high since last Wednesday's dramatic fall was posted the next day at 96.19, so that will be temporary resistance. As long as that is unbroken our bias will remain for lower. A breach will target last Wednesday's high of 101.45, and a move above that mark will shift our bias for a test of the recent high of 103.37. A move above that will suggest a move towards the 115.00 highs from last Spring. A break of last Friday's low of 92.70 will open the way for a test of major support at 90.52. As we mentioned yesterday, the most recent leg of the decline produced a slope that is probably unsustainable, and even posting 100.00 would not significantly change the chart's overall look. Don't forget also that dwindling volumes at this time of year will exacerbate every directional shift.


Natural Gas      
    
Gas prices continue to slump under the weight of the overwhelmingly bearish fundamentals. The elemental influences are structural, and so, only fluctuations in weather will effect prices. Far from stating the obvious, that is what is so remarkable. Normal seasonal influences are not only absent, they are accompanied by an onerous supply overhang, relentlessly fed by overproduction from shale gas. Falling prices should necessarily conclude with constrained production, but shale's lower extraction costs place that barrier considerably lower. Under these conditions then, and with no significant drop in temperature forecast, weekly stock draws will probably come in well under historic norms. As a consequence, prices could work down to a $2.00 handle, in the heart of the winter heating season. The only positive, as we mentioned yesterday, is unanimity of perception which holds the potential for a short-covering reversal.


Natural Gas Tech Talk  
              
Another new low was posted at 3.05 yesterday, and will keep our bias for lower. We continue to target the 2.996-3.00 area. While the relative strength is not at grossly oversold levels, the market is oversold. Successive sessions without fresh lows may be an early warning of a corrective reversal, or even the beginning of a bottoming formation. A settlement breaching resistance at the former support turned resistance at 3.255 will, at least, move our bias back to neutral, and targets 3.44. A settlement above that mark will target 3.77, and generate enough momentum to reach resistance at 3.993. Below the 2.996/3.00 target there is no significant support until 2.409. Stay with short positions, but be very cautious about opening fresh shorts, or adding to positions here. Wait to see how market reacts near 3.00.

source: KilduffReport.Com