IntroView

The equity and other markets staged an impressive rally, yesterday. The realization the that European Central Bank means business seemed to come into focus with good auctions of Spanish debt and a decline in yields paid woke up the market. Euro zone banks rushed the ECB lending facility, taking up 489 billion of those three-year loans at 1% -- only 300 billion was expected and the number of banks availing themselves exceeded 500; a no-bank-left-behind program. When we counseled that the ECB measures were potent, this is what we meant. This is also why the Fed clearly left the euro zone in the lurch, at their last meeting, by not coming across with additional measures of their own. A glimmer of hope from the US housing market also helped further gains, yesterday. While oil prices have reflected the geopolitical tumult that spans from Iran to Khazakhstan to North Korea, equity marketes have not been buffeted, as of yet. With the US ten-year yield under 2.00% and bills negative, fears still abound in the markets. One warning sign: Oracle delivered poor earnings last night, which needs to be analyzed further for signs of a slowdown in big business spending. Finally, we mischaracterized yesterday's rally, ascribing it to Santa Claus. A double-check of the calendar showed clearly that it was, in fact, the Hanukkah rally, and stocks delivered a one heck of a first night's gift. Happy Holidays to all.
 

Petroleum Markets  
      
Crude oil recovered almost $6.00 of recent losses yesterday and today. The rally that began yesterday extended to 98.50 so far today. An enthusiastic Spanish bond auction lifted the euro at the dollar's expense, hopeful US housing data encouraged equity investors, and worries about potential supply disruptions in Iran and Kazakhstan added to the upward momentum. No action has been initiated against Iran, and we suspect, absent overt action on their part, none will be. US and EU policymakers will continue to jawbone until then. They are handcuffed. An embargo will send their economies over a cliff, an outcome they can ill afford at this particular moment. The six-member Gulf Cooperation Council has pledged closer military and security integration, but this is window-dressing, as well. But as yesterday's price action demonstrated the market can be easily spooked, particularly with short open interest growing. Participants were also surprised by last night's API report which showed a drop in crude stockpiles, instead of an expected expansion. Participants will look to EIA, later this morning, for endorsement or contradiction.


Petroleum Tech Talk   

Between yesterday and today, crude oil has staged an almost $6.00 recovery of ground lost over the past week. Initial resistance at 96.19 was broken so we will move our bias to neutral, for the time being, to see if an assault on 100.00 comes to fruition. A break above 101.45 will target the recent high at 103.37 and a break there will put our bias for higher for an eventual move to the Spring highs near 115.00. A move below last Friday's low of 92.70 will shift the bias back to lower for a test of key support at 90.52, the point from which the last leg higher to 103.37 was launched. It is important to note that just as the slope down from last Wednesday's break was not sustainable, neither is the break higher yesterday and today, but as we pointed out erratic performance is to be expected at this time of year. A measurement of the last six weeks action though produces a down channel, albeit a very wide one. Wide enough to lose a lot of money, ergo our shift to neutral.


Natural Gas   
       
As we warned yesterday, gas staged a bit of a corrective rally, albeit a rather tepid one. The structural imbalances continue, as do the unseasonal weather forecasts. Storage totals will end the year well above averages. Tomorrow's EIA measurement, will unfortunately, do little to change the overwhelmingly bearish picture. We expect a report showing a 97 bcf withdrawal will be issued. The mercury will need to drop dramatically in January and February for any significant destocking to take place. However, with the year end approaching, expiration looming and technical and psychological markers near at hand, there will be a natural impulse to cover positions. While this may not produce much of a bounce, with industrial demand typically lower during the holidays, a push through 3.00 will probably have to wait until the New Year.


Natural Gas Tech Talk  
              
Yesterday was the first session in the last five that a new contract low was not posted. We continue to target the 2.996-3.00 area, so our bias will remain for lower. Relative strength falling into the mid-20s probably motivated some short covering. However, we also hold that several sessions without fresh lows may be an early warning signal of a significant counter-trend rally, or even the beginning of a bottoming formation. First resistance comes in today at 3.157, but it will require a settlement breach of 3.255 to turn the bias to neutral. A move above 3.44 will will produce a bullish bias and may generate enough momentum to reach resistance at 3.77, with an eventual target of 3.993. Below our 2.996/3.00 target zone 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 at or near 3.00.

source: KilduffReport.Com