IntroView

Recall the move about two weeks ago by the ECB that we described as potent, and the large amount of longer-term, cut-rate loans taken by Europe's banks? Well, that effort seems to have flowed straight through to sovereign debt; Italy auctioned some bonds, this morning, and cut their prevailing interest rate in half! Yep. Bonds that yielded 6.50%, recently, went for 3.25% at auction today. That is a sea change. There is another round for Italy tomorrow, and we will be watching. The ECB will offer more financing opportunities in the coming months, and euro zone banks are seemingly being encouraged to buy sovereign debt and exchange the paper (as collateral) with the ECB, which amounts to a back-door quantitative easing by the ECB. Is the Fed involved? A provocative op-ed in the Wall Street Journal suggests it is, in a back-back-door fashion. We need to study those assertions more before signing on to that indictment. US equities keep moving up, and this news will help. Everything will begin to turn more on the verdict upon the Holiday shopping season. One noted retail analyst has already suggested that the Season was good not great. The big percentages jumps in on-line shopping enjoy a modest denominator and appear to come at the expense of in-store sales.
 

Petroleum Markets
       
Right now it is all about Iran. The European conundrum has been crowded off the headlines as column inches become more and more dedicated to what will transpire over Iran's nuclear ambitions. Right now the focus is on Iran's First Vice President Mohammad Reza Rahimi's words yesterday that, "If they (the West) impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the Strait of Hormuz." Tall words indeed, and not to be taken lightly. As we said last week, the Iranians are playing an increasingly dangerous game of geopolitical chicken, but with the US and EU on the brink of economic calamity, they also have a lot of skin in the game. Will they, or won't they? Although, they have increasingly sophisticated capabilities, thanks to the Chinese, according to Jane's, they are far outstripped by those of the US Navy's Fifth Fleet, stationed nearby in Bahrain. In the meantime, however, there is no telling how high oil prices could go before it is resolved. As a consequence, oil has run up over 100.00. Be extremely cautious in deciding to ride the back of this tiger, getting thrown off could mean getting eaten.


Petroleum Tech Talk   

Even though prices extended past our previous high from two weeks ago at 101.45, extending to 101.77 yesterday, we will keep our bias neutral, for the moment. The rapid retreat from that marker shows a lack of conviction on the part of the bulls. A settlement over that today, will move the bias to higher, for a test of the previous high at 103.37, and a possible extension to last Spring's high near 115.00. A move below 99.37 will target the recent double bottom near 92.70, with a possible move to 90.52 key support. If that is broken, enough downside momentum could be generated for another test of the lows near 75.00. The whole structure of the chart picture from the mid-November highs looks corrective, which keeps us skeptical and reluctant to change our bias too quickly.


Natural Gas          

With scant help from Mother Nature on the horizon, and the continuing structural imbalances, the question naturally arises of why have prices not moved even lower? As mentioned in our opening yesterday, "consensus views rarely triumph in financial markets." Perhaps speculative interests are telling us something. As chronicled in the CFTC's Commitments report last Friday, money managers last week trimmed their net short position in natural gas futures, options and swaps for a fifth straight week, holding just 8,625 net shorts. Technical support markers are holding, as well. We have been warning of a corrective move to the upside since before Christmas. Keep a close eye on the Baker Hughes data. The gas-directed rig count has now fallen for the eighth straight week to a 23-month low of 802 and production may soon start to marginally contract, as a result. We say marginally, because horizontal rigs, the type most often used to extract oil or gas from shale, are still near records. Look for EIA to report a pull from stocks of 94 bcf.


Natural Gas Tech Talk       
         
Currently, price action may be forming a temporary bottom. The February contract has staged two attempts to break to new lows with little success. A settlement below 3.00, will be required to keep down momentum growing. The lack of new lows, despite technical and fundamental indices pointing lower, show the market's oversold condition. But with resistance at 3.255 intact, we will maintain our neutral stance, even though we still favor lower, eventually. Our target still remains 2.996/3.00, but this level continues to elude the shorts, and their impatience is growing. A break above 3.255 will target 3.689 which will confirm a reversal, and may generate enough momentum to carry all the way to 4.00. But with the current reduced volumes, that seems highly unlikely.

source: KilduffReport.Com