IntroView

U.S. equity futures are surging this morning, the first action they have seen in the New Year. They are playing catch-up to continental's Europe's surge, yesterday, where the German DAX was up 3.00%. (How about that euro zone market getting a jump on things and ignoring the observed holiday Monday?) Considering last week's tepid close, the exuberance this morning is curious. But some positive economic data from Germany's construction sector has helped get things going. The weather in Northern Europe has been incredibly mild, so far this season, which has helped to keep building going. Expectations for the year ahead are modest, and there are plenty of wild cards in the deck, especially on the geopolitical front: nearly every major oil producing country can be seen as unstable to a degree. Iran and Iraq are getting the attention right now, but Nigeria and Russia may be next, if the politicial unrest spreads to the oil infrastructure -- in Nigeria in the form of attacks, and in Russia, more likely, work stoppages. Brazil may be the lone exception, but its struggling economy has it in the mix issues, as well. New money going to work for the quarter and the year will also have an effect this week. The first reality check of the year will come Friday with the US employment report. There could be an upside surprise of 180k jobs, but what will pass for good enough is the question. However, in the spirit of the New Year, regarding today's rally, we'll have another!

 
Petroleum Markets        

Crude oil moved to the highest levels in a week as an apparent assurance by Iran that a closure of the Strait of Hormuz was not imminent was offset by their test launch of a missile in the area. Participants clearly do not want to wager that an Iranian epiphany is underway. Additionally, a surprising jump in the Chinese PMI and a rising euro to the dollar's detriment, a consequence to a startlingly fall in German unemployment, has also encouraged bulls. A new year bringing new optimism? Hardly. As a colleague of ours summed it up in a year-end survey, " The main topics of the past three years will continue to dominate the airwaves and things will get far worse before they get better." We agree. For today anyway, the bulls are dominant. Their motivation is visceral though and might change at any moment. Still, emotion can carry a market a long way, even in the absence of fundamental affirmation. As we pointed out last week, trying to ride the back of the emotional tiger, may result in one being eaten by it, so be extremely wary.


Petroleum Tech Talk   

The market has carried past 101.00 for the first time in a week. The opening in Asia last night gapped .87 cents from Friday's close. This makes us wary of the move, and until the market settles above last week's highs of 101.70 or so, we will keep our bias neutral. There is an inverse head and shoulders formation now tracing out. A move above the neckline's highest point will target, at least the previous high of 103.37 and change our bias for higher. A drop below the shoulders, at about 98.00 will target recent lows below 93.00, opening the way for an eventual assault on 90.52, an important breakout point. So far today, buying has carried past first weekly resistance at 100.97 and today's secondary resistance at 100.75. Prices have also widened the gap above the 13-day EMA so the move shows considerable strength.


Natural Gas          

Mother Nature is blowing in a few days of more seasonal temperatures, but hardly enough to succor potential gas bulls for long. Surely, a few weak shorts will breathe a sigh of relief, choosing prices under 3.00, as a moment to cover. A longer view however does not hold much prospect for resolution of one of the key sources of structural imbalance; overproduction. Supply continues to swell from regular injections from shale. The decibel level of interests opposed to the extraction process, "fracking," is on the rise, but apparently not enough to deter Total, S.A. from announcing a $2.3bn purchase of a stake in Chesapeake Energy's shale interests. The injection of capital will allow the second largest producer in the US to expand production. With prices at their lowest level for any December in the past 10 years, no sign that production might slow and lack of extreme cold, prices might move considerably lower before buyers begin to discern value.


Natural Gas Tech Talk                

Corrective action is now probably limited by 3.00, as participants drove prices under the psychological mark and our target of 2.996, as well. The path is now open to 2.409, and so, our bias changes for lower. Support changes to resistance once prices move through, and this becomes more so at important psychological levels, so 3.00 become first resistance. Settlement above 3.201 will change our bias and perhaps be an early warning signal a bottom has been reached. Above 3.44 will confirm this. The gap to the 13-day EMA has widened, and most price action, so far, has taken place below the pivot of 2.996, showing the market's inherent weakness. But failure to break below support in a meaningful way also shows the influence of some short covering action.

source: KilduffReport.Com