IntroView  

What a difference a long weekend makes! The troubles of the world dissolved like an Alka-Seltzer in a glass of post-New Year's curative water, at least that seemed to be the markets verdict, yesterday. Most everything surged higher. But will it last? There does not seem to be much follow-through this morning, although the losses are small in the pre-market. US equities did come off their highs into the final moments of trading. The Federal Reserve seemed to sound the alarm bell in their release of their last meeting's minutes. The economists out there were bouncing off the wall with excitement over the announcement of increased transparency regarding targeted interest rate goals. However, a reading of the minutes in regards to their economic outlook showed real concern by the staff and the governors. This coincides with warnings of economic difficulty ahead from euro zone leaders over the long weekend. It seems we should all take heed, despite yesterday's jump start.  The employment report looms large on Friday, with the ADP preview and weekly claims, tomorrow. Watch Europe, however, the German Bund auction this morning was not great, and the situation in Spain appears to be taking a rapid turn for the worse. The likelihood of yesterday's gains being maintained are low... unfortunately.
 

Petroleum Markets   
     
The market came very close yesterday to breaking above the recent high of 103.37, as hopeful economic data and concern about Iran's intentions led shorts to prudently cover. Certainly understandable. Participants have seen this before and no one wants to get run over by a move propelled by emotion. Add to it, some positive economic data and buyers' motivation becomes clearer. It is hard to see what Iran has to gain from the very, very dangerous game of geopolitical chicken they are playing. Certainly, a short-term gain in oil prices gets much needed dollars flowing into their treasury, but the risks they run hardly seem worthwhile. But they can create a lot of mischief. They can only actually close the Strait of Hormuz for a couple of days, maybe a week. As a consequence they risk a substantial erosion of their maritime capabilities, further isolation, and the ire of, not only their neighbors', but the entire global community. Additionally, Europe's problems are not going away. Most economists now think a recession is inevitable. Finally, the developing world's export driven economies are not going to carry the world into recovery when their customers are in recession.


Petroleum Tech Talk   
 
Price action almost carried past the old high of 103.37, but failed, and is now trading almost a dollar lower. We will keep our bias neutral. The inverse head and shoulders formation would have been negated by a move above that mark. But the move above the neckline's highest point targets 103.37, and only a move below the previous highs of 101.70-77 will remove that threat. A settlement break of 103.37 will change our bias to 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. The market has just broken through 102.00, an may possibly erase yesterday's gains. Falling open interest in a rising market shows shorts are exiting with no new length is being established.


Natural Gas    
      
As we said yesterday, a few days of more seasonal temperatures are going to be scant help for potential market bulls. While there was a good deal of short-covering activity, enough to put up a daily high of 3.074, prices still settled under 3.00. In fact, the finish was under the target price of 2.996, even with post-holiday industrial demand. The fundamentals are overwhelmingly bearish, and they are structural, in nature. The onerous supply overhang, absent a sustained blast of very cold weather, of necessity, can only continue to expend. Production shows no sign of abating. This is probably why the latest Commitments report showed speculative interests increasing short positions on NYMEX. Who can blame them? But, this enthusiasm for lower prices can lead very quickly to oversold conditions building up quickly, leading to violent reversals, particularly at this time of year. Hopeful surprises contained in economic data could potentially produce outsized reactions. Look at these as opportunities to open short positions at more advantageous levels than current levels.


Natural Gas Tech Talk                
 
Short covering action yesterday could not sustain levels over 3.00. More corrective action should be contained below 3.20. Consequently, we will keep our bias for lower. Next support may appear near 2.80, but there is really no significant support until the 2009 low of 2.409. Settlement above 3.201 will change our bias and perhaps be an early warning signal a bottom has been reached. Momentum that generates a move above 3.44 will confirm the move lower has concluded, The gap to the 13-day EMA has narrowed a bit and price action, so far, has approached first resistance for today at 3.066, but has not breached it. The opening at 2.978, above our original target of 2.996 shows that some weak shorts need to be cleaned out before the market can proceed lower.

source: KilduffReport.Com