IntroView

Equity markets continue to show strength. Alcoa posted decent earnings, especially considering how fearful the market was given their warning last week. The company posted decent revenues and sees a supply deficit in 2012, which strikes us as curious that they would cut their capacity by 12%, as was announced last week. The financial stocks have also been rallying, which is a bullish sign for the overall market. JP Morgan reports later in the week, and the same fears that gripped Alcoa surround the financials. Many are expected to post losses for the quarter, announce layoffs, and long for the good old days. In a CNBC interview, yesterday, Jamie Dimon seemed very upbeat, so look for some upside surprises.(Click here to view). Euro zone debt sales are going well, so far this week, and more good news looks to be on the way. The ECB is expected to cut rates, which will bring them to a historic sub-1% rate. So, the markets continue to feed on the efforts of the central bankers to stabilize things. Certainly, the US economic, of late, is helping. The extreme volatility has ceased for now, and the old school market players will tell you that as this first week of trading of goes, so goes the month and the year -- we are not sure how you program that into the high-frequency trading algorithms, but there must be a way, right?

 
Petroleum Markets  

Iran's bellicose verbiage has succeeded in pushing up oil prices, without closing the Strait of Hormuz, or even firing a shot in anger. Also, the prospect of more monetary easing in China is fueling the idea that demand may be stoked in this export driven economy. Investors also seem to be cheered by the determined happy talk from yesterday's Mer-kozy huddle, pushing up the euro at the dollar's expense. Good neighbors, Saudi Arabia and GCC colleagues are only too happy to add to releases from their customers' strategic oil supplies as more and more oil revenue flows into their treasuries to fund the extravagant promises made to restive constituencies. Directional impetus remains unchanged as perception of Europe's maladies, geopolitics of the Middle East, the US economy and whether or not China will be able to orchestrate a soft landing shifts through the prism of the latest headlines. Adding to the resultant volatility will be corporate earnings and inventories. Iran aside though, we remind that there is still no substantive resolution in Europe and China alone is not going to support global aggregate demand. And if Iran chooses to act to its own detriment, which they have demonstrated they are quite willing to do, the subsequent spike in oil prices will hardly benefit the worlds economic future.


Petroleum Tech Talk     

Price action has posted fresh highs at 103.73 and 103.74 on successive days last week and so our bias remains for higher, from a technical perspective. Failing to almost 100.00 yesterday though and a momentum oscillator failing to track recent highs makes us skeptical. But until first support at 98.30 from Dec. 29 is broken on settlement we will continue to lean towards higher in acknowledgment of the Iran influence. A break below will suggest that the move higher has concluded at 103.74. A breach of 92.70 will target key support at 90.52, where a further break may point to the 74.99 low from October. A break above last week's highs will target the Spring highs at 114.00, with only interim congestive resistance in the 104-106 area, which we suspect could be reached and surpassed very quickly on an exogenous influence. But be very, very careful. Visceral reactions frequently give up ground fast or sometimes even faster than it was gained.


Natural Gas            

Price action yesterday can be characterized as more probes under 3.00, but short covering and bargain hunting was encouraged by a drop in the mercury to more normal readings. The Commitments report confirms short covering by both speculative interests and hedgers alike. But a marginal drop in temperature in the high consumption regions will do little to rebalance the structural weakness of the market, and participants are still looking at another record storage overhang, come Spring. Each session that passes without another new low, increases the impatience of holders of short positions. A Bloomberg story yesterday entitled, " Fracking Moratorium Urged as Scientists Call for Health Studies," may be a shot across the market's bow that public opinion is shifting against one of the primary sources of the record production that has been weighing on prices. Our more immediate concern though is the delayed winter which will probably attach a consistent 2.00 handle to prices into the season's end.


Natural Gas Tech Talk                 

As long as price action only admits marginal peeks over 3.00, and 3.201 remains intact, we will keep our bias for lower. We do suggest moving stops on short positions now to potential settlements over the 13-day EMA. It will however, take a settlement over 3.201 to suggest that a temporary bottom has been placed, which also puts former support, now resistance, at 3.44 in participants' crosshairs. As the calendar heads into the coldest months of winter it will be increasingly more difficult for the market to hit our targets given an open interest still saturated with short positions, short covering notwithstanding. The real test though will be coming in March as participants ponder end of season totals poised to break records again, which potentially could hold a test of 2.00.

source: KilduffReport.Com