IntroView

Equity futures are on the rise this morning, in a big way. China's Q4 GDP reading is the focus, as is a steep rise in German investor confidence. The long weekend in the US gave enough time to obliterate the market wounds finally inflicted by S&P, in the form of credit downgrades of nine euro zone countries and the ESFS rescue facility. Citigroup has hit the tape with a big earnings miss, likely a harbinger of a week's worth of bad financial sector earnings to come. The China GDP reading might, at first glance, erase the concerns of a significant slowdown occurring. The top-line number does look solid, but both  foreign direct investment and export growth were down, which is a problem that could build significant momentum. We read this morning that China now has more urban dwellers than rural for the first time in its history. This remarkable achievement requires strong and continuing growth -- a fall to even a 6% growth rate could imperil the overall situation there. Look for euro zone concerns to resurface, after this morning's exuberance. The inevitably of Greece's problems are coming to the fore, once again with increasing talk of default. Nonetheless, the equity rally has been running for nearly a month now, and it looks to continue for a while yet.
 

Petroleum Markets

Participants have apparently concluded that it is safe to begin acquiring length again. The logic seems to be the result of analysis that Chinese GDP growth of 8.9% in Q4 has left the export-driven, Sino-juggernaut untouched by Europe's maladies. Additionally, this lower than expected result also indicates that Chinese monetary policy has been effective in keeping inflation in check requiring no further tightening and suggesting that domestic crude oil demand growth is set to expand again. A relatively successful French debt auction has also dimmed concern over last week's downgrades lifting the euro at the dollar's expense, consequently making crude oil more attractive. Questionable logic notwithstanding, the market is on the rise; buyers' motivation probably coming more from the continuing potential for supply disruption. While the Iran threat has marginally receded, Nigeria now looms. Also, a comment by the Saudi oil minister, that they were desirous of prices stabilizing near $100, suggested defense of a higher floor than in the past.


Petroleum Tech Talk
    
Last week's break down to support and today's rally keeps upward momentum alive, but we will keep our bias neutral until recent highs are bested. A strong break above 103.73/73 may gather enough momentum to carry to 114.00 or higher. Alternatively, a convincing break of the 98.00, the shoulder of the inverted head and shoulders formation, will suggest a challenge to the head near 94.00, and may pull momentum enough to break key support at 90.50, the point from which the last leg higher broke. A break below will cast our bias as lower for an eventual test of recent lows at 74.99.


Natural Gas      
      
Market drivers remain overwhelmingly bearish. Prices keep dropping, and are at their lowest level for this time of year, since 2002. Winter temperatures have yet to show up in a meaningful way. Pockets of demand producing readings have been registered here and there, but hardly enough to draw from stocks anywhere close to historic norms. The surplus to previous years keeps growing, and with the season passing into memory, the window for weather cold enough to eat into it is closing. As a consequence, market participants are anticipating another record busting storage total at season's end. Prices are closing in on an area where serious financial duress may force production to be shut in. However, with crude oil prices moving up over $100.00, there is a mounting potential for fuel switching. Additionally, public opinion against fracking, the primary source of overproduction, holds the possibility the practice may be curtailed. Downward momentum is picking up, as well. These factors may be an early signal a temporary bottom may be near.


Natural Gas Tech Talk  
               
Price action shows there is little fear of new lower territory. Our target 2.409, the 2009 low, is drawing closer. A trend-line connecting market bottoms since the early 90s was breached at 2.685. Our bias remains for lower, but we are concerned about the increasing velocity of the downward momentum. This is usually an indication that fresh shorts are being opened. Doing so near historic lows means weak shorts are expanding an open interest already saturated with these positions. We will keep our bias for lower then, until the 13-day EMA is breached on settlement , at which point we will shift to a neutral stance. Obviously then we will keep the bias for lower. Stops on short position should now be place at 2.937, the 13-day MA, at which point we will have a neutral bias. Watch out for a session where fresh lows are posted, and settles higher. This may be an early warning a temporary bottom has been placed.

source: KilduffReport.Com