IntroView

There are further gains for US equity markets this morning. Among the featured items, Goldman Sachs beat earnings estimates quite handily, but their results were still down 58% from a year-ago. Revenues also missed almost as handily, and compensation as a percentage of revenue was down to nearly 40%, well below historical norms, which may not be seen again for a very long time. There is word that the IMF is looking to raise upwards of $1 trillion from countries such as Brazil and oil producers to further stabilize the global economy. The amount is a moving target, but the move is tangible evidence of the fears of further slowing, despite the recent spate of seemingly good economic news. To the latter point, Bloomberg has feature story on the resurgence in the US auto industry, highlighting the resumption of third-shifts at some plants and the knock-on effect in the economy. The US car fleet is quite old, so some of this renewal has to do with "check engine" light fatigue. Still, it is another positive sign. The euro zone and the looming Greek default still remain a big question mark, as does the slowing Chinese economy.  For now, it does not pay to fight the tape, but it may pay to be prepared.
 

Petroleum Markets

Headlines are driving the euro higher, as the IMF seeks to add substantial resources to aid in the debt crisis. Help from China and Brazil appears imminent, as well. Iran will just not go away, even as most acknowledge that an Iranian engineered supply disruption will carry far greater cost for them than the may want to endure. The Iranian government has warned gulf countries not to cover any shortages if sanctions are eventually imposed. Industrial production data, to be released later today, is expected to add luster to yesterday's unexpectedly bright Empire State manufacturing index. The sum and substance behind crude oil's post-holiday surge is rising optimism over global economic prospects joined with the threat of supply disruption. Contained within the limited scope of the rally though, is a suggestion of considerable skepticism, which we share. Fitch expressed as much yesterday, calling a Greek default, "inevitable." The export-driven developing countries are not going to be able to carry the world out of economic malaise. Europe, at best, faces many years of struggle, as does the US. Iran, for all its bluster, is not going to shoot itself in the head. We are terrified that the market may get the rug yanked out from underneath it, just as it did last Spring.


Petroleum Tech Talk     

The market has now posted several sessions of higher highs, higher lows and higher settlements. Volume has been good and open interest is expanding. The recovery off the recent low of 97.70 seems to be continuing but price action at the higher levels appears to be struggling so we will keep our bias neutral until the recent highs above 103.00 are bested in a meaningful way. But as long as 98.00 interim support remains intact, there is still a possibility of a move higher. A drop below 97.70 will suggest 92.52 is in jeopardy. A breach there should bring key support at 90.50 under assault, opening the way to 74.99. But a significant move above the 103.34-73/75 resistance could have enough momentum to reach congestion at 105.00-106.00, and last Spring's highs near 115.00.


Natural Gas   
         
There has been a bout of cold in the East, but it is just not enough. NOAA is now predicting above normal temperatures across most of the US through the end of Jan. Consequently, gas accelerated its march lower yesterday. However, each lower marker makes a successive lower notch more and more difficult. While there is no way to predict when or if a round of counter-trend action will commence, forewarned is forearmed. Tomorrow, EIA should report a pull from stocks of 108 bcf, well below historic norms, widening the onerous overhang. As the winter season winds down, the time remaining to generate any sort of substantive, surplus narrowing demand, is slipping away. Certainly, with the market as short as it is, any appearance of colder temperatures may produce trigger a hyper-sensitive short-covering reaction. Still, any upside should be limited and be looked at as a repositioning opportunity.


Natural Gas Tech Talk   
              
Bias remains for lower, as the market keeps posting fresh lows for this move. Front month February came within 3.00 cents of our target of 2.409. however, we believe a short-covering rebound, possibly a violent one, is imminent. The market is grossly oversold. RSI is entering a zone where the potential for such a reaction is very high. Still, long, deep trends can maintain oversold/overbought conditions for quite a while. The 13-day EMA should be a good place to cover shorts. A break above 3.00, will signal a temporary bottom has been formed, and could generate enough momentum to carry quite far, particularly given an open interest saturated with short positions. A resumption of the move lower, once 2.409 is meaningfully broken, targets 2.13.

source: KilduffReport.Com