MacroView

Weekly jobless claims dropped markedly in this morning's report to the lowest level in four years. Claims fell by 50,000 to 352,000. This is still not a small number, but, in the context of the recent past it is a barn-burner. This would seem to validate the recent move higher in equitites, as would, of all things, the earnings reports out of the financial sector. Goldman was better-than-expected, yesterday, and, today, Morgan Stanley came in better with Bank of America swinging to a profit. The leaked proposal by the IMF to raise upwards of $500 billion dollars to stabilize the global economy should not be overlooked. If you couple that with the recent moves by the ECB, it adds up to some potent tonic for the euro zone financial sector. Sovereign debt auctions have been going well across Europe. The looming storm cloud on the horizon is the Greek debt situation, but even that is now being downplayed. Supposedly, Angela Merkel advised German leaders that the Greek problems may persist, but the contagion fears have passed. The cash S&P 500 is above 1300, and it shows no sign of quitting. In fact, the equity market is off to its best New Year start since 1987. At this point, don't fight the tape, the under invested public is likely to start piling in at any moment now. We would wait to sell.
 

Petroleum Markets

So far today, crude oil prices have held a fairly tight range. A precarious equilibrium, balancing between demand expectations and potential supply disruptions, appears to have been temporarily struck; as IEA lowered its global demand forecast and drum-beating for a causus belli over Iran's nuclear intentions continues apace. There is an overload of conditions for participants to parse. The next directional cue could come from the Energy Department's stockpile report. Alternatively, this week's unemployment figures from the Labor Department may hold the key. Everyone knows an actual supply disruption, will spike prices substantially higher, so potential buyers are on a hair-trigger. How, if or when Europe comes to a resolution or not to its current maladies will take longer to work through the markets from which a longer, more dependable, albeit, slower trend could develop. Consequently, short term position modulation is the dominant feature. Longs fear getting the rug yanked out from underneath them as last week's announcement of a European moratorium on sanctions demonstrated. Alternatively, shorts know that a sudden move by Iran or anywhere in the Levant could leave them decimated.


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            

Nothing we do not know about the gas market will have much directional influence as its oversold condition. This too will change and at the least expected moment. Volume and open interest at extraordinarily high levels suggests the moment may be imminent. Fresh shorts are being opened, and these represent the weakest holders. Markets may hold this condition for a considerable length of time, particularly when fundamental and technical elements point in the same direction. Look at the March/April spread for instance. It is now in a contango wide enough to cover the cost of adding to inventory. The logic for traders being that with production still at high levels, and utilities compelled to dip into storage, the "storage trade" offers opportunities unheard of in the middle of winter. Moreover, the only condition that will lead to unwinding is the sudden appearance of an an arctic blast of substantial strength and duration. The window for that is closing as pages are torn off the calendar. Look for EIA to report a pull of 109 bcf from stocks later this morning. With consensus near 90 bcf, this may be the shot from the starting gun for the weak shorts to begin the race for the exits.


Natural Gas Tech Talk                 

We will keep our bias for lower as long as the market persists in probing new lower territory. However, the market is grossly oversold, and short-covering, may begin in earnest at any moment. The current slope on the chart is unsustainable. We still look for the 13-day EMA, today at 2.796 as a good place to put buy stops. A settlement below our target of 2.409 may generate enough momentum to put 2.00 under assault fairly quickly, but with open interest overwhelmingly short, a "blow-off" situation my be developing. If momentum carries above 3.00, a temporary bottom is in place and potentially could carry to the former support level, now turned key resistance, at 3.44, although we think this highly unlikely.
 

source: KilduffReport.Com