MacroView

Markets are mixed in overnight trading, but weekly jobless claims fell by 12,000 to 367k, a notable decline. This conflicts with a report from the employment firm, Challenger, that layoff notices are up 39% versus a year-ago, and calls into question the sustainability of the current equity rally. For the contrarians among us take note: it appears that sell-side analysts are revising upward their outlooks for the stock market, having come into the year with dim views and gotten that left-behind feeling. The efforts by the ECB to liquify euro zone banks has certainly worked well, and more is on tap this month. The earnings wipe out at Deutsche Bank shows how badly the measures were needed. We sit here still awaiting a Geek debt deal, and the Germans are getting increasingly annoyed. The latest has bond holders taking a 72% principal reduction. Please don't dis-friend (?) us for saying, but the Facebook IPO filing has certainly been a distraction, an albeit hopeful one, to the markets. It looks to be valued at between 75-100 times earnings with 12% of its revenues coming from an on-line gaming application that encourages users to form their own virtual farm communities. Hopefully, it won't go the way the way of citizen's band radio. We're just saying. Crude oil has broken down below critical support at 97.40, and looks to be reflecting the slowing economic conditions -- gasoline demand continues to be down markedly in the weekly reports. As the official publication of Reality Heights, we remain cautious.
 

Petroleum Markets

Generous additions to stocks, recorded by both API and EIA added to the souring sentiment already extant after disappointing European debt machinations. Even a strong euro, and bright PMI readings were not enough of an offset. Iran has moved back into the shadows for the moment with postponement of a European embargo until mid-summer. Non-OPEC output continues to climb, particularly from Russia where production was posted at 10.21 MM/bpd by its Energy Ministry. Very telling though were the faltering demand for gasoline in yesterday's stockpile measurements. They sound a very cacophonous warning that US consumers continue to exercise very tight control over discretionary spending. This was also echoed in the disappointing Christmas season revealed in retailers Q4 earnings. So we are still having a hard time seeing an unencumbered upward path for oil with Europe on the brink, the US still struggling and pundits debating whether China will have a "hard" or "soft" landing.


Petroleum Tech Talk   
 
There is a clearly discernible downward channel on the crude oil daily chart. The market has only been able to briefly poke its head above the 13-day EMA with a few daily highs but settlements have been below for nine sessions. We are therefor changing our bias for lower. Confirmation though will require a breach of 90.52, the point from where the last leg higher was launched. The overbought condition has been worked off and the market has not posted new highs over the 103.37-103.74 resistance. The back of the trading range may have been broken with yesterday's settlement below 98.00, and the break below recent lows. There should be considerable resistance now at the psychological mark of 100.00.


Natural Gas      
      
How surprising can it be that prices have continued their downward path after a brief counter-trend rally? Hardly surprising at all with population-weighted heating degree days since November 1, 2011 down over 10%, causing storage totals to jump over 20% higher than last year and heading towards another season-end record. Production rose to a record 72.61 bcf in November, and time is running out for Mother Nature to provide any significant support. Even if more entities announce price related production constraints, it will take some time to work off the storage overhang which is becoming increasingly onerous. This is why we feel completely at ease calling for 2.00 to be challenged before the month is out.


Natural Gas Tech Talk  
               
Interim psychological support at 2.409 was broken on settlement signaling that the run-up off the temporary bottom at last week's low of 2.231 has concluded, an will become the current short-term target. Measuring off the move from 6.108 to 3.255 from the recent break at 4.983 produces the next lower target at 2.13. After that is reached there is no significant support until the 202 low of 1.96. First resistance comes in today at 2.45, followed by the 13-day EMA at 2.602. Subsequent surges should produce less and less intensity with the weakest shorts now purged, so generation of enough momentum to surmount that mark is highly improbable.

source: KilduffReport.Com