ALERT: JAPAN WOES WEIGH ON GLOBAL MARKETS
| Contract | Month | Last | Change | BIAS | Comment |
| Crude Oil | December | 85.00 | .14 | Lower | Settlement below $85.00 targets June lows. |
| Natural Gas | November | 3.536 | -.018 | Neutral | Support holding, but vulnerable. |
| S&P 500 | December | 1406.00 | .50 | Neutral | Regainng 1400 and higher shows inherent strength. |
| EUR/USD | December | 1.2794 | -.0037 | Lower | Push below 1.2800 opens way to 1.2600 |
Macro View
Friday proved to be a difficult day for the markets, with equities, oil and gold all down. The jobs data was a mixed. More jobs were created, but not nearly enough for anyone’s liking and the rate ticked up. The initial print was well received, due to low expecations that were exceeded, but the markets sold-off in short order. One concern was that the data were good enough to allow the Fed to see an exit plan, which is way premature. A larger problem that appears to be emerging is the economic basket case that is Japan. Quietly, over the weekend, it was revealed that Sharp electronics is on the verge of bankruptcy and will require a government bailout, which the government is prepared to deliver. This is an addition to huge losses at Panasonic and Sony. The strong yen and competition from South Korea and others are the culprits, but it is amazing to see the behemoths of “Japan Inc.” falter to such a degree. The once-a-decade leadership change occurs in China this week, and, of course, the U.S. Presidential election is held tomorrow. There is serious speculation about a tie in the electoral vote count, and both sides are lawyered-up. So, more uncertainty may in store for the markets. Whatever the outcome, there are real problems out there, and they are not ending anytime soon. Germany’s Chancellor Merkel said that she sees the euro zone debt crisis lasting another five years. Can we wait that long? Look for a quiet day ahead of the election results, which may take several days or longer to tabulate.
Crude Oil Market
Stocks of crude oil are backing up with refining infrastructure still hampered as a result of Sandy. Additionally, investors are unconvinced about the recovery in the US and China, the world’s biggest oil consumers, while fuel use by key consumers like Japan, France, Spain and Italy continues to drop as their economies continue to weaken. This comes at a time when Saudi Arabia is increasing its oil production to avoid a supply shortage that may arise as conditions in and around the oil producing regions in the Middle East continue to deteriorate, adding more downside pressures on oil prices. The murky political picture in the US is complicating the outlook for global recovery, as well. The cynical calculation holds that neither Romney or Obama will allow the economy to go over the “fiscal cliff” but clear resolution is not apparent from either camp’s policy statements. Clearly, then the only bullish element right now is from the geopolitical sphere, which is momentarily quiescent.
Crude Oil Tech Talk
Crude oil breached the 61.8% retracement of the 77.28 to 100.42 move last week at 86.12, so a deeper decline is still in favor in near term. But there should be strong support near the June lows at 77.28 and a fairly significant rebound should ensue. Focus then will be on a reversal sign as the current decline extends. On the upside, above 87.42 resistance will indicate short term reversal and will turn bias back to the upside for 93.66 resistance and above. Break of 110.55 will strongly suggest that whole rebound from 33.29 has resumed for a test of 114.83. Friday’s activity has widened the five-day average range to 1.714 which projects a low today of 83.51, just below first support today at 83.93.
Natural Gas Market
A significant number of homes and businesses remain without power this morning, offsetting a drop in temperatures over the past few days. But the beleaguered gas market still has to contend with otherwise overwhelmingly bearish fundamentals, despite the onset of winter. Thursday’s EIA report, put stockpiles at just under 4 Tcf; more than ample to endure winter demand, whatever its ferocity, with production still at or near record highs. Still, the elevated amount of offline US nuclear capacity as well as a burst of activity which is sure to accompany reconstruction could serve to place a floor under prices. Baker Hughes data, released on Friday suggested that rising prices may be a harbinger of increased output as idled rigs are revivified. A drive to $4.00 will accelerate this phenomenon. The most likely scenario though should keep prices consolidation until a sharper picture of winter demand emerges.
Natural Gas Tech Talk
Near term outlook stays neutral as long as 3.355 support holds even though upside momentum is not too convincing. A break of that mark though will suggest near term topping and argue for a deeper pull back. But the current move above 2.575 should extend further towards key resistance, next at around 3.92. Break will target 4.00 psychological resistance. A sustained break there will set the stage for a test on 4.983 key resistance. Meanwhile, break of 2.575 support will argue that the rebound from 1.902 is over and a larger down trend is still in progress for a new low. But, for the moment, that prospect is highly unlikely and prices will probably hold the former resistance level, now support at 3.255.
Michael Fitzpatrick
Editor-in-Chief
[email protected]