Abject weakness visited the energy complex again on Thursday. This was mostly in response to the ECB cutting the economic forecast for the euro zone. It immediately put an offer in the crude and products as they were reeling from the Wednesday inventory reports. The selling was sufficient to knock crude down to trend support at 85.68. The political parties in Washington seem far apart on the fiscal cliff negotiations. It was also noted on Thursday that 6 hedge funds closed their shops in November, and 2 more are cited to close in December. This has affected liquidity in all markets, but especially in the equities, oil, and gold.
The Middle East has not settled down at all. Concern is mounting over Syria’s use of chemical weapons, as they have loaded aerial bombs with the key ingredients for sarin gas. In Egypt, tanks surround the presidential palace; demonstrators have been showing their anger towards the President for trying to usurp judicial power. Despite the geopolitical support, energy has been falling hard and fast lately.
This is due to the weaker economic outlook in Europe and uncertainty regarding U.S. fiscal policy. It has kept investors sidelined. Tax ramifications starting in 2013 have been partly responsible for the aggressive selling in commodities. The metals have been particularly weak as investors bail out of their length.
In terms of natural gas, Jan was able to push to a new high Thursday following better than expected inventory. After having reaching the 3.75 area, however, profit taking came in, and weather reports using the GFS model cited warming weather over the next 10-14 days. This contrasts with other meteorologist that are looking for sharply colder weather and very snowy conditions during the last half of December through the first half of January.
As we turn to Friday, the all-important and confusing employment situation report will be announced. The confusion is a result of the effects of Sandy being addressed in the numbers, and no one is sure what to expect.
WTI S2 S1 CLOSE R1 R2 TREND
DAILY 8405 8536 8626 8695 8825 DOWN
WEEKLY 7890 8548 8891 9111 9500 CONGEST
Daily Moving Averages: 21, 55, & 100: 87.12, 88.56, 90.90
Weekly Moving Averages: 21, 55, & 100: 91.19, 95.13, 94.86
We moved into Thursday with our negative bias intact.
The outlook for Thursday was for Jan to continue to fall, and with a break of 86.40, we were going to see trend line support at 85.60.
The negativity of this pattern continues into Friday.
There is minor resistance at 86.85 to 86.95.
The minor upside pivot is 87.46.
Jan is seen moving lower from the retracement, and is likely to fall to a new low from the one seen on Thursday.
If this model is correct, Jan should fall to the key downside pivot at 85.36.
A break of 85.36 will target the monster downside pivot at 84.00.
We are a seller of the rally at 86.80 with a stop over 87.10.
There is a key upside pivot to the intraday chart at 88.25.
Although the calendar spreads are holding in, it is just a congestion pattern.