Negotiations on the fiscal cliff are starting to show signs of compromise. President Obama counter-offered the Republican bid for increase taxes on those making $1 million per year. The President wants $1.2 trillion in revenue and offered higher taxes on those making over $400,000 per year. Sources in the White House say that this was not a final offer.
This is what the markets were looking for. Much will depend on the final analysis of the economists whether there is too much austerity to foster growth. Nevertheless the initial response to a deal will be higher prices.
This is precisely what the markets are telling us this morning. But the strength is also seen in the structure of the curve. Feb/red Feb calendar spread has risen 13% from Monday. This is a material move of 13% overnight. Strong demand from Asia is part of the story and hope of a resolution in Washington being the other.
CRUDE: Hi: 87.90; Low: 87.33
Despite hope for a compromise in Washington, Jan has again bumped its head on the 88.00 level. it is possible to pop through that level for a marginal move to 88.25 to 88.35. although that may complete a leg to the upside, the spreads are telling us to be in a buy the dip mode. There will be minor support at 87.20 to 87.10. The minor downside pivot is 86.90. There is trend support at the 85.50 area that we see holding this market. For Jan to pick up bullish momentum will require a 5-minute settle over 88.50. This will produce an initial target of 89.00 to 89.10. There is a huge fib cluster at the 90.00 to 90.15 zone if things pick up that much. Let us be clear we look for higher prices but think they will stutter around 89.10 on the first pass.
BRENT: Hi: 108.46; Low: 107.94
Feb has again run into resistance at the 108.50 level. There is much year end tax selling and that is messing with the arb in a big way. However, Feb has work to do to prove itself bullish for the very short-term. The spreads here are showing a move that is slightly negative. The spreads are moving to a weaker backwardation. Nevertheless, Feb will have support at the 107.50 to 107.35 area. The minor downside pivot is 107.25. That will break trend support. Feb will show more strength once it punches through the key upside pivot of 108.50. with a five-minute settle above that level it is likely that Feb will proceed to the 109.35 to 109.50 zone. One would think that with a pick up in demand from Asia that this market would be stronger. It shall but that may wait until after the tax selling has been completed.
RBOB: Hi: 2.6810; Low: 2.6590
Jan keeps coming back to the 2.68 level, but has yet to break through significantly. This time around the pattern is indicating that puncturing 2.70 will unleash a quick jump to 2.7250 to 2.73. Jan will have minor support at 2.6550 to 2.65. The minor downside pivot is 2.6450. The key downside pivot is 2.5950. This will be a two-way market for Tuesday. We will look to buy the dip and sell the rip.
DIST: Hi: 2.9824; Low: 2.9589
The hourly chart has built a triangle at the 2.9950 to 2.99 zone. The uptrend of the triangle is the minor support for this pattern. That rests at 2.9650 to 2.96. The minor downside pivot is 2.9550. The key downside pivot that will eliminate the chance for a new high for Tuesday is a break below 2.94. This market is fighting the dearth of cold weather and the hope of an economic turn around with a resolution in the fiscal cliff talks. Certainty breeds healthy markets and if we are lucky a trend. This will be a two edged sword for Tuesday. The initial outlook is to buy the dip. The protective stop is below 2.9550. Jan will need to break the minor upside pivot, which is the top of the triangle at 2.9950. In so doing, Jan will be suggesting that a jump to the 3.04 to 3.0450 level may be seen. If seen that is a rip to sell.
NAT: Hi: 3.369; Low; 3.336
The hopes of snow for Christmas in NY has kept this market supported overnight. We see Jan moving higher as the day progresses. It will have minor support at 3.35 to 3.34. The minor downside pivot is 3.32. The key downside pivot is 3.26. Jan will have to pop through 3.40 to give it a shot at the 3.44 level. The extension pivot is 3.45. The key upside pivot is a daily settle above 3.52. We are a buyer of the dip at 3.35 with a stop below 3.32.
GASOIL: Hi: 924.50; Low: 919.25
Just as Distillate is in a triangular pattern so too is its cousin gasoil. Jan is likely to have one more minor leg to the downside to complete this leg of the pattern. That will put minor support at 920.00 to 919.00. The minor downside pivot is 917.00. The key downside pivot is 911.75. Jan will have a hurdle at 927.00 to get through to prove its merit for a run at 932.00 to 933.00.