Markets were generally quiet in anticipation of the Fed Chairman’s thoughts on the state of the economy and accommodation. During his testimony, Bernanke reiterated his dovish views, but said the economy showed modest improvement. But there are still weaknesses to overcome.
This notion was underscored by new housing starts that fell 9.9% in June. However, energy caught a bid following the DOE inventory report that showed a sharp drop in crude oil and offsetting rises in products. Crude was able to settle on the highest level of the day, and the second highest level this year.
Natural gas took a breather from its recent bullish thrust with a change to cool weather beginning this weekend in the Northeast; it does not appear the extreme temperatures will return for an extended period. This put the bulls on the defensive, allowing prices to ease.
Daily Moving Averages: 21, 55, & 100: 100.62, 97.23, 95.10
Weekly Moving Averages: 21, 55, & 100: 94.87, 92.66, 93.76
The pace of crude oil inventory declines has greatly increased over the past three weeks.
- In the last two weeks there has been a draw of nearly 17 mm barrels as refineries ramp up to the highest run rate in years.
- The Gulf Coast stocks to cover are at the lowest level is five years.
- This all supports the notion that the crude oil chart has unfinished business on the upside.
- Although the pattern is still ion a trading range, it appears ready for a breakout to the upside.
- This model is based on the minor downside pivot of 105.80 remaining intact.
- August has a minor upside pivot at 107.05, but the key pivot is just above at 107.45.
- We look for August to charge that level and attempt to break it.
- Once that hurdle is passed Aug will then shoot for the original objective to the larger degree structure at 108.75.
- It is a break of 105.80 that will signal a very short-term top. This will then give way to a drop to 104.70 to 104.50.
- The key downside pivot is 104.30.
- We are a buyer of the dip at 106.00 with a protective stop below 105.80.
Daily Moving Averages: 21, 55, & 100: 105.32, 104.28, 105.25
Weekly Moving Averages: 21, 55, & 100: 105.65, 108.69, 110.14
The rollover gap with August was taken care of on the debut of Sept as the front month.
- This market too has unfinished upside to deal with.
- It may just be a test of the continuation chart high at 109.72 or slightly above to 110.00.
- The model calling for higher prices is based on Sept holding 107.30.
- The where be initial support at 107.90 to 107.80. The pivot is as mentioned above.
- The key downside pivot is 106.80 and a daily settlement will be necessary for the pivot to be tripped.
- In so doing Sept will register a completed wave to the upside.
- With September closing on the high of the day it is likely that the follow through occurs without much of a dip.
- We are a buyer of the small dip at the 107.80 level. The protective stop placed below 107.30.
Daily Moving Averages: 21, 55, & 100: -2.41, -2.92, -4.10
Weekly Moving Averages: 55, 100, & 200: -7.37, -10.80, –15.83
September has a very difficult pattern to discern.
- The Labor Day contract did not violate any significant downside pivot.
- However, nor did it crash through the upside pivot at -1.90.
- But given the oversold condition represented by the stochastic measure below our bias is for a shot to the upside.
- For that to be operative will require Sept to bust the -1.90 pivot with a fifteen-minute settle.
- In this case Sept will challenge the recent high at -1.50.
- However, a daily settle above that level will stretch the rally to the -.75 to -.65 zone.
- Sept will turn back to a minor negative pattern with a break of the pivot of -2.70.
- This will produce a drop to -3.00 to -3.20.
- Although we are slightly more disposed to the upside, we will opt out of the market due to the lack of clarity i the picture.
Daily Moving Averages: 21, 55, & 100: 2.8828, 2.8561, 2.9071
Weekly Moving Averages: 21, 55, & 100: 2.9294, 2.8913, 2.8788
Our model for Wednesday suggested that August had completed a significant upside pattern.
- With a build of 3 mm barrels in the DOE report and refineries running at the highest rate in years August should be under pressure relative to the rest of the complex.
- Indeed August attempted a test of the Tuesday high but fell well short of the objective.
- Although it did not break a serious downside pivot, it appears that a strong crude market will only act to soften the cracks.
- The rising crude may allow for another test of 3.15, but that is probably the extent of the advance.
- August will have initial resistance at 3.13 to 3.1350. The minor pivot is 3.1410. The key upside pivot is 3.1510.
- Our model suggests that August will seek another minor move lower for Thursday.
- This will be signaled with a break of 3.0975.
- It is probable that August sinks to 3.08 to 3.0750.
- The key downside pivot to the short-term formation is a removal of 3.07.
- This will give August the opportunity for a drop to 3.04 to 3.0350. It will also bring some relief to rising pump prices.
- We are a seller of the rally. This will be attempted at 3.1300. The protective stop placed above 3.14.
- While not anticiapted, a violation of 3.1510 is likely to net a rise to 3.1750 to 3.18
Daily Moving Averages: 21, 55, & 100: 2.447, 2.543, 2.514
Weekly Moving Averages: 21, 55, & 100: 2.513, 2.451, 2.404
Better weather forecasted for the grain belt put pressure on new crop corn Wednesday.
- This spilled into August and enabled it to fill the break away gap left Tuesday.
- August met our downside objective and staged a mild bounce.
- Although Thursday appears to be a day for consolidation, there appears to be another move higher to come.
- This model is based on August holding 2.50 before moving higher.
- Nevertheless, in keeping with the congestion for Thursday the probable resistance will be resting at 2.54 to 2.545.
- The pivot is 2.558. If removed August will jump top 2.57 to 2.575.
- We are neutral of this market for Thursday.
Daily Moving Averages: 21, 55, & 100: 2.9450, 2.9118, 2.9130
Weekly Moving Averages: 21, 55, & 100: 2.9224, 2.9955, 2.9983
The strength for August came despite high inventory levels.
- The build according to the DOE was 3.7 mm barrels.
- Yet the strength is likely due to the nemesis of spread traders, the WIDOW MAKER.
- That is the the buying of rbob and the selling of diesel.
- There was a five-cent drop in the value of the spread Wednesday.
- However, while it appears there can be more upside for August initially, the pattern is drawing to a conclusion.
- There will be initial resistance at 3.0850 to 3.09.
- The pivot is 3.0950. The key upside pivot is a daily settle above 3.1050.
- We are a seller of the rally at 3.0850 with a protective stop placed above 3.0950.
- August has a down side pivot of 3.06 that will register a very short-term top.
- The more important pivot to confirming a peak is a break of 3.0150.
Daily Moving Averages: 21, 55, & 100: 3.684, 3.875, 3.905
Weekly Moving Averages: 21, 55, & 100: 3.880, 3.477, 3.236
We have been touting a weather change to hit the markets as the heat wave in the East gives way to more seasonable temperatures.
- Moreover the cooler weather in Texas as compared to the norm has sapped demand from the market.
- Production is getting cheaper to produce and more efficient. If the heat wave cannot spur demand the bulls are sunk.
- August will have a minor pivot at 3.60 that if busted will net a drop to 3.56 to 3.55.
- The latter level represents the neckline of a head and shoulders top. Failing to hold this level will net a drop to the key pivot and beyond.
- This will become painfully obvious with August breaking below the key downside pivot of 3.525.
- With a break of the key pivot August will challenge the 3.42 to 3.405 zone.
- A word of caution. The hedge fund community met Wednesday and they were bulled up on the long term prospects for nat.
- We agree with the assessment, but feel it is too far off to be jumping on the band wagon. Nevertheless, they may take the anticipated drop as an opportunity to get long. Be careful of a snap back rally.
- The bearish view is contingent upon August not violating resistance at 3.720 although there is likely to be resistance in the 3.67 to 3.69 area.
- We are a seller of the rally at 3.69 with a stop above 3.72.