The Great Commodity Sell-Off

On April 17, 2013 by TradingDesk
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The great commodity sell-off of 2013 is continuing, after most prices got a bounce Tuesday afternoon. The short duration and small scale of the rebound suggests we are in the midst of a real bear market for most commodities which should bring a test of the lowest prices of the past year. $2.70 will be a pivotal support level for both RBOB and HO futures. If $2.70 falls, expect a move into the $2.50 range. If support holds, expect a period of consolidation with a retest of $2.90 likely.

US Stocks are adding to the negative sentiment today, with weak bank earnings bringing fear back into the market, and equity futures have already wiped out most of yesterday’s gains. The fundamentals of a slow US economy, slowing growth in China, and a severe recession in Europe are becoming hard to ignore in stock prices, just as the commodities markets have already proven over the past few weeks. The big question may soon become what can the FED and other central banks do to stem the tide of selling.

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US Stocks Suffer Worst Day of the Year Monday

On April 16, 2013 by TradingDesk
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US stocks suffered their worst day of the year Monday as weaker Chinese data started the selling in the morning, and the sad news out of Boston caused the drop to pick up its pace in the afternoon. Risk assets across the board sold off heavily as fear and uncertainty took hold, and when it was over, crude oil prices were at 9 month lows, RBOB and HO are touching their lowest levels of the year, and Gold had the worst single trading day in its 34 year history. Most of these markets are now bouncing this morning as it appears that the attack was not part of a larger plot, and some of the panic of yesterday afternoon has subsided. Despite the sell-off, both the S&P 500 and DJIA have held their bullish trend lines in place since November, which has supported a 16+% rally. The “Sell by May and go away” calls are picking up however, which sets up an interesting show-down in stock markets over the next two weeks.

Refined products fell a nickel overnight, as Brent crude broke below $100 for the first time since July, and as WTI completed a bearish head and shoulders reversal pattern, reaching its objective of $86. The bounce from that point, from $2.70 for RBOB and $2.77 for HO, set up the next layer of support for the contracts to target to continue their bear market. The flight of speculative money appears to be continuing across commodities, with metals remaining the most dramatic example, and could continue to put pressure on values as more liquidations may be forced to meet margin calls on losing positions, creating a snow-ball effect for sellers. While both contracts are becoming oversold and due for a corrective bounce, it is looking more likely both fundamentally and technically, that last summer’s lows in the $2.50s will be tested before the selling is complete.

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Energy Markets Remain on the Cusp of a Major Sell-Off

On April 15, 2013 by TradingDesk
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Energy markets remain on the cusp of a major sell-off, along with most other commodities that are trading at their lowest levels of the year. News that China’s GDP growth cooled modestly sent most risk assets into the red overnight, with energy futures off nearly 2% at one point. HO and RBOB were down 4-5 cents respectively, but have recovered most of the losses on news that a power outage in Pt. Arthur TX knocked all area refineries offline yesterday – over 1 million barrels/day of capacity combined – and caused a fire at Total’s plant. So far, the other plants do not appear to have suffered any damage, so the bounce may be short lived. With all of the contracts testing or breaking support today, keep an eye on Brent crude, if it breaks below $100/barrel, a bear market in energy prices may have just begun.

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Energy Prices Ignore Another Rally

On April 12, 2013 by TradingDesk
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Energy prices ignored another rally in stocks Thursday, and dropped below the pivotal support levels we’ve been watching for more than a week. An overnight bounce failed to sustain, and more heavy selling began just after 3am. HO values are now testing their lows of the year at $2.85, setting up a test of $2.70 if broken. RBOB also seems destined to test its January low at $2.70. Considering that both products are currently trading on more stringent specs than when they previously hit these levels, it shows how quickly market favor has turned against commodities. European contracts are leading the move lower this morning, as demand across the pond continues to plunge with seizing economies in the Euro zone. Brent crude is at its lowest level since July and threatening a break below $100, which could be the catalyst for the next major down move in gasoline and diesel.

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Energy Values on the Verge of a Bear Market

On April 11, 2013 by TradingDesk
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The DOE report knocked the wind out of RBOB gasoline prices yesterday, as demand remains weak across the US and import activity picked up along the East Coast. The contract quickly wiped out all of the 8 cents worth of gains it had made earlier in the week, and is just a couple of cents from breaking its pivotal support around $2.85 and setting up a run towards $2.70. HO remains stuck in neutral, needing to break below $2.90 or above $3 before a trend can be found. US Refining capacity hit a record high in yesterday’s report, despite the closing of several refineries along the East Coast in the past few years, proving how rapidly plants in the mid-continent and gulf coast are adding capacity to take advantage of the North American onshore oil boom.

The S&P finally broke through and settled above its all-time high yesterday, and did so in style, with a huge single day rally of nearly 20 points. Over the past few years, this move would be bullish for both gasoline and diesel prices, which have moved in sync with stocks, but instead energy values are on the verge of a bear market. Some are beginning to suggest that the speculative longs that have flooded into commodities in general, and refined products in particular, over the past two years in a desperate search for yield are now taking that money back to the stock market. If that’s true, it appears to be a classic case of selling low and buying high that may just end in tears.

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DOE Weekly Report

On April 10, 2013 by TradingDesk
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RBOB Gasoline Leading the Energy Complex Lower

On April 10, 2013 by TradingDesk
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RBOB gasoline is leading the energy complex lower today, after a 2 day bounce that failed to test any serious resistance levels, and now appears corrective in nature. The key test for RBOB will be the mid $2.80s, with a break there setting up another 20 cents of downside. Diesel prices are flat to begin the day, consolidating halfway between support and resistance, with little direction indicated on charts. Last night’s API report showed another huge build of over 5 million barrels for US crude stocks, and an unseasonal build in gasoline stocks. If those numbers are confirmed by the DOE today, the selling may get severe.

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Refined Products Moving Modestly Higher

On April 9, 2013 by TradingDesk
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Refined products are moving modestly higher this morning, following through on the nickel bounce they made Monday. A late rally in US stocks yesterday is boosting sentiment, as it looks again like the S&P 500 may challenge its record highs, and cooling inflation data from China has many hopeful that the country’s central bank will continue with easy monetary policy to stimulate economic growth. The Euro is also contributing to the positive vibe, breaking 1.3050 for the first time in 2 weeks despite German exports dropping in the latest report. For the first time in a week, the mood across global markets is decidedly bullish, now we’ll have to see how prices react to determine if this week’s rally is more than just a natural correction to a bear market, with $3 the key hurdle for both RBOB and HO prices.

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Energy Ended The Week On A Low Note

On April 8, 2013 by TradingDesk
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Energy markets finished off their worst week of the year with more selling Friday, following a jobs report that missed even the low-end of expectations added to the building negative sentiment and pushed US stocks lower again. When the dust settled, RBOB had lost 24 cents for the week, HO was down 17, Brent crude was down $6/barrel, and WTI lost $4. Friday’s commitment of traders report shows that as of Tuesday when accounts are polled, speculators had boosted their long bets across the board, just in time for the selling to pick up. It is anticipated that these positions will drop on this week’s reports as the bets were stopped out during the sell-off.

RBOB and HO are bouncing this morning, following Brent crude as it recovers from an 8 month low. Both contracts have good chart support between $2.85-$2.90 that will need to be broken if a real bear market in energy prices is to begin. If the bounce continues, $3 will be the first pivot point to the upside that the bulls will need to break. Currently, charts give slight favor to further selling this month.

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How Deep Will The Energy Correction Go?

On April 5, 2013 by TradingDesk
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Energy prices were on the cusp of a major selloff  Thursday, with RBOB down 25 cents for the week and 15 for HO. The damage was limited however, as both contracts held up at their respective layers of support, and got an afternoon boost from a late rally in the US stock markets. The negative sentiment returned overnight, with European stocks selling off for a third straight day on reports of declining retail sales and continued fears of a spreading financial crisis. US Equity futures have already wiped out yesterday’s gains, and seem ready to continue their correction from record high territory. The question today for energy futures, is how deep will that correction go. If stocks stumble, expect both RBOB and HO values to drop another dime.

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