Energy Futures Setting Up To Test Recent Lows

On May 11, 2012 by TradingDesk
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After our Reversal Thursday Rally fizzled late, we’re shaping up to have yet another red day in the markets. More negative, albeit largely expected, headlines from Europe (the EU has officially recognized that it’s in a recession) and weak data points from India and China  have set a notably negative tone for the day. The silver lining headline once again came from the US, as PPI for April had a negative print, as retail fuel prices finally pulled back and gave consumers some much needed relief.

JP Morgan’s hedging mistake is grabbing plenty of attention, although it is still unclear whether it will have a lasting impact on the market, unless it prompts the FED to pull back on the reigns of its primary dealer network.

Energy futures are setting up to test their recent lows, although there is still another 3-5 cents of room to get there, as a reverse flag pattern (aka the hockey stick pattern to some of us) is setting up on the charts. If the pattern is fulfilled by a break below $2.91 in RB and $2.93 in HO, look for another 20 cents of losses to complete the move.

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Reversal Thursday Rules In Play

On May 10, 2012 by TradingDesk
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Markets are following Reversal Thursday rules so far this morning, bouncing from multi-month lows in US Equity and Commodity markets, and multi-year lows in Europe. The reason for the bounce seems to be more of a reaction to oversold markets rather than due to some positive fundamental news. In fact, the headlines out of Spain, Greece were likened to a “slow motion train wreck” and Chinese trade data has been dubbed a “wake up call”.

New data from the ICE and Nymex exchanges shows that Brent Crude traded more contracts than WTI in April, the first time that’s happened in over 30 years. So, like it or not, we seem to be stuck with having to watch action across the pond for direction in energy markets.

Refined products have minor upside resistance around the $3.05 range, with more major technical roadblocks coming in at $3.10. If this is a true reversal Thursday, look for light volume buying this afternoon followed by another sharp drop tomorrow.

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DOE Report

On May 9, 2012 by TradingDesk
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This week’s Department of Energy reports are assembled and ready for your review.

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Euro Dance Mix Continues To Miss The Beat

On May 9, 2012 by TradingDesk
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US markets staged an impressive rally Tuesday afternoon, erasing most of the day’s losses on hopes that the European situation really wasn’t as bad as it seemed. Unfortunately, European markets opened back up overnight, and markets are crumbling once again. The Euro is hitting multi-month lows, below 1.30, against several currencies, on fresh bailout concerns and a weak Spanish debt auction. The US Dollar Index has broken back above 80, which is shaping up to be bad news for bruised risk assets.

RBOB put on quite a show yesterday, bouncing 8 cents off of its early morning lows, and largely ignoring the news that Petrochina is trying to buy the Aruba refinery from Valero, which would go a long way towards easing Padd 1 supply concerns. The other contracts staged impressive rallies as well, but still ended in the red. The technical outlook continues to favor more selling, with the $2.90 range critical for both products.

Today’s DOE report is expected to show another build in crude stocks, with modest draws in products. A late breaking headline of a fire being extinguished at Sunoco’s refinery in Philadelphia should keep the selling at bay until more news is available.

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The Euro Is Such A Drag

On May 8, 2012 by TradingDesk
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The Euro has dropped below 1.30 and is dragging most markets lower along with it. News that Spain has suggested it will need more public funds to bail out its banking system, and that Greek “leaders” are attempting to declare their debts, and their bailouts, illegal, are pushing the currency lower.

Saudi Arabia’s oil minister was quoted as saying that oil prices are still too high, and that production in the kingdom has surpassed 10 Million barrels/day, which has helped knock both Brent and WTI down more than $1. Brent is now testing the support line that has sustained a bull rally since the 2009 lows at $36, target a drop to $100 if this line breaks down. RBOB and HO are along for the ride, selling modestly at this point, with the $2.90 range still holding critical chart support for both contracts.\

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Risk Assets Take It On The Chin

On May 7, 2012 by TradingDesk
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Friday’s jobs report hit risk assets with an uppercut after a week full of economic jabs, sending many global markets to multi-month lows. It appeared that more of the same was in store following the French elections. With a new president quoted as saying “My enemy is not another candidate, it is not a person, it has no face, it is the world of finance” it is easy to see why markets might be fearful. German manufacturing data was better than expected however, which for now has stemmed the tide of selling. The Euro is so far holding above the critical 1.30 level, whether it can continue to do so may determine much of this week’s action.

Energy prices crumbled along with just about everything else Friday, with key support levels falling across the complex. The CFTC’s commitment of traders report showed that speculative long interest spiked in the latest period, which means the hot money flowed in just in time to get wiped out, which is consistent with the furious pace of selling once support levels broke down. The $95 range for crude and $2.90 range for products are the next targets to the downside. RBOB tested its trend line from the 2008 low of $.78, currently at $2.91, overnight and managed to bounce 6 cents since that point, setting up a key level to watch in the coming weeks.

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A Rough Week For Economic Headlines

On May 4, 2012 by TradingDesk
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Its been a rough week for economic headlines. Yesterday’s Non-Manufacturing ISM survey disappointed and risk assets suffered across the board. This morning, the nonfarm payroll report showed the lowest amount of jobs created in a month since last fall. The reaction so far has been muted, with speculation already running that the weak data will prompt the Fed to act.

For the week, WTI is down $6 from its highs, Brent is down $5, and products have lost 12 cents apiece. Technical indicators are breaking down, the $3 support range is now in site for both RBOB and HO. With a typical seasonal spring high to summer low ranging from 25-30%, don’t be surprised to see products lose another 30-40 cents before a bottom is finally in. That being said, don’t expect us to head that way in a straight line.

CLICK HERE for a link to Nonfarm Payroll report

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There’s Something For Everyone

On May 3, 2012 by TradingDesk
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Headlines this morning have had something for everyone, the ECB held rates steady, Spanish Bond rates continue to rise, US initial unemployment claims dropped by more than 20,000, and someone bought a painting for $120 million. Accordingly, global markets are having mixed results, with Asia largely lower, Europe higher and the US Flat.

Energy prices are ripe with contradictions; RBOB is gaining, despite having the weakest technical and fundamental outlook, and both HO and WTI are selling off. Yesterday’s DOE report showed that stocks at the WTI delivery point in Cushing OK swelled to record levels, yet the contract strengthened against its Brent counterpart. While prices remain range-bound for now, it does appear that both RBOB and HO may be facing a test of the $3 level in the near future.

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Department of Energy Charts for May 2, 2012

On May 2, 2012 by TradingDesk
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Disappointing Jobs Report Bringing Out The Sellers

On May 2, 2012 by TradingDesk
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The ADP employment report just threw cold water on what had been a quiet overnight trading session. As has become a pattern of late, US markets were largely shrugging off more weak manufacturing and employment data – despite the Euro being down a full penny vs the dollar – but the 119,000 jobs added in the US last month was roughly half of estimates and has brought out the sellers.

If it has felt like the energy markets have been standing still lately, you’re not alone. Realized volatility in WTI has hit its lowest in over 3 years. If May 2012 is anything like the past 2 years however, don’t expect it to last. May 2011 had 3 of the 10 most volatile sessions on record in the 6 year history of the RBOB contract, and of course May 2010 had the epic “flash crash”. For now however, the energy contracts remain comfortably within their trading range, with a neutral outlook.

The DOE report at 9:30 this morning is expected to show another build in domestic crude stocks – to a 21 year high – while products are expected to show draws.

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