Concensus Report: July 9th, 2009

Crude Oil rebounds back up to challenge the $62 level on technical concerns and a weaker dollar despite the EIA report, while Natural Gas stages dramatic short-covering rally from technical lows.

Natural Gas and Oil

Technical Outlook: Since our last report, I said looking ahead, technical indicators had now resulted in a massive attraction of new shorts that traditionally precedes a sharp and dramatic bullish reversal. I also said if you follow the past price pattern of this market and when you add to this the quickly dissolving profit potential of the short-side when considering the continuation chart low at $3.26 was now within reach, in contrast with the growing risk of violent short-covering as the immense potential for gains on the rally looms larger, that looking ahead this technical scenario gave me high confidence in the final attempt to test the year’s lows would transpire within the next 3-5 sessions, if the existing lows were not already in place. I then stated after which I anticipated the market would then have completed a short term correction and trigger a dramatic bullish reversal, which exactly what took place, and within my time cycle. The market not only tested the low of $3.26 but briefly exceeded it intraday to a new low at $3.22 before closing at the previous low. Today the market performed a key bullish reversal and also an outside day up taking out the previous day’s low before closing at a new high on the week, after an impressive gain of $38.5 cents to close at $3.66 basis August spot on the fifth day of my 3-5 day timing cycle confirming last week’s report. Looking ahead most technical indicators are now positive with stochastics, the MACD, relative strength and momentum suggesting further upside ahead and I feel the market will now confirm the bull reversal by continuing higher over the near term to challenge previous over-head resistance at $3.80 to $3.92 which will only set the stage for a more critical test at $4.10 to complete my previous outlook.

Fundamental Supply Update

This week's EIA report showed an injection of 90 bcfs, which was in line with estimates by Dow Jones and Bloomberg that ran close to the same respectively. Storage now stands at 2886 bcfs, which is 589bcfs higher than last year at this time and 454 above the five-year average or 18.7% over 2432. Following the EIA update the market completed a rather volatile session that saw values trade is low as $3.25 prior to the news and then suddenly rise to as high as $3.68 before settling near to the highs of the range at $3.66 at the close of the session for a strong gain of $.38 on the day. The markets Rally following the EIA update was more a result of selling the rumor in buying the fact as a bearish number had already been priced in, so when the number came in as neutral shorts that little room left to maneuver except to cover some new doubt very profitable positions considering the market recently staged the most dramatic decline of the year within three weeks. This scramble by the shorts to exit the market obviously attracted some short-term Bulls to enter the fray with some buying of their own which only exacerbated the volatility to the upside. As I stated in last week’s report the market was now both technically and fundamentally in-line and grossly oversold making traders extremely vulnerable and on a hair trigger to initiate buying upon the discovery of even a hint of anything bullish. Obviously the EIA data provided the trigger, however, the stock market recovery this week along with the rebound in crude oil against a backdrop of the weaker US dollar, all combined to also support today’s impressive and yet isolated rally as the crude oil price move proved to be mild in comparison.

Concerning Crude Oil, today the market closed positive with a modest gain of $.51 or 0.8% to settle at $62.05 basis the August contract on the Nymex. Petroleum values no doubt found strength from positive economic data emanating from both the US and China being the largest two Energy consumers in the world. China’s second-quarter GDP rose by more than expected 7.9% in the strong increase over the first quarter’s 6.1% which was lifted the 7.1% keeping the nation on track for growth a rate of 8% for 2009. The US jobs data showed initial claims had dropped by 47,000 to 522,000 for the week ending July 11 and lowest level since early January, however, when you take out the Labor Department’s seasonal adjustments continuing claims actually climbed by 86,000 to 668000 which only proves trying to find bullish justification for higher energy prices within the employment sector requires a strong bias and the usage of selective focus in my opinion along with a high degree of denial and a willingness to ignore the bigger picture. However, the market is never wrong and if the players involved choose to ignore certain undeniable facts such as the fact that real demand for the petroleum products fell to the lowest level in over a decade while simultaneously inventories have reached the highest level in 11 years, then the market will temporarily focus on such immediate concerns as today’s stock market rally which suffers from a strong dose of denial itself in my opinion, and yet higher prices materialized. However, as I have stated before and even forecasted this anticipated price reaction as I stated in last week’s report that rebound attempts should be contained by overhead resistance at $62.50 and then more critically above this at $64 based on the current technical and fundamental outlook, it’s still only delays the inevitable as the underlying real fundamentals will ultimately impact values. When this reckoning takes place crude oil and the entire petroleum complex should resume its downward track with my near-term target at $56 still in progress and lower prices could easily follow this objective. The July 13 low of $58.32 basis August spot will soon be eclipsed in my opinion and yet has already confirmed my Wall Street Journal interview on June the eighth calling for a dramatic price drop after the market tops out at $72.50 which remains pennies within the market’s highest close.

Conclusion

Natural gas closed with an impressive key bullish reversal based on short covering and confirming exactly as I had forecasted the previous week. I anticipate today’s high at $3.68 to be easily surpassed with values soon challenging overhead resistance at $3.80 resulting in a close soon above $3.92 setting the stage for a more critical test of $4.10 which I feel is a market objective and that is still in progress. Look for support over the near term to hold at $3.55 and then if breached more critically at $3.40 which should attract another round of more aggressive longer-term buyers that will now begin to focus on price advantage in relation to higher cooling demand that is now eminent rapidly followed by peak storm season. Both of these latter conditions should make sustaining a short position extremely uncomfortable risk- wise.
Concerning crude oil after today’s meager gain, the market remains fundamentally weak as it has managed to conveniently draw temporary support from a precarious short-term stock market advance that continues to ignore a chronic unemployment illness that is spreading while milking the weaker US dollar for a lot more justification than is deserved. Sooner rather than later you will see a more to find decoupling from the recent ties of stockmarket sympathy, the weaker US dollar, and rumors of recovery in the second half of 2009 that are baseless and being pushed by a media instigated agenda that desperately wants higher stockmarket values even if it means ignoring the facts of reality. When the petroleum complex finally accepts the reality of slumping consumer demand for gasoline as his resources are being depleted weekly simultaneously while supplies continue to climb as US inventories of petroleum products have already reached 11 year highs, it may only take an outside fundamental such as declining international demand for the majority of the globe excluding China for energy, and prices could easily collapse with the $52 benchmark materializing rapidly. Fundamentally when you consider slumping global demand outside of Asia, the dismal outlook for the US economy, and the excess production reserves of OPEC which are now approaching between 6.5 and 7 million barrels in output per day, and you are hard-pressed to justify crude oil above $45 much less $60. Patience pays and longer-term, barring the unforeseen such as a hurricane striking production facilities in the Gulf of Mexico, crude oil should soon begin to buckle to the weakening demand outlook and heavy domestic supply in the world’s top consumer as inevitably real fundamentals cannot be denied.

FUTURES AND OPTIONS TRADING INVOLVE RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE.

July 9th, 2009

United Strategic Investors Group

Guy Gleichmann, President

2641 E. Atlantic Blvd. Suite 208
Pompano Bch. Fl. 33062

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