The bulls have a reprieve Thursday thus far. The equity and energy markets have pared losses from the Wednesday deluge of selling. The earnings coming to the fore in equities has been a mixed bag. The bell weather AAPL will get earnings following the close of the NYSE Thursday. This will be closely watched to see if its leadership to the upside continues. The equity bulls desperately need this to occur. However, the Fed did its thing Wednesday with the release of the FOMC minutes.They promised to keep rate extraordinarily low (near zero) for an extended before until 2015. This is as expected. The Fed held steady on its policy. They are walking a fine line. The removal of all the stimulus will mean two things that this feeble mind can conjure. First, a buyer need be found, which get to be more difficult as rates rise. The other consideration is that the apparent desire of the Fed Chairman to step down after his tenure. This raises the question of the method of removing stimulus and its increased cost of funding the debt. Policy makers have scant time to act.
To that end U.S. CEO’s have called for a comprehensive resolution of the fiscal cliff peril.They have acknowledged that to avoid the fiscal cliff will require both tax increases as well as spending cuts. The business community is stunned that officials have let it go this far said one of the executives. Most if not all embrace some form of Simpson-Bowles to manage the transition. The question is will it be too late and too little. The Congress has until Dec 31st to address the problem or the U.S. can expect a severe recession.Moving on to the Middle East, Egypt has brokered a cease fire deal with militants in Gaza. Both Egypt and Israel have been upset by the incursions from militants in that area. The concern of the energy mark4ets was that would spill over into the surrounding areas. With fighting in Lebanon and skirmishes in Turkey one can see the worry. But the energy markets are more concerned with the slow growth prospects than with stimulus or belligerence for the time being. This was demonstrated Wednesday when the energy markets sold off following the Fed minutes briefly before regaining the upside. But by far the more bullish outlook for oil is the comment by Iran this morning that exports would be sharply reduced and would be completely halted if more stringent sanctions are imposed.
This then brings to mind what has occurred when gasoline prices reach high levels for an extended period. This always presages a recession. We are not sure to be honest, if the high gasoline price was at high prices long enough to affect GDP, but we do know that it did not help. The chart below shows the affects of high gasoline prices on the economy.
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CRUDE: Hi: 86.62; Low: 85.62
Dec has bounced from the Wednesday plunge. This is welcome. Dec is likely to be striving for the key upside pivot at 87.50 Thursday. A failure to break that level keeps Dec in a negative light. The spread action calls for lower prices still, but that does not mean a bear market rally cannot be seen. We remain a seller of the sharp rally. However, we view Thursday ‘s price action as being a two way street. strong rallies will need be sold and a test of the 85.00 area low cannot be ruled out. Nevertheless the intermediate term picture (next week) looks as if there will be another plunge to deal with. Dec has minor support at 86.10 to 86.00. The minor downside pivot is 85.90. Key support is 85.10. The key downside pivot is 84.90. If broken that will likely net a drop to 83.75 to 83.50.
BRENT Hi: 108.79; Low: 107.59
Dec is rebounding from the Wednesday dump on the back of the Iran statement. Our model suggests that Dec completed a wave to the downside Wednesday. It is correcting the leg down from the 117.00 area, There is a minor upside pivot at 109.35 that will need to crossed to signal a more substantive rebound. as Dec is seen traveling to the 111.00 area. That is the key upside pivot. It is likely that Brent will be bid for on dips. This will put initial support at 108.70 to 108.60. The minor downside pivot is 108.40 Key support for the intraday chart assuming a bullish tendency for the day is 107.75 to 107.60. the downside pivot is 107.40. This will be a two way market, but the bias should be to the upside.
RBOB: Hi: 2.6329; Low: 2.6051
It is apparent to us that Nov completed a leg to the downside Wednesday. It is in recovery mode and has reached our first target of the retracement. This is at the 2.63 area. However, with Nov busting through 2.64 a jump to 2.6650 to 2.67 is seen. Nov will have minor support at 2.61 to 2.6050. The minor downside pivot is 2.60. the key downside pivot is 2.57. This will be a two way market, but will need to trade the extremes. However, the bias is likely to be up.
DIST: Hi: 3.0665; Low: 3.0400
Nov’s marginal new low Wednesday was sufficient to complete this wave to the downside. It is now likely that Nov will correct the large move lower from the 3.2250 area. This will put the minor upside pivot at 3.0720. With a break of that level Nov is signaling that the continuation chart dump is over for today. This will eye a stretch to the 3.0950 to 3.10 zone. This will be a two way market. The initial support level is 3.0350 to 3.03. The minor downside pivot is 3.0275. The key downside pivot is 3.0150.
GASOIL: Hi:963.50; Low: 955.50
Having fallen to a double bottom Wednesday at the 951.50 level, Nov has mounted a recovery. This is no doubt a response to the Iran threat. However, it appears likely that Nov completed the first leg of a corrective pattern with the climb to 965.50 this morning. This will suggest a retrace to 958.00 to 957.00. The minor downside pivot is 956.00. Our model suggests a test of the Wednesday low. The minor upside pivot is 965.50. A break thereof will send Nov up to 969.50 to 970.00. This will be a two way market.
NAT: 3.480; Low: 3.409
To us, the short-term picture looks slightly negative. The minor downside pivot is 3.40. it is with a break of that level that the key downside pivot will be tested at 3.33. Nov will have a minor upside pivot at 3.50. The key upside pivot is 3.560. The bulls will need to best that level for Nov to pick up momentum. The key to this market for the very short-term is whether the storm heads up the East Coast and is strong enough to knock out power. No demand for electricity, no demand for Nat. We are a cautious seller of the rally at or slightly below 3.50.
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