Do the bulls have the upper hand in the short-term?
Energy prices were weak last week: We have dubbed it “Nouriel Roubini” week, as investors grew increasingly concerned about Greece, the stability of the EU, the future of the euro, Chinese demand, domestic growth and financial (over-) regulation. Expect more of the same this week, unless today’s home sales number and tomorrow’s consumer confidence numbers are exceedingly bullish. (See today's home sales report.)
Natural gas prices broke out of their recent upwards trend to settle Friday at 4.035, a week-on-week drop of 6.4%. Much of the drop was due to a 4.2% plunge on Wednesday alone, in advance of the EIA’s release on Thursday. When the storage figure was in line with analyst expectations a sharp sell-off was averted, but prices continued to trend lower, dropping >1% per day for the rest of the week.
Despite the sell-off, prices remained within last week’s (4.004, 4.644) 65% Schork Report Confidence Interval (CI), implying that the bears have yet to lock in a serious trend. With only two trading days left until the contract for June delivery goes off the board, this week’s CI is tight (3.875, 4.202). We expect prices to remain within this interval, but a cross in either direction will imply significant trend in the July contract, which sees a wider CI of (3.579, 4.711).
The CFTC data suggests the bulls have the upper hand in the short term, so we will be looking for them to maintain prices above the 4.000 barrier. Volatility in the front month rose to 49.0% but this is expected given the approach of expiration.
As for this week’s technicals, weakness below the week ending April 16th’s 3.936 low print alerts to our 3.819 inflection low. Below here we will look for offers to our 3.603 intra-week. On the other hand, a rebound above last week’s 4.183 pivot opens the door to our 4.251 inflection high. Once crossed, the bulls should run towards our 4.467 intra-week high.
Last week the crude oil contract continued its decline as investors grew increasingly concerned about Greece, Europe, the domestic economy, Chinese demand and every other topic imaginable. The contract for June delivery expired at 68.01, just below last week’s (68.86, 74.47) Confidence Interval.
On the other hand, the contract for July delivery settled at 70.04, close to but still above the lower bound of its (68.39, 83.20) CI. The fact that the bears could not crack the lower bound for July, or even the 70.00 barrier for that matter, may signal a return of the bulls.
Regardless, this week’s CI for the July contract has been revised to (61.96, 79.17) gives the bears plenty of space for a spike lower before they run out of steam. Despite the June contract going off the board, volatility did not drop and now stands at 45.4%. As highlighted in today’s VIX section of The Schork Report, the markets are facing their most volatile situation since September.
This week, strength above last week’s 72.52 high print will send the bulls towards our 73.27 inflection high. Above here they will likely hit resistance at our 76.50 intra-week high. On the other hand, a correction below last week’s 68.38 pivot low leads to our 66.81 inflection low. Below here we look for offers to our 63.58 intraweek.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.