What goes up, must come down…faster
Going with the Wall Street adage that markets fall faster than they rise, Nymex crude oil has plunged 9.7% (peak-to-trough) over the last four sessions. Whereas it took the bulls 15 sessions to rally the market for December oil 10.2%, it took only a quarter of that time for them to give it all back. As such, bulls now find themselves having to defend $80 when just a week ago $90 looked like a slam-dunk, c’est la vie.
Yesterday (Wednesday), the market for January plunged through a crucial area of congestion (01-Oct to 01-Nov) from 83.46 to 82.88 and the 50% retracement (03-May to 25-May) at 82.68. To add insult to injury, the selloff occurred despite a 0.3% decline in the greenback. With our focus now on January, the bulls have to put up a fight here, or watch this market sink back towards the mid $70s.
In this vein, bulls in the January market are now trapped inside the 50/62% retracement area from 82.18 to 80.17. Failure here clears a path below the $80 critical point of reference and towards the next area of congestion (03-Aug to 28-Sep) from 78.92 to 77.81.
Meanwhile, bulls in the U.S. natural gas market are still trying to establish traction, to little effect. Last week the spot market traded at a 4.249 early season high, but the market has since regressed, i.e., bulls are now scrambling to defend $4. We have spoken about the seasonal tendency for this market to rally ad nauseam. Thus, it is about time for the bulls to get of off the proverbial pot. After all, winter is (finally) bearing down on the Midwest.
Be that as it may. The bulls have their work cut out for them. This morning the EIA will likely report another build in underground stocks. More importantly, the end of winter March/April spread on the Nymex is trading at a very narrow 0.63% backwardation. That is a whopping 5.63 points below the ten-year average.
As written in today’s issue of The Schork Report, regardless of what this winter might have in store for us, the market is clearly not concerned regarding the ability of producers to sate that demand!
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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.