The Hightower Report

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DOLLAR: The Dollar has unable to sustain any sort of recovery today, and has fallen back towards the lows of yesterday’s selloff. The global rebound in equity markets continues to dampen general risk concerns, which in turn has kept the Dollar under pressure this morning. While yesterday’s Consumer Confidence number managed to lift some of the gloom toward upcoming US economic prospects, there will be an increasing focus put on tomorrow’s US Employment report during today’s session. Even if today’s data comes in fairly positive, there may be some reluctance from the market to make any strong Dollar moves before tomorrow’s numbers are heard from. The Dollar is likely to be weak during the balance of today’s session, but should find support near the 82.25 area today, as the market waits for tomorrow’s numbers.

EURO: The September Euro has been able to continue with a recovery, supported by decent Euro zone economic data, as well as some well-received debt auctions from France and Spain today. Even with the positive tone for the September Euro, it may be difficult for prices to travel far to the upside with the shadow of tomorrow’s US Employment data hanging over the market. There may be an additional boost for the September Euro, if news from today’s European Central Bank meeting produces no surprises, but a large extension of this current rebound may have to wait until US Employment data comes out tomorrow. The September Euro may see a test of the 1.2860 level post-ECB meeting, but that may be as far as today’s strength can take the market.

YEN: While the volatility in the September Yen appears to have calmed down, the uncertainty has not as prices continue to hold their ground near the highs for the move. Although comments by the probable challenger to the Japanese Prime Minister may project a more aggressive attitude towards weakening the September Yen’s current strength, the Bank of Japan will likely have the final say when stronger measures will be applied to their problem. The erosion of safe haven support due to the global equity rebound may keep any gains for the September Yen under control, at least until tomorrow’s economic data is out of the way. Look for the September Yen to drift back towards the 119.00 resistance level during the course of today’s session, but prospects for a large downside move will increase later on this week, so a move back to today’s highs may be used as an area to enter into long put option strategies.

SWISS: A strong Swiss GDP number this morning has been able to support the September Swiss this morning, which has been weakened by the loss of safe-haven support from the global equities rally. The swift pullback from yesterday’s rally above the 99.00 level may be an indication that the September Swiss may be topping out, particularly with the threat of intervention from the Swiss National Bank, if they feel the market has become too strong. The September Swiss should continue to remain well supported, but look for a move back towards the 98.25 level before considering the long side

POUND: A weak private survey of UK housing data has added to the pressure on the September Pound, which has moved back towards the lower end of this week’s trading range. The recent contrast with UK and Euro zone economic data has not been to the September Pound’s benefit, even as the longer-term UK economic situation remains fairly positive. Look for the September Pound to move towards support near the 1.5350 level, but it should hold at those levels unless there is a major reversal in global equity market strength today.

CANADIAN DOLLAR: Calmer market conditions continue to support the Sept Canadian, even as recent Canadian economic data has lost its upbeat outlook. Given the recent volatility with the Sept Canadian, a consolidation at these levels may be of some benefit as there will likely be a large reaction to tomorrow’s US Employment numbers in any case. Look for the Sept Canadian to find support near the 95.00 level, but a strong move above this trading range may wait until tomorrow’s numbers are out of the way.

TODAY’S MARKET IDEAS: The Dollar may remain weak during today’s session, but any big moves are likely to wait for tomorrow’s US Employment numbers. The September Swiss should continue to remain strong, but a pullback towards today’s lows should be considered before entering the long side.

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The Treasury market was obviously caught assuming the worst for the economy, as a series of slightly better than expected scheduled data points served to knock down Treasury prices aggressively yesterday. With the equity markets also launching into a sharp short covering relief rally in the wake of the scheduled data flow from the US yesterday, that seemed to make the macro economic reversal even more significant in scope. However, the numbers released yesterday were 2nd and 3rd tier economic readings and the readings weren’t overly impressive. However, the bear camp can certainly suggest that Treasury prices at the highs Wednesday were factoring in a fairly broad based sustained slowdown. Clearly the ISM manufacturing report caused the greatest reaction as that report offered the most concrete evidence that the US economy retained some positive momentum. Given the reaction to the ISM readings yesterday, that should make the US Factory Orders figures today a fairly important release. In fact, the ISM figures were so far off the general consensus of expectations that the Treasury market seems to have seriously called into question the entrenched view of slowing that had served to lift Treasury prices over 8 full points in the month of August. Some of the sellers in Treasuries yesterday were probably exiting positions because the stronger than expected ISM readings served to reduce the odds of further easing by the Fed. However, the market will still be presented with a very significant amount of economic news over the coming two trading sessions and the tone of these numbers are likely to send nearby Treasury prices away from current price levels which are almost at the middle of the last two weeks trading range. The bear camp probably needs to see additional evidence of resiliency in the US economy to engineer more declines ahead, while the bull camp probably needs to see evidence that the US economic track is still somewhat suspect. The ultimate arbiter of the trend is still likely to be US Non farm payrolls on Friday and not the numbers today but some traders think the better than expected US numbers yesterday, set the market up to absorb weak US payroll readings Friday without as much upside momentum. In the near term, the market will probably see the weekly claims data as a slightly more important report today as there has been some doubt cast upon the double dip recession view and therefore all numbers look to be important to the trade again. While the Press attempted to play up the talk of a bond bubble in the wake of the sharp setback in Treasury prices yesterday it will still probably take a distinct pattern of somewhat favorable economic news to prompt a sustained rotation away from fixed income holdings and back to equities. While the slowing crowd was certainly dealt a blow with the better than expected readings yesterday, it would surprising to see the numbers suddenly turn positive and the fear of slowing completely tossed aside. However, with the recent high in bonds (August 25th) coming on a significant pulse up in trading volume and spike up in open interest, some traders are suggesting that prices were technically overextended. Not surprisingly, the market discounted a very sharp drop in August auto sales at GM yesterday and that reading probably makes the Factory orders report today slightly more important than the claims or productivity figures. With the slightly better than expected ISM readings yesterday and the last remarks from an outgoing Fed President, downplaying the expectation of direct easing from the Fed, the productivity readings this morning might carry less weight than normal.

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While the stock market seems to have been oversold and expecting very bad economic conditions, the magnitude of the recovery rally yesterday probably sent a message to the bear camp. In addition to the sharp across the board rally in equities, the trade was clearly assisted by much better than expected ISM readings and that seemed to foster some respect for the resiliency of the US economy. However, in order to throw off prevailing concerns of slowing, the equities will probably need to see something positive from the US data again this morning. With an outgoing Fed member suggesting that one should not assume that the Fed is automatically poised to invoke additional stimulus, the market could have been disappointed, but seeing better than expected economic readings has potentially reduced the “need” for assistance from the Federal Reserve. In short, the bull camp would seem to need some additional help from the numbers to add to the very impressive short covering effort that was seen yesterday.

S&P 500: It would appear that the bear tilt was overstated as the magnitude of the rally yesterday seems to highlight a market that was crossed up by the number flow. One gets the sense that the bull camp might only need one positive reading from the flurry of data points this morning, to continue to claim that economic conditions aren’t as bad as previously expected. However, the market is also facing a major number on Friday morning and therefore prices can waffle in either direction, before a more significant economic decision is seen in the wake of the Friday data. For today, the September S&P could use the 1075.00 level as a quasi solid support point, especially if there is anything positive in any of the US numbers this morning.

DOW: The bull camp will suggest that the September Mini Dow managed to regain its 50 day moving average yesterday and that serves to shift the trend back up. However, the bear camp is suggesting that the numbers seen yesterday were an anomaly or that the economy remains very weak regardless of pockets of strength. It does seem as is expectations on the economy were overly negative, as a slightly better than expected 2nd tier economic reading seems to have erased several weeks of mostly negative data flows. While the September Mini Dow did regain its 50 day moving average yesterday, the market only sits at the center of the last two months trading range. Since the market only needs one positive economic report out of the flurry of readings scheduled for release today, it is possible that the bull camp will get some help, which in turn could put prices high enough to see a more pronounced negative reaction to the US Friday numbers.

NASDAQ: Unlike the Mini Dow, the Nasdaq was unable to charge back above its 50 day moving average y and the Index this morning starts the early trade below the 50 day moving average point. However, the market is hopeful of more positive news from the buyout front and perhaps even some ongoing assistance from the tech sector, as several companies continue to be in play from the merger and buy out angle. Some players might even point to favorable Euro zone economic readings overnight as a factor giving the bull camp an initial leg up today. However, given the sharp run up yesterday, it is possible that the bull camp will need some clear cut additional help from the scheduled numbers to solidify a better economic view. Critical support in the September Nasdaq is seen at 1814.00 but we can’t rule out an attempt to extend the rally ahead of the Friday payroll readings.

TODAY’S MARKET IDEAS: We can’t rule an attempt to extend the rise on the charts today, as the market was caught leaning the wrong direction and anything positive from the numbers probably sparks additional short covering buying action. We think that traders should stand back and allow the market another bounce before looking into the purchase of puts, for a hold through the Friday data flows. This week’s reaction was about being too negative toward the economy and the numbers remain soft enough to discourage full a return to the last two months highs.

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The short-term trend looks to remain down over the near-term, but the downside may be somewhat limited as futures already hold a decent discount to the cash market, and global economic growth and “less fear” of a slowdown in global growth could provide some support if exports remain strong. Exports represent nearly 20% of the total pork production. Weekly slaughter should continue to climb, and is already at the highest level since April and should post highs for the year in early December. October hogs closed slightly higher on the session yesterday, but down 120 points from the highs. The pit trade has closed in the vicinity of the lows for five sessions in a row. Weakness in the cash market and ideas that slaughter will continue to increase in the weeks ahead helped to pressure. The market pushed lower and matched Friday’s lows and the lowest level since August 17th, but a lack of new selling interest and a strong recovery in financial and metal markets helped provide some underlying support. There was some buying based on the steep discount to the cash market, and the move over Monday’s highs activated buy-stops and the market surged to sharply higher on the day into the mid-session. Cash hogs came in steady to $1.00 lower; about as expected in some locations but higher in the west. The estimated hog slaughter came in at 408,000 head yesterday, which was lower than expected and could be showing a weaker demand tone from the packer. Traders are a bit nervous that demand will not keep pace with the rising seasonal supply into the 4th quarter, and that this could back-up some animals in the country unless exports can remain strong. This brings the total slaughter for the week so far to 819,000 head, up from 815,000 head last week at this time but down from 868,000 head a year ago. The CME Lean Hog Index as of August 27th came in at 83.89, down 47 cents from the previous session and down from 84.13 the week before. This leaves October hogs at an 875 point discount to the cash market. Pork cutout values released after the close yesterday came in at $91.23, down $2.03 from Monday and down from $96.74 the previous week. This is the lowest pork value since August 16th, and pork values are down 5.7% from last week’s all-time high. Loin prices were down sharply and rib prices fell $9.12 to $123.51, which may be a strong indication that retailers are done booking product for weekend sales.

TODAY’S GUIDANCE: The technical action remains weak, and the COT report showed fund traders holding a net long position of near 48,000 contracts, so some additional long liquidation selling is still possible if support is violated. Next support for October hogs comes in at 73.97 and then 72.10, with 75.20 and 75.97 as resistance.

TODAY’S MARKET IDEAS: The market looks vulnerable to more fund trader long liquidation selling over the near-term.

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After a contract high on August 24th, October futures have closed lower for six sessions in a row and are down again overnight. Seasonal weakness in beef and cash markets along with indications that speculators hold a massive net long position, have traders nervous of a continued long liquidation sell-off over the near-term. October cattle closed sharply lower on the session yesterday, as stops were activated on the late break below last week’s lows to drive the market to the lowest level since August 18th. Traders believed that there was aggressive long liquidation selling at the end of the month, as fund traders lightened up on their enormous net long position posted in the last COT report. As of August 24th, non-commercial traders were net long 134,766 contracts. A turn up in the stock market helped to provide underlying support, and strength in the hog market added to the positive tone, but the market lacked new buying interest yesterday and retreated from the early highs. News that packer bids emerged at just $97.00 versus offers at $102.00 yesterday may have been seen as a slight negative. Nebraska cattle bids were only $96.00, as compared with $99.00-$99.50 last week. The discount of futures to cash and a lack of new deliveries helped to provide some underlying support for the early bounce as well. August cattle expired at 97.25 yesterday. The estimated cattle slaughter came in at 130,000 head yesterday. This brings the total for the week so far to 260,000 head, up from 256,000 head last week at this time and up from 259,000 head a year ago. Boxed beef cutout values were up 32 cents at mid-session yesterday, but closed 10 cents lower at $163.64. This was up from $163.60 the prior week. There were 4 new deliveries overnight.

TODAY’S GUIDANCE: We remain concerned with the massive net long position of fund traders, and the impact on the market “if” cattle become out of favor by large commodity fund traders. Outside markets look supportive today, but the selling could still increase if support levels are taken out. Close-in resistance for October cattle is at 98.05 and 98.57, with 96.67 and 95.87 as support. Uptrend channel support comes in at 96.87 today, and selling could intensify if this level is violated.

TODAY’S MARKET IDEAS: Wait for a more significant set-back to buy October or December cattle. For now, the market is overbought and vulnerable to fund long liquidation selling.

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OUTSIDE MARKET DEVELOPMENTS: Equity markets in Asia and Europe are generally weaker this morning, and U.S. stock indices have posted moderate losses during the early Tuesday trade. The Dollar is generally weaker against the major currencies during overnight trading, although posting a moderate gain against the Pound. The Japanese Prime Minister will face a leadership challenge in an upcoming political party election. France has sent a proposal for stronger EU regulation of commodity markets to the European Commission. Japanese Industrial Production during July was up 0.3%, higher than forecasts. Japanese Retail Sales were up 3.9% year-on-year, higher than expectations. Euro zone Unemployment during July was 10.0%, unchanged from last month and in-line with forecasts. German Unemployment during August was 7.6%, unchanged from last month. UK individual borrowings during July were 300 million Pounds, much weaker than expectations. A private survey of UK Consumer Confidence during August rose to -18, slightly higher than forecasts. US economic numbers released this morning include a private survey index of Home Prices at 8:00, a private survey of Purchasing Managers in the Chicago area at 8:45, and a private survey of Consumer Confidence at 9:00 AM.

GOLD MARKET FUNDAMENTALS: The gold trade continues to waffle between support off the uncertainty in the global economy, and concerns of spiraling deflation. Some gold traders think that gold is set to be undermined in the face of weak economic data points ahead, but the real test will be the post-report trade action in gold. European gold traders seemed to be partially undermined by the initial weakness in equity prices today, and that would seem to suggest that deflation concerns are present again in the marketplace. A recent decline in volume is thought by some traders to be a sign that the month and a half rally in gold prices is starting to discourage some buyers, but the bulls could spin that argument around and suggest that volume seems to be declining on down days in prices. At least in the early action today, the trade seems to be poised to take a large amount of direction from the FOMC meeting minutes to be released later in the trading session. Comex Gold Stocks were 10.817 million ounces, down 63,029 ounces. Gold stocks have declined 15 of the last 20 days. Comex Gold stocks are at the lowest in the past 10 readings.

SILVER MARKET FUNDAMENTALS: The bear camp is probably a little emboldened by the weak action on the charts in the early Tuesday US silver trade, as silver prices reached the lowest level since August 25th. News of a fresh silver find from a Canadian silver miner is probably not a major impact on silver prices today, as silver recently hasn’t paid that much attention to physical supply side stories. After showing some leadership within the precious metals complex last week, some traders suggest that silver prices might have become short term technically overbought off last week’s action, and therefore the bull camp in silver would seem to need help from the scheduled data flows today. Like gold, silver seems to be getting less lift from economic uncertainty, and that suggests physical commodity market fundamentals might be regaining importance in the marketplace. Comex Silver Stocks were 110.758 million ounces, down 386,235 ounces. Stocks have declined 11 of the last 20 days.

PLATINUM: The platinum market appears to be tracking physical commodity market fundamentals during a period of slowing growth expectations. With the October platinum market reaching a partially overbought level yesterday and temporarily forging the highest price level since August 19th, it isn’t surprising to see prices this morning in the midst of a noted range down extension. Weaker equities and a negative tone toward the economy would seem to give the platinum bears the edge, but the bull camp might suggest that any favorable surprise from the data front this morning could catch the platinum market in an overly bearish fundamental posture.

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NEAR-TERM MARKET FUNDAMENTALS: Wheat posted substantial gains overnight after wheat prices in Germany moved to a 28-month high on worries over the effects of a rainy harvest season. The poor harvest co0nditions are leading to ideas that half of this year’s German wheat crop could be reduced to feed quality. This comes as demand for wheat remains strong in the huge North African and Middle Eastern import market. The EU cleared well over 800,000 tonnes of wheat for export last week and the strong pace of exports along with the potential losses in Germany are causing some worries about the sustainability of large scale EU wheat exports into the Mediterranean basin in coming months. Morocco is in the market for 167,500 tonnes of milling quality wheat. With a short crop, Morocco will cancel duties on imports of soft wheat from September 16th to December 31st which is expected to boost import demand and help secure a good supply on the domestic market. Pakistan’s minister for food and agriculture said today that the country is deferring plans to export its wheat surplus this year. Traders said that this was not a surprise following weeks of devastating floods that may have wiped out 500,000 tonnes of wheat stocks in addition to damaging some cropland. Neighboring India has still not indicated that it will move to export its large wheat surplus although an Indian firm is offering wheat to Bangladesh against its tender for 50,000 tonnes. The US and Canada are moving into their harvest seasons for spring wheat. Given this year’s weather problems in Europe, traders indicate that the market will be concerned over any substantial rains in the US northern Plains or the Canadian Prairie. For now, conditions in Canada are mainly dry to favorable, with crop development running behind normal. In addition, Australia’s western wheat belt is still suffering from a substantial moisture deficit in some areas. This region produces about half of the country’s wheat crop and the bulk of its exportable surplus. The Commitments of Traders report for the week ending August 24th showed continued buying by trend-following (managed) funds. They were net buyers of 2,083 contracts to shift to a net long position of 1,466. This is the first time these traders have been net long in wheat since early 2008. Tomorrow is First Notice Day for the September wheat futures contract.

TODAY’S GUIDANCE: Crop weather remains worrisome in a number of key growing areas around the world, not the least of which is still Russia which needs more rain in order to have a successful launch of its winter grain crops in the next few weeks. A recent bias to the short side by traders may result in further short covering in wheat, especially if the dollar moves lowers and North Africa continues to buy. First support in the December contract is at 688 3/4 and then at 677 1/2 to 680 with next support near 663 3/4. Resistance is at 708 to 712 and then at 738 to 740.

TODAY’S MARKET IDEAS: There seems to be enough weather issues (Germany, Argentina and Australia) along with strong demand to secure inventory from importers to provide support over the near-term with first key technical resistance at 750 1/4 and then 772 3/4, a 50% correction of the August 6th to August 18th break.

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NEAR-TERM MARKET FUNDAMENTALS: Hot weather in the Eastern Corn Belt this weekend with no rain in the forecast until Wednesday has helped futures build a weather premium in for the tail end of the growing season. Traders remain concerned that many areas of Indiana and Ohio were too dry recently and any filling soybeans which are not maturing could have seen a negative impact on yield. Hot weather in the southern Midwest along with sudden death syndrome in Iowa are also seen as trouble spots. Traders will be monitoring the weekly crop progress report tonight to see if the crops continued to deteriorate in the past week. Last week, 64% of the crop was in good to excellent condition as compared with 69% last year and 57% as the ten year average for this time of the year. The USDA currently projects a 44 yield, the same as last year. November soybeans pushed sharply higher for the second session in a row on Friday closing 22 cents higher for the week. This took the market to its highest level since August 19th. Impressive gains in equities added to the positive tone in a number of markets, along with the announcement of a fresh sale of 120,000 tonnes of US soybeans to China by the USDA. Basis levels in the interior were mixed. Early harvested soybeans from the Delta moved onto the cash markets at an accelerated pace last week and that brought a downturn in basis levels at the Gulf during mid week through Friday. A Taiwanese buyer bought 57,500 tonnes of US soybeans for delivery during the first half of November. The Commitments of Traders Futures and Options report as of August 24th for Soybeans showed Non-Commercial traders were net long 130,965 contracts, a decrease of 8,029 contracts for the week. The selling trend is seen as a short-term negative force. Commodity Index traders held a net long position of 184,507 contracts, down 2,704 contracts for the week. In soybean oil, Non-Commercial traders were net long 31,659 contracts, a decrease of 16,219 contracts. Non-Commercial and Nonreportable combined traders held a net long position of 43,835 contracts, down 19,658 contracts for the week and the aggressive selling was seen as a short-term negative force. Commodity Index traders held a net long position of 100,297 contracts, down 5,506 contracts for the week. In meal, Non-Commercial traders were net long 67,425 contracts, a decrease of 3,777 contracts. Non-Commercial and Nonreportable combined traders held a net long position of 85,854 contracts, down 2,778 contracts for the week.

TODAY’S GUIDANCE: The COT reports showed that the turn in the weather came just in time for the markets to avoid a significant sell-off of the large net long positions from fund traders in the soybean complex. Yield forecasts will become increasingly important and without a drop of more than 1 1/2 to 2 bushels per acre from last months USDA estimate of 44, the market may struggle with hefty supply into the futures with a forecast for record world ending stocks based on the assumption that Brazil and Argentina production will be down 8 1/2 million tonnes from this year. This means the market is already counting on either a sharp reduction in yield in the US or a continued La Nina drought situation in South America.

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NEAR-TERM MARKET FUNDAMENTALS: December corn pushed higher overnight, moving through the high set on January 12th following a very bearish Quarterly Grain Stocks report. This marked the third straight day of higher highs in the December contract and it followed a new high for the July-August rally on Friday. Traders said that Friday’s gains came on a supportive tone from outside markets along with reports that early yields for corn are coming in at lower than expected levels. Analysts have lowered their yield forecasts to below 164 bushels per acre from the 165 bushels per acre forecast by the USDA on its August Crop Production report. Each drop of 1 bushel per acre in the yield would reduce the overall crop by 81 million bushels. Outside markets were more mixed/neutral overnight. Above normal temperatures have returned to the Corn Belt with readings above 90 expected in the eastern Corn Belt today. This area of heat is expected to expand tomorrow to include parts of the central Corn Belt, the mid south, and parts of Missouri and the most of the central Plains. A cold front is expected on Wednesday and Thursday which should bring temperatures closer to normal. Rain is expected to be minimal into mid week with the exception of light to moderate scattered rains in the NW, the Plains and from the Delta on to the east. Cooler weather continues to prevail in drought stricken areas of Russia, but scattered rains over the past several days have still left soil moisture levels short to very short across many growing areas. Rain in Germany continues to cause harvest problems and this is expected to reduce up to half of the wheat crop there to feed wheat quality. The Commitments of Traders report for the week ending August 24th showed selling by funds. Trend-following (managed) funds were net sellers of 17,927 contracts to reduce their net long position to 275,795 contracts. Index funds were net seller of 250 contracts for another small reduction in their near record large holdings. Tomorrow is First Notice Day for the September corn futures contract.

TODAY’S GUIDANCE: If we see a 100 million bushel increase in export demand due to tighter Black Sea feedgrain exports and a drop of yield of 3 bushels per acre from the last USDA forecast, ending stocks would slip under 1 billion bushels and stocks/usage to 7.2%, the second tightest on record. Spec buying on new highs on Friday and overnight have added to the strong buying demand from importers in recent weeks to keep the corn market in an uptrend. The December contract is nearing its January highs at 449 3/4, and traders indicate that further technical buying and stops may be waiting near that level to add to support. A push above that level would project a move to as high as 485 to 500 over the intermediate to longer term.  First support in the December contract is near 436 1/4 and then at 424 to 426. Next resistance is at 449 3/4.

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CRUDE OIL MARKET FUNDAMENTALS: October crude oil has taken on a defensive stance ahead of key U.S. GDP figure and comments from Fed Chairman Bernanke. Outside markets appear subdued in anticipation of a reduced U.S. growth forecasts from the previous estimate of +2.4% down towards +1.0% to +1.3%. In fact, that uncertain economic backdrop was echoed by a Barclay’s report released Thursday that lowered their price outlook for crude oil in 2010 by 4.8% and in 2011 by 7.6%. Additionally, markets are anxious and somewhat hopeful ahead of Fed Chairman Bernanke’s speech that he may offer new ways to stimulate demand, and that is a factor that could save October crude oil prices. However, the fundamental picture for crude oil remains flush with ample supplies in the face of slumping demand, and that has some analysts forecasting OPEC shipments of crude oil to slip a fraction in the upcoming month to 23.38 million barrels per day. There was also data released overnight from India that pegged their July crude oil production jumping over 15.5% compared to year ago levels, at the same time refineries boosted output by nearly 14.0% in the same period. Finally, the softening U.S. demand outlook has weighed heavily on WTI crude oil compared to Brent crude oil spread relationships, and that sent the premium for Brent out to new two month highs. Technically, October crude oil is showing signs of further upside potential. Volume has been above average during the recent two day advance, as the market rebounded from severely oversold conditions, and that gives the bulls hope for more. Short term support for October crude oil lies at $72.35 to $72.20, which should contain weakness barring any demand shocks from this morning’s key data flow. The short term trend provides the bulls with the edge but that edge will be erased quickly if the US GDP is below 1%.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: October RBOB prices got off to a shaky start after a gap lower open, but have since recovered to their best levels of the early morning trade. Prices have recovered from severely oversold levels, but now rely on improving demand fundamentals to continue higher. Perhaps a positive result from this morning’s U.S. GDP figures and/or upbeat comments from Fed Chairman Bernanke could provide a bullish catalyst. These two factors will most likely dominate the trade today and for now expectations are set at a very low level. It appears there has been a let up in South African demand overnight, and that pressured European gas crack spreads. There were also comments from cash traders that noted weak U.S. RBOB prices have begun to take their toll on European markets. Technically, October RBOB is trying to make a turn higher and is in the process of building a base. This morning’s early rally has eclipsed Thursday’s price highs, and that now opens the door for a further push toward $1.8820. If prices can hold trade above this level for some time today, there is potential for a further run back to $1.95. The bulls have definitive edge this morning, but have to contend with significant macro developments.

HEATING OIL: October heating oil prices managed to shake off weakness overnight and bounce from $2.01 support. The combination of an extremely oversold market and a rebound from four month lows has sparked the latest rally, and that favors higher prices in the near term. Trading volumes have been running above average levels during Wednesday’s wide range reversal and on Thursday’s move higher. For now, the bulls are closing in on resistance at the $2.04. October heating oil has good upside momentum and clearance of upside resistance levels could provide a further push toward $2.15 in coming sessions. However, this morning’s macro news flow certainly has the potential to extend the upside, but also poses a very significant risk if growth expectations are not met.

TODAY’S ENERGY MARKET GUIDANCE: Without better than expected GDP readings the bear camp might be able to regain control.