Naturally Explosive

August 15, 2001
Marc Dupee

Natural gas soared in its biggest rally of the year
after the regularly scheduled American Gas Association’s inventory report
released during the session showed a huge drop of reserves in storage.
Expectations were for “injections” to increase 64 billion cubic
feet, while only three billion were reported. September

natural gas
(
NGU1 |
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PowerRating) initially dipped before zooming to
finish the dayÂ up .041 at 3.135.Â

Three factors coalesced to account for the decline in
inventories. First, demand from utilities using the fuel to generate
electricity spiked as Northeasterners left air conditioners on all day to
combat a five-day heat wave. Second, utilities took reserves from storage
rather than purchase in the market, taking a chunk out of inventories. And
third, a tropical storm in the Gulf of Mexico, home to 25% of US natural gas
production, slowed output and the flow into inventories.

Dollar holders continued selling the currency in reply to the International
Monetary Fund’s annual report released yesterday. In the report, the IMF warned that the buck
could be in for a steep “depreciation,” pointing out that a poor
and potentially worsening current account deficit could undermine the
until-recently strong dollar.Â

September dollar index futures
(
DXU1 |
Quote |
Chart |
News |
PowerRating) have been showing weakness
and potential downside inertia by registering on the
Implosion-5 List since last month. They lead the list now. In the report,
the IMF said the dollar could come under
additional pressure should US productivity figures fall. Last month, US
productivity rose, but the rise was attributed to layoffs which translates
into fewer hours worked, rather than greater output, as being the primary
reason for the increase.Â

The current account deficit will continue to rise if investors close
bets that US assets will perform relatively better than assets in other
countries. European assets would be one of the major beneficiaries and
traders placed more bets that the economies in the EC bloc
might perform better than in the US.Â

Following up on its confirming up-bar yesterday that
left it at a six-week closing high, the
Japanese yen
(
JYU1 |
Quote |
Chart |
News |
PowerRating) gapped open and surged to the top of an island
reversal formation left last June. Besides the IMF report, the yen is also benefiting from repatriation-buying
as Japanese bring home yen to write off losses
in bonds and stocks. The Nikkei 225 stock index has fallen this year to
a 16-year low and the Japanese fiscal year ends next month.

The yen made good on an Off The Blocks
entry, a setup appropriate in markets that show momentum by either
registering on the Momentum-5
List or the
New 10-Day Highs List. It also surged out of a Haggerty Slim Jim-like
formation intraday. But with negative news continuing to come out on the Japanese
economy –Â falling industrial production and machine tools orders
today, for instance — as well as the large gap left from this morning, look
for a reversal in this market as well.

T-bond futures
(
USU1 |
Quote |
Chart |
News |
PowerRating) closed lower after leaving wicks
in candlestick patterns in resistance areas specified in
Levels From The Bond Pit over the past few sessions. There was speculation
that the Fed may not cut
rates as aggressively as thought and short-term debt priced in a reduced
chance of the Fed cutting by 50 basis points by Christmas. The December federal
funds
(
FFZ1 |
Quote |
Chart |
News |
PowerRating) went from pricing in a full 50-point cut to pricing in a 72%
chance of a 50 b.p. cut today.Â

From the
Implosion-5 List, cotton made good on an Off The Blocks
short entry and closed down .43 at 39.85.

Naturally Explosive

BUY THE FEAR, SELL THE GREED

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