Court Order Gooses Gas Prices

  • May 15, 2001
  • Marc Dupee

Natural gas gapped sharply higher and continued rallying,
in part because of a court ruling that will likely have long-ranging
implications for many states. Technically,
natural gas
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descending triangle, resulting in a brutal three-week selloff that had left the
contract oversold. But despite expectations for declining inventories in
tomorrow’s APA report on nat gas inventories, the July futures rallied .231 to
4.625. 

A US appeals court upheld Environmental
Protection (EPA) rules requiring 12 Midwestern and Southeast states to cut
pollution. Some states and utilities had opposed the EPA rules. Many power
plants will have to switch from coal to cleaner-burning energy sources such as
natural gas in order to meet higher air quality standards. An island bottom at
4.470 left from today’s gap-up move now stands as support. 

“The risks are weighted mainly toward conditions that may generate economic
weakness in the foreseeable future.” Or so said the Fed in its policy
statement accompanying its fifth rate cut this year that took the Federal Funds
rate to a seven-year low of 4.00%. The “bias” helped clarify doubt
about whether the Fed will stop cutting rates to stave off what many believe is
building inflation. Indeed, prior to the Fed’s announcement at 2:15 PM ET, the
July Federal Funds futures
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25-basis-point cut by the Fed’s next meeting at the end of June. But after the
policy announcement, the FFN1 rallied, significantly upping the odds to 70%, for
such a rate cut. 


T-bonds
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of the year, down 19/32 at 99 1/32.

10-year notes
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European currency futures gapped higher and rallied as
the rate cut and prospect for another 25-point move soon made holding European
interest rate products relatively more profitable. Swiss francs
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made good on their Turtle Soup Plus One Buy
 setup, closing .0022 higher at .5737. Euro FX futures
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added .00380 to .87780, and British pounds
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at 1.4226. 

June gold
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and Pullback From Highs
lists, sold off over $2 this morning but made back almost all of its losses to
close down just .2 at 268.5 to close right below its Pullback Trigger. Look for
a move today or tomorrow above the high of the low-bar pullback. 

While copper
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leave a classical Turtle Soup Plus One buy signal yesterday (the previous low
occurred April 6, more than the maximum 20 days ago), the contract did
pullback from contract lows. Look for a continuation of the rebound off lows in
a swing trade. This contract is sensitive to interest rates but even more
sensitive to economic reports. See how this contract responds to tomorrow’s
housing starts report. Copper finished up .05 at 75.05.

Silver
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closed at a new contract low. It also formed a head-and-shoulders top. A break
below today’s low implies — using measured-move analysis for H&S tops
–  a move twice the distance from the head to the neckline, or a test of
421. 

Pork contracts continued moving to the downside out of
their declining patterns and indicators.
June lean hogs
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and August pork bellies
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pared even greater losses, settling down, .725 at 75.050.1.075 to 74.700.

The 950-960 Maginot line support zone in cocoa
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continues to have a bearing. The engulfing bar from two days ago was essentially
negated by cocoa’s 32 rally to 1056 today. A move to new high ground would work
to more conclusively negate the May 11 engulfing bar (outside day down) and
support higher prices. The gap above the psychological 1000-mark is also
supporting this market. 

This morning’s agriculture futures pre-opening outlook
pointed out that sugar
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number of reported positions with speculators going from net short to carrying a
heavy net long position. This is a situation that often brings bull squeezes (a
move south followed by long covering). Sugar closed up .08 at 9.09.