Your stock market is closed for a fourth day, protesters are duking it out in the streets with presidential supporters, 80% of domestic flights are canceled and businesses throughout the capital are closed.

On top of that, sea captains who pilot tankers for the government oil company -- the lifeblood of the country's economy -- are practically committing mutiny by joining a nationwide strike, opposing your rule. And opposition political parties are calling for a national referendum to oust you from office.

This is the situation Venezuelan President Hugo Chavez faces today, a situation that will likely increase volatility in crude oil and related products contracts. January crude oil (CLF3:NYMEX) responded to the devolving situation Thursday by closing up more than 2% and at a five-week high.

Roiled Markets

The oil market's reaction isn't a surprise. Venezuela is the world's fourth-largest exporter of oil and supplies the U.S. with about 10% of its needs. A similar situation sparked oil prices higher last April when Chavez was ousted -- and then reinstated -- in one of the briefest and most bizarre coups in Latin American history.

Still, other factors are at play that will probably only increase volatility in oil. Iraq, the war on terror and the Israel-Palestine conflict remain front and center on traders' minds. War with Iraq could result in spikes above $40, similar to what happened in the 1991 invasion of Iraq.

Oil traders have been counting on steady imports from Venezuela to make up any shortfall in oil supply that might result from war with Iraq. Now that supply is in question. Last week's larger-than-expected build in national crude oil inventories was a bearish factor, but helped replenish a supply that now stands about 8% below year-ago levels. Imports have also been up, thanks in part to OPEC's failure to maintain output quotas, but quota allocations could change at the oil producing group's meeting next week in Vienna.

The recent cold blast across much of the East will also chip away at national inventories as we approach the heart of winter and the greatest demand for heating oil. All told, the situation in oil and distillates appears poised for a spat of increased volatility with the greatest risk to the upside.

January crude is in day two of a pullback from its one-month high, priming it to potentially resolve higher next week after the due date for Saddam's weapons programs laundry list.

The Other Meat

Pork contracts have been on a tear since breaking out on Oct. 14 and then providing a gift, second-entry opportunity the following week. February hogs (LHG3:CME) have rallied strongly since the breakout, adding over 7 cents. Hogs are now setting up in a low-volatility situation, the result of six consecutive narrow closes within .060 of one another.

While low-volatility situations don't indicate market direction -- only that a larger-than-normal move is likely -- recent price action suggests the move out of the low-volatility situation will be up. Upside momentum is still abundant; hogs haven't closed below their 10-day moving average for more than one day at a time in the past two months.

Subtle clues within the current consolidation also suggest the next move could be higher. Hogs reached a contract high on Nov. 27, but have since failed to fill this chart void on a closing basis. The past six sessions have also registered higher highs and higher lows, another hint of direction. Look for hogs to continue their run, and to do so with an explosive bar. Hogs were holding onto gains on Thursday, setting up the potential for this market to trigger out of a pullback within the next one to four days.

Although they are a much thinner (lower volume) market, pork bellies have a positive correlation with hogs, and an upside setup that enhances the bullish view in the pork complex. February pork bellies (PBG3:CME) are triggering Thursday's session out of a classic three-bar-pullback-from-high pattern. Notice how bar three in the pullback left a tail at the 10-day moving average in an example of constructive behavior for any market.

Finally, March cocoa (CCH3:NYBOT) has been rebounding in the face of renewed rebel activity in Ivory Coast, the biggest global producer. But the contract could have a difficult time breaking through tight Fibonacci resistance depicted in the following chart. Resistance at the cluster, at Thursday's 1908 high, sets up a defined-risk shorting opportunity.

Marc Dupee is an independent trader and co-author of the book The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he was short cocoa, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to Marc Dupee.

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