Tuesday, December 14, 2010

Commodities Gain Strength.....Increase in Demand or Chinese Currency Manipulation?

Commodities have gained strength as interest in the U.S. dollar decreased and the safe haven trade in gold appears to be returning ahead Tuesdays FOMC meeting. Crude oil bulls are gaining strength from what appears to be a clear decrease in Mid West Stockpile inventory [see chart]. This should put pressure on OPEC to increase output if members want to maintain the recent stability they have enjoyed in crude oil prices.

But it became apparent this week that OPEC and even the U.S. consumer is no longer in the driver seat when it comes to oil and commodity prices. 2010 will be remembered by traders as the year the Chinese government policies and the Chinese consumer dominated the news cycle that guides energy and commodity prices.

But is the Chinese governments failure to aggressively respond to their inflation worries a signal to go long all commodities? Or will the potential for food prices spiking wildly out of control create a bull run on grain based foods or are we seeing the mother of all bubbles about to burst? All eyes are on every move the Chinese government is making while they appear to be in complete denial over the need to allow a steady and normal increase in the value of the Yuan.

Here's your trading numbers for Tuesday morning......

Crude oil was higher overnight as it extends the trading range of the past seven trading days. Stochastics and the RSI are neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 85.62 are needed to confirm that a short term top has been posted. If January renews the rally off November's low, May's high crossing at 93.29 is the next upside target. First resistance is last Tuesday's high crossing at 90.76. Second resistance is May's high crossing at 93.29. First support is last Friday's low crossing at 87.10. Second support is the 20 day moving average crossing at 85.62. Crude oil pivot point for Tuesday morning is 88.51

Natural gas was lower overnight as it consolidates above the 20 day moving average crossing at 4.342. Stochastics and the RSI have turned bearish signaling that a short term top might be in or is near. Closes below the 20 day moving average crossing at 4.342 are needed to confirm that a short term top has been posted. If January renews the rally off November's low, the 38% retracement level of the June-November decline crossing at 4.654 is the next upside target. First resistance is last Thursday's high crossing at 4.637. Second resistance is the 38% retracement level of the June-November decline crossing at 4.654. First support is the 20 day moving average crossing at 4.342. Second support is the reaction low crossing at 4.126. Natural gas pivot point for Tuesday morning is 4.430.

Gold was higher due to short covering overnight as it consolidates above the 20 day moving average crossing at 1379.70. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 1379.70 would confirm that a short term top has been posted. If March renews this year's rally into uncharted territory, upside targets will be hard to project. First resistance is last Tuesday's high crossing at 1432.50. First support is the 20 day moving average crossing at 1379.70. Second support is the reaction low crossing at 1352.00. Gold pivot point for Tuesday morning is 1393.00.


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