Tuesday, January 4, 2011

Hedge Funds Appear to be on Board the Crude Oil Bull Bus

It appears the crude oil rally and the pain being felt by some oil companies could be getting some support from the Obama administrations delay in approving the resumption of drilling for rigs in the gulf region. While the public hears "we have lifted the ban" coming out of Washington. The fact remains that no operator has been given the green light to resume drilling. Costing some companies $100,000's per day in rig expenses while the rigs sit idle waiting for word out of Washington.

And the smart money is paying attention. Bloomberg News reports this morning that hedge funds and other large speculators increased their net long positions, or wagers on rising prices, by 4.6 percent in the seven days ended Dec. 28, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the biggest total in records going back to June 2006.

We always put a lot into the "smart money", these funds take up such a large percentage of the money that is on the table at any given time that you have to. And these funds tend to be the slow moving indicator in the market, not the fast moving commercial traders that also make up 50% of the market. But we are sticking by our correction outlook that focuses on the middle of January as there is just to many bulls in this market right now. That is never healthy. Show me a rallying market with plenty of bulls and bears on each side of the trade and I'll show you a sustainable rally. But as always we will trade the numbers given to us today, and here they are.......

Crude oil was higher overnight as it extends the rally off August's low. Stochastics and the RSI are diverging but are turning bullish signaling that sideways to higher prices are possible near term. If February extends the rally off August's low, May's high crossing at 93.87 is the next upside target. Closes below last Thursday's low crossing at 89.02 would confirm that a short term top has been posted. First resistance is Monday's high crossing at 92.58. Second resistance is May's high crossing at 93.87. First support is the 10 day moving average crossing at 91.00. Second support is last Thursday's low crossing at 89.94. Crude oil pivot point for Tuesday morning is 91.78.

Natural gas was higher overnight as it extends the rally off December's low. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. If February extends the aforementioned rally, the 50% retracement level of the June-October decline crossing at 4.876 is the next upside target. Closes below the 10 day moving average crossing at 4.321 would confirm that a short term top has been posted. First resistance is the overnight high crossing at 4.688. Second resistance is the 50% retracement level of the June-October decline crossing at 4.876. First support is Monday's gap crossing at 4.454. Second support is the 10 day moving average crossing at 4.321. Natural gas pivot point for Tuesday morning is 4.610.

Gold was lower due to profit taking overnight as it consolidates some of last week's rally. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If March extends last week's rally, December's high crossing at 1432.50 is the next upside target. Closes below the reaction low crossing at 1372.70 would confirm that a short term top has been posted. First resistance is Monday's high crossing at 1424.40. Second resistance is December's high crossing at 1432.50. First support is the 20 day moving average crossing at 1395.50. Second support is the reaction low crossing at 1372.70. Gold pivot point for Tuesday morning is 1420.10.


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