Wednesday, November 30, 2011

The Currency War Big Picture Analysis for Gold, Silver & Stocks

I think you will admit that we are in the middle of one major crazy financial mess. The part that makes things really crazy is that it’s not just in the United States anymore but rather serious global problem which if not handled properly could change the way we live our lives going forward or possibly even spark some type of war, hopefully things don’t get that crazy...... But I do know one thing. Fear is the most powerful force on the planet and people do some crazy things when they are backed into a corner.

Anyways, on a more positive tone…... today China decided to help provide more liquidity for the financial system along with the central banks. This news triggered a monster rally in overnight trading making the market gap up sharply at the opening bell. This news did hit the US dollar index hard sending it sharply lower but the question remains “Will today’s news be a one week hiccup in the market?” If Euroland starts printing money it will likely send the dollar higher and stocks lower for 6 -12 months.

Just today I was joking with Kerry Lutz of the Financial Survivor Network about how each country should just give each other country a second chance. Wipe the dept clean and start over knowing this time around exactly how each country truly operates at a financial level allowing everyone to avoid a repeat of this BS. Some countries will get off way better than others because they would get so much dept wiped clean. But isn’t it better than years of problems and possibly wars over food, gold, guns, oil and Canadian water? 

All joking aside, let’s take a look at the weekly long term charts.....…

Dollar Index Showing Possible Massive Rally If Euro Starts Printing Money:

I’m sure my off the cuff options/thoughts will cause a stir but I am fine with that. Everyone I talk to is thinking the dollar is about to fall off a cliff while I think it’s very possible that it does just the opposite. Either way I will be looking to benefit from which ever move unfolds.

Weekly Gold Chart:


Weekly Silver Chart:


Weekly SP500 Chart:


Long Term Thoughts:

I would first like to say that tonight’s report is out of my norm. Generally I do not focus on the big picture negative stuff and I like to avoid it for a few reasons...... One, it’s just downright depressing to talk and think about. And Second I don’t want to be labelled as one of those “The Sky Is Falling” kinds of guys.
So, that being said I think these charts above show a situation what is very possible to happen in the coming 6-12 months. Keep in mind that my focus is on short term time frames as it allows me to avoid and actually profit from major market moves while providing enough information for my followers to learn technical analysis and trade management. And the obvious idea of not looking too far into the future with a negative outlook.......

With headline risk changing the market direction on a weekly basis, this negative outlook could easily change in a couple months. I will recap on the big picture as things unfold in January/February.

Chris Vermeulen
The Gold and Oil Guy.com

Don't miss some of Chris' most recent articles......

How to Trade Using Market Sentiment & the Holiday Season


How to Trade Oil ETFs When $100 Per Barrel is Reached

Stocks Soar on Central Bank Action....Crude Oil and Gold Along For The Ride

Crude oil closed higher on Wednesday as it extends the rally off last Friday's low. The mid range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. If January renews the rally off this month's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below last Friday's low crossing at 94.99 are needed to confirm that a short term top has been posted. First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is last Friday's low crossing at 94.99. Second support is the reaction low crossing at 89.05.

Natural gas posted an inside day with a lower close on Wednesday as it consolidated some of Tuesday's rally. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term. Closes above Monday's high crossing at 3.720 are needed to confirm that a short term low has been posted. If January renews this year's decline, monthly support crossing at 3.225 is the next downside target. First resistance is Monday's high crossing at 3.720. Second resistance is the 25% retracement level of the June-November decline crossing at 3.936. First support is last week's low crossing at 3.461. Second support is monthly support crossing at 3.225.

Gold closed sharply higher on Wednesday and above the 20 day moving average crossing at 1747.60 confirming that a short term low has been posted. The high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. If February extends this week's rally, November's high crossing at 1806.60 is the next upside target. Closes below last week's low crossing at 1670.50 would renew the decline off this month's high. First resistance is today's high crossing at 1754.70. Second resistance is November's high crossing at 1806.60. First support is last week's low crossing at 1670.50. Second support is the reaction low crossing at 1607.30.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Phil Flynn: Taking The Embassy By Storm!

Occupy Tehran? Iranian students, incensed with a new round of sanctions, stormed the British Embassy and added a new dynamic to a market already concerned about the rising tensions in the Middle East. The orchestrated take over from the government was a clear violation of international law and shows Iran's utter lack of respect for anyone else in the world.

The pillaging of the UK Embassy had to have the support of the government because it is unlikely that without the government looking the other way, it would be impossible for a rag tag bunch of students to take over the fortified British compound. Iran, the world's fifth biggest oil exporter, was trying to stir domestic public outrage after a vote by Iran's leaders to end diplomatic relations with the UK and expel the British ambassador and the UK slapped sanctions on Iranian banks and their petrochemical companies.

Obviously these sanctions have some bite as it raised the acrimony of the Iranian regime. The outcome means that more than likely the U.S. will follow suit and put more pressure on the known terror state as it is clear to everyone that Iran is on track to secure a nuclear weapon after a report from the International Atomic Energy Association.

The likely hood of more sanctions against Iran look to tighten supplies of distillate in Europe and will put even more pressure on the world's newest diesel exporter, the US, to keep up with global demand. The United States, Russia, France, Britain and Germany all expressed outrage at the Iran, yet China remained quiet as it desperately needs diesel supply. They are fearful that if Iranian supply is cut it could lead to shortages in China for the coming winter......Read the entire article.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Tuesday, November 29, 2011

Proposed KMI and El Paso Merger Would Create Largest U.S. Natural Gas Pipeline Company

map of U.S. natural gas pipeline network, November 2011

The proposed merger of Kinder Morgan Inc. (KMI) and El Paso Corp. (El Paso) announced on October 16, 2011 would create the nation's largest natural gas pipeline company. If approved by state and federal regulatory officials, the combined company would operate about 67,000 miles of natural gas pipelines (see the blue and red lines in the map), or about 22% the U.S. natural gas pipeline network. Upon closing, the proposed $38 billion transaction would be one of the biggest natural gas pipeline mergers in United States history.

El Paso's natural gas pipeline network complements Kinder Morgan's natural gas system. By adding El Paso's network to its own, KMI increases its access to natural gas markets in the Southwest, Southeast, Northwest, and Northeast. El Paso has been extending its reach into these markets. In 2011, El Paso completed three major pipeline projects: Ruby Pipeline, Florida Gas Transmission Phase VIII, and Tennessee Gas Pipeline 300 Line, in total adding around 1,200 miles and 2.6 billion cubic feet per day of capacity to its network.

graph of natural gas pipeline mergers and acquisitions activity as of November 2011

Source: U.S. Energy Information Administration, based on SNL Financial.

Note: The labeled brown bars represent the four largest deals since 1996. Total transaction value only includes completed and pending deals based on the announcement year.
*Pending transaction


As measured by total dollars, 2011 has been a significant year so far for mergers and acquisitions in the natural gas transmission sector compared with previous years. The proposed merger between Kinder Morgan and El Paso could be the largest U.S. pipeline related merger and acquisition since 1996, representing about 54% of the total transaction value of proposed or concluded mergers so far in 2011, according to SNL Financial.

On June 15, 2011, Energy Transfer Equity agreed to acquire Southern Union for $9.2 billion, making it the second largest pending natural gas pipeline-related deal in 2011. Since 1996, three natural gas transmission mergers and acquisitions deals over $20 billion were concluded according to data from SNL Financial: a $22 billion deal between El Paso and Coastal Corp in 2000; a $21 billion leveraged buyout deal of Kinder Morgan by a group of private investors in 2006; and a $20 billion deal between Enterprise Products Partners and Enterprise GP Holdings in 2010.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Where is Crude Oil, Natural Gas and Gold Headed on Wednesday Nov. 30th

Crude oil closed higher on Tuesday as it extended the rebound off last Friday's low. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are turning neutral hinting that sideways to higher prices are possible near term. If January renews the rally off this month's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below last Friday's low crossing at 94.99 are needed to confirm that a short term top has been posted. First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is last Friday's low crossing at 94.99. Second support is the reaction low crossing at 89.05.

Natural gas posted an inside day with a higher close on Tuesday as it consolidated some of Monday's loss. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 3.682 are needed to confirm that a short term low has been posted. If January renews this year's decline, monthly support crossing at 3.225 is the next downside target. First resistance is the 20 day moving average crossing at 3.682. Second resistance is the 25% retracement level of the June-November decline crossing at 3.936. First support is last week's low crossing at 3.461. Second support is monthly support crossing at 3.225.

Gold posted a quiet inside day with a higher close on Tuesday as it consolidated some of this month's decline but remains below the 20 day moving average crossing at 1743.10. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If December extends this month's decline, the reaction low crossing at 1604.70 is the next downside target. Closes above the 20 day moving average crossing at 1743.10 would confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 1719.30. Second resistance is the 20 day moving average crossing at 1743.10. First support is last week's low crossing at 1667.10. Second support is the reaction low crossing at 1604.70.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Phil Flynn: Consumer Confidence?

The market awaits the latest reading on consumer confidence but what is the point. The US consumer is showing their confidence with the wild Black Friday and Cyber Monday spending spree. It appears that the US consumers are able to ignore the worries in Europe and the rest of the world, giving incredible upside momentum in the petroleum complex.

It is obvious that the US consumer is feeling better about our economic outlook, or at the very least they just need to get out and spend. So instead of worrying about Europe and looking to the developing world, perhaps the world will once again look to the American consumer to once again bail out the global economy. Ahh just like the old days.

Of course oil is also gaining support from overseas worries. Despite the reports of a natural gas pipeline explosion in Egypt the truth is the election in Egypt seemed to be rather calm.

The Global Warming Conference in URBAN, South Africa is not going all that well. According to the USA Today the conference is warning that global warming already is causing suffering and conflict in Africa, from drought in Sudan and Somalia to flooding in South Africa according to President Jacob Zuma.

He urged delegates at an international climate conference to look beyond national interests for solutions......Read the entire article.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

John Woods: Brace for a Selloff in Crude Oil Prices

John Woods, President of JJ Woods & Associates, says oil will keep rallying in the short term but that traders will dump the black gold before the end of the year.




Is This December Similar to 2007 & 2008 for Gold & Stocks?

India Anticipates $76 Billion Investment in Oil and Gas Sector

India expects INR3.90 trillion ($76 billion) to be invested developing its oil and gas sector from April 2012 to March 2017, the country's junior oil minister said Tuesday.

The development plan includes exploration, production, refining, marketing, storage, petrochemicals and related engineering activities to increase availability of petroleum and petroleum products, RPN Singh said in a written reply to lawmakers in the upper house of Parliament.

India currently meets 80% of its total crude needs through imports. Crude oil imports accounted for 29% of its total import bill of $350 billion in the year ended March 31. Imports are expected to surge over the next few years as an expanding economy drives demand for fuel products, pressuring the country's fiscal position.....Read the entire article.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Monday, November 28, 2011

Where is Crude Oil, Natural Gas and Gold Headed on Tuesday?

January crude oil closed higher on Monday as it consolidated some of the decline off this month's high but remains below the 10 day moving average crossing at 98.24. The low range close sets the stage for a steady to lower opening on Tuesday. 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 96.62 are needed to confirm that a short term top has been posted. If January renews the rally off this month's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is the 20 day moving average crossing at 96.62. Second support is the reaction low crossing at 89.05.

December natural gas posted a key reversal down on Monday after failing to overcome resistance marked by the 20 day moving average crossing at 3.573. Stochastics and the RSI have turned bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 3.573 are needed to confirm that a short term low has been posted. If December renews this year's decline, monthly support crossing at 3.225 is the next downside target. First resistance is the 20 day moving average crossing at 3.573. Second resistance is the 25% retracement level of the June-November decline crossing at 3.786. First support is last week's low crossing at 3.285. Second support is monthly support crossing at 3.225.

Gold closed higher on Monday as it consolidated some of this month's decline but remains below the 20 day moving average crossing at 1743.50. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If December extends this month's decline, the reaction low crossing at 1604.70 is the next downside target. Closes above the 20 day moving average crossing at 1743.50 would confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 1725.20. Second resistance is the 20 day moving average crossing at 1743.50. First support is last week's low crossing at 1667.10. Second support is the reaction low crossing at 1604.70.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Beyond Natural Gas and Electricity.... More Than 10% of U.S. Homes Use Heating Oil or Propane

 While almost 85% of households in the United States heat with natural gas or electricity, more than 10% rely on heating oil or propane, according to the 2009 Residential Energy Consumption Survey. The shares of heating oil and propane are likely to remain small but significant in the U.S. residential heating mix. These fuels serve distinct populations—heating oil primarily serves households in the Northeast, while propane serves households in rural areas across the country.

Over 80% of homes that rely on heating oil for space heating are located in the Northeast. Also, heating oil is most commonly used in older homes, as about one-half of all homes that currently use heating oil were built before 1950. Generally, homes built since 1980 are not heated with heating oil, except in the Northeast. The survey data show that heating oil equipment is older than average but more likely to be regularly maintained than other types of heating equipment, providing some potential efficiency benefits.

Propane space heating has broader geographic distribution than heating oil, heating between 3% and 8% of households in every region. Across the country, propane use is most common in rural areas and mobile homes. About 83% of households with propane heating are located in rural areas that are typically beyond the reach of the natural gas distribution infrastructure. In the Midwest, the rural share is greater than 90%. Additionally, those living in mobile homes are twice as likely to heat with propane as those in other housing unit types. Propane is becoming more common in the Northeast; of homes built in this region between 2000 and 2009, equal amounts are heated with propane and heating oil.

graph of share of households by region using heating oil or propane


Is This December Similar to 2007 & 2008 for Gold & Stocks?


Posted courtesy of The EIA

Sunday, November 27, 2011

Is This December Similar to 2007 & 2008 for Gold & Stocks?

Thus far in 2011 the overall stock market movement has been much different from what we had in 2010. This year we have seen nothing but sideways to lower prices with wild price swings on a day to day basis. There just has not been any really solid trends to take advantage of this year. Instead we had to actively trade the oversold dips and sell into the overbought rallies to just pull money out of the market on a monthly basis. Last year we saw 3 major rallies that lasted several months making it easy for anyone who bought into the trend to make money if managed properly.

Looking forward to 2012 it looks as though we are going to see some major changes unfold globally that will change the way we do things live our lives. Unfortunately its a very negative outlook but I do have hope that something will be done to perserve are somewhat normal lifestyles. I’m not one to talk doom and gloom, there are enough of those guys out there already so lets stick with the charts and focus on what is unfolding now in the present and how to take advantage of it.......

The charts below show what I feel is likely to happen going into the new year IF we don’t get any major headline news in Europe that triggers another selloff.

Intermarket Analysis:

There are a lot of different things unfolding within stocks, commodities, currencies and bonds right now. And it is imporatnt to know that investments are inter-connected in some way. For example,  if one investment moves sharply in one direction it will have an effect on other investment classes.

My eye is focused on the US Dollar Index which has recently had a strong run up in price. For the past couple years we have seen stocks fall when the dollar moves up. So with the dollar index now trading at a key resistance level we should see the dollar top out for a few weeks and spark a Christmas rally into year end. After that, all bets are off and we re-analyze…

On the flop side of things, if Europe comes out with major negative headline news we could see the dollar index continue its rally and breakthrough this resistance level. If the dollar moves higher from here we could easily see a multi month run up in the dollar. You do not want to be long stocks if this happens, get short stocks and hold on tight.

Dollar ETF Trading

Gold Daily Chart Analysis:

Here is my positive out look for gold and what I feel is likely to unfold near term. But keep in mind what I just said about the US dollar index above. If the dollar continues its rally and breaks out it could actually put some pressure on gold. I know gold is a safe haven so I do expect it to hold up, but a strong dollar will neutralize a lot of the buying in gold in my opinion.

Gold Christmas Rally

SP500 Daily Charts:

Stocks should have a solid bounce this December if the dollar finds resistance and pulls back in the coming weeks. I am expecting a bounce of 5-10% if all goes as planned.

SP500 Christmas Rally


Christmas Holiday Rally Trading Conclusion:
In short, we are entering a tough time to trade the market. Volatility is low, there are a few holidays and typically we see volume thin out as December unfolds. Light volume generally favors higher prices for stocks and commodities which is one of the reasons we get the holiday lift in prices.

The recent selloff in stocks is looking overdone to the down side and ready to bounce any day. So I am looking for signals to get long the SP500. Overall risk remains very high as sellers are still in control of the market and because we are looking to put on a trade against the intermediate trend which is down.

On Friday morning myself and my followers exited our short position on the SP500 at the open locking in 13.5% profit. We exited the position because the intraday charts are showing signs of a potential bottom and we want to avoid the tear your face off short covering rally that I feel is just around the corner. Now we are waiting for a another low risk setup and will take action to go long or short depending how things unfold in Europe.

I hope this report helped shed some light on the current market condition for you. Remember you can!

Get my daily pre-market trading videos, intraday updates , and trade alerts with my premium newsletter at  The Gold and Oil Guy

Chris Vermeulen

Check out Chris' recent article "How to Trade Using Market Sentiment & the Holiday Season"

Ohio Shale Drilling Spurs Job Hopes in Rust Belt

A rare sight in hard-luck Youngstown, a new industrial plant, has generated hope that a surge in oil and natural gas drilling across a multistate region might jump start a revival in Rust Belt manufacturing. The $650 million V&M Star mill, located along a desolate stretch that once was a showcase for American industry, is to open by year's end and produce seamless steel pipes for tapping shale formations.

It will mean 350 new jobs in Youngstown, a northeast Ohio city that is struggling with 11 percent unemployment. V&M Star's parent company Vallourec, based in Boulogne-Billancourt, France, hopes increased interest in shale formations will produce a ready made market. Vast stores of natural gas in the Marcellus and Utica shale formations have set off a rush to grab leases and secure permits to drill. Industry estimates show the Marcellus boom could offer robust job numbers for 50 years.

Similar hopes are alive in Lorain, Ohio, where U.S. Steel will add 100 jobs with a $100 million upgrade of a plant that makes seamless pipe for the construction, oil-gas exploration and production industries. Erin DiPietro, a company spokeswoman in Pittsburgh, said the expansion will make the Lorain operation more competitive and help it tap into expanding shale developments.....Read the entire article.


How to Trade Using Market Sentiment & the Holiday Season

Saturday, November 26, 2011

ONG: Crude Oil Weekly Technical Outlook For Saturday November 26th

Crude oil rose to as high as 103.37 last week but failed to sustain above 100 psychological level and retreated. A short term top should be formed and initial bias is mildly on the downside for deeper pull back towards 94.65 support. Nevertheless, downside is expected to be contained by 89.16/17 cluster support (50% retracement of 74.95 to 103.37) and bring rebound. On the upside, above 100.15 minor resistance will turn bias neutral and bring consolidations. But break of 103.37 resistance is needed to confirm rally resumption. Otherwise, we'll stay near term neutral and expect more sideway trading first.

In the bigger picture, current development indicates the fall from 114.83 has finished at 74.95. The structure suggests it's merely a correction or part of a consolidation pattern. Hence, rise from 33.2 is not finished yet. As long as 89.16/7 support holds, we'd now favor a break of 114.83 resistance to resume the rally from 33.2. Meanwhile, break of 64.23 support is needed to confirm completion of the whole rise from 33.2. Otherwise, we'll continue to stay bullish in crude oil.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Friday, November 25, 2011

Phil Flynn: Can Turkeys Lay Eggs?

Well can turkeys lay eggs? We know that can't fly. Can they? Well even if they can't, there is plenty of egg laying going on whether you are focusing on the purchasing manger data in China and Europe and perhaps what may be a bit more disturbing is the subpar German bund auction.

China PMI readings fell to 48 from 51 in October, the biggest month over month drop in over 32, hitting the lowest level since march of 2009. Germany's 10 year auction was not well received to say the least with 35% of the bunds unsold. Still the yield in Germany at 1.98%. is much better than say a country like Spain which currently is around 7%, yet Germany is supposed to be the strong economy in Europe. The lack of interest in this auction shows that the market believes it will be up to Germany to take on the debt of its less than, shall we say, industrious neighbors. Or is it because German Chancellor Angela Merkel challenged the effectiveness of the common European bond.

Add to that a subpar reading on Eurozone manufacturing that surprisingly contracted coming it at a less than expected at 47.9, below a forecast of 50.1. But the country’s flash services PMI was up at 51.4 against an expected 46.6. What was more disturbing was that industrial new orders showed the largest decline since records began in 2005, coming in at a -6.4 and was only expected to fall -2.4.

After data like that it is no wonder that the US is calling for more stress tests on our banks to head off what might be a crisis in the Euro Zone that may be already impacting China and may threaten the economic data in the US that, as of late, has been over whelming positive. With all of this uncernatainty is it any wonder why OPEC is trying to hang onto their existing production quotas despite the fact that if Europe rolls over and China slows, there might be a slowdown in demand. Oh sure, in the short term despite the slowdown in manufacturing China demand will remain solid as the country is trying desperately to keep ahead of distillate demand ahead of winter. Yet perhaps the flattening of the crude curve may be signaling tougher demand times ahead.

OPEC Secretary General Abdalla Salem el-Badri told said, "Prices are comfortable" for both producers and consumers. What consumers he talked to I am not sure. They are probably not in China or Europe. Ali Naimi, the Oil Minister of Saudi Arabia, said he is "very happy" with oil prices. If Ali is happy then OPEC is happy. Don't you feel better?

Dow Jones says that in the first half of 2012, demand for OPEC crude is expected to fall by more than 1.3 million barrels a day, compared with the fourth quarter of 2011, to an average of 29.29 million barrels day, according to the group's latest report. That is lower than OPEC's current production of about 30 million barrels a day.

Now all of this bad economic news and uncertainty, while bearish, might have been wildly bearish if it were not for the worries surrounding Iran and Egypt. Sanctions and increased pressure on Iran, as well as the uncertainty surrounding Egypt, is raising the geopolitical risk premium. So instead of oil prices crashing we may see the market try to stabilize or rebound. That may be even more true because of the impending turkey day holiday as traders give thanks that they are not Europe. Besides, with the geo-political risk, being short over an extended holiday with global supply risk possibilities does not go well with cranberries or pumpkin pie. We should see some short covering before the end of the day.

Products have been getting support because of the renewed interest in Brent as well as strong global demand for distillate and a rebounding appetite for gas ahead of the holiday. Today we get both the Energy Information Agency petroleum stocks as well as the natural gas storage. The American Petroleum Institute reported that crude oil inventories tanked by a stunning 5.57 million barrels. Yet what we lost in crude we gained in gas, rising by 5.42 million barrels. That increase is the bonus from strong distillate production that led to a drop of 886,000 barrels.

Get a trial to Phil's daily trade levels by emailing him at pflynn@pfgbest.com

How to Trade Using Market Sentiment & the Holiday Season

Thursday, November 24, 2011

U.S. Shale Boom Reduces Russian Influence Over European Gas Market

The U.S. shale gas boom has not only virtually eliminated the need for U.S. liquefied natural gas (LNG) imports for at least two decades, but significantly reduced Russia’s influence over the European natural gas market and "diminished the petro power" of major gas producers in the Middle East and Venezuela.

According to a study by Rice University’s Baker Institute, "Shale Gas and U.S. National Security", U.S. shale gas has substantially reduced Russia’s market share in Europe from 27 percent in 2009 to 13 percent by 2040, reducing the chances that Moscow can use energy as a tool for political gain.

European customers now have an alternative supply to Russian gas in the form of LNG displaced from the U.S. market. The shale boom also has exerted pressure on the status quo by indexing gas sales to a premium marker determined by the price of petroleum products. Russia already has had to accept lower prices for its gas and is now allowing a portion of its sales in Europe to be indexed to spot gas markets, or regional market hubs, rather than oil prices.

"This change in pricing terms signals a major paradigm shift," noted study authors Kenneth B. Medlock III, Amy Myers Jaffe, and Peter R. Hartley. Investment in LNG export facilities in the Middle East and Africa during the 1990s also have been rendered obsolete.....Read the entire Rigzone article.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Over One-Third of Natural Gas Produced in North Dakota is Flared or Otherwise Not Marketed

graph of North Dakota natural gas production
Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.


Natural gas production in North Dakota has more than doubled since 2005, largely due to associated natural gas from the growing oil production in the Bakken shale formation. Gas production averaged over 485 million cubic feet per day (MMcfd) in September 2011, compared to the 2005 average of about 160 MMcfd.
However, due to insufficient natural gas pipeline capacity and processing facilities in the Bakken shale region, over 35% of North Dakota's natural gas production so far in 2011 has been flared or otherwise not marketed. (It is generally better to flare natural gas than to vent it into the atmosphere because natural gas—methane—is a much more powerful greenhouse gas than carbon dioxide.) The percentage of flared gas in North Dakota is considerably higher than the national average; in 2009, less than 1% of natural gas produced in the United States was vented or flared.

Natural gas production in the Bakken shale. North Dakota natural gas production from the Bakken shale, which is situated in the northwest portion of the State, increased more than 20-fold from 2007 to 2010, and the number of wells producing natural gas increased 7-fold.
graph of natural gas production in the Bakken formation
Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.



Natural gas infrastructure. The necessary natural gas infrastructure—gathering pipelines, processing plants, transportation pipelines—surrounding the Bakken shale play has not expanded at the same pace, effectively stranding the natural gas that is produced during oil production. A 2010 report by the North Dakota Pipeline Authority highlights an example of this, stating that one county was able to reduce its flaring from December 2008 to December 2009 by 62% with the addition of two new natural gas plants and the expansion of associated gas gathering systems. The report also details several other projects that have either come online recently or are planned to for the immediate future, which may reduce the amount of natural gas flared.

Natural gas flared or otherwise not marketed. The North Dakota Department of Mineral Resources estimated that in May 2011, nearly 36% of the natural gas produced did not make it to market. Most of this gas—29% of the total gas produced—was flared. The remaining natural gas that did not make it to market—7% of total gas produced—is unaccounted for or lost, which means the gas may have been used as lease and plant fuel, or encountered losses during processing or transportation.

Natural gas flaring regulations. According to current North Dakota state regulations, producers can flare natural gas for one year without paying taxes or royalties on it, and can ask for an extension on that period due to economic hardship of connecting the well to a natural gas pipeline. After one year, or when the extension runs out, producers can continue flaring but are responsible for the same taxes and royalties they would have paid if the natural gas went to market.

Crude Oil, Natural Gas and Gold Market Summary For Thursday Nov. 24th

Crude oil closed down $1.66 a barrel at $96.34 on Wednesday. Prices closed near mid-range today and were pressured by a stronger U.S. dollar index and lower U.S. stock indexes. Recent price action in crude hints a near term market top is in place. Crude bulls do still have the overall near term technical advantage.

Natural gas closed up 5.4 cents at $3.615 on Wednesday with prices closing nearer the session high and scoring a bullish “outside day” up on the daily bar chart today. Short covering in a bear market was featured today. Bears still have the solid overall near term technical advantage.

Gold futures closed down $5.00 an ounce at $1,697.50 on Wednesday. Prices closed nearer the session high today, and well up from the daily low, and saw some bargain hunting and short covering late in the session. However, the key “outside markets” were bearish for gold today and kept prices below unchanged. The U.S. dollar index was sharply higher while crude oil and the rest of the commodity sector was lower. Near term technical damage has been inflicted recently.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Tuesday, November 22, 2011

How to Trade Using Market Sentiment & the Holiday Season

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

Take a look at the SP500 & Volatility index below:

This chart allows us to get a feel for fear in the market. Me being a contrarian trader, I focus on market sentiment extremes. When the masses are losing money hand over fist I’m generally on the other side of that trade with open arms. Trading off fear is one of the easiest ways to trade the market. That is because fear is much more powerful than greed and it shows up better on the charts. Spotting panic selloff bottoms is something that can be traded successfully if you know what to look for and how to trade them.

On the chart you can see the pullbacks in the SP500 which triggered a panic selling spike in my green indicator. What I look for is a pullback in the SP500 and for my panic selling indicator to spike over 20. When that happens I start watching the volatility index for a spike also. The good news is that the volatility index typically rises the following day making my panic indicator more of a leading one…

Market Sentiment Trading
Market Sentiment Trading
I could write a 20 page report going into depth this with topic, but that’s not the point of this report. Just realize that the stock market is likely going to put in a bottom very soon and likely end with a STRONG panic selling washout this week or next. 

Prepare for a sharp drop in the market which should kick start a holiday rally in the next few trading sessions.

Chris Vermeulen
Just Click Here to visit Chris' site and get his Index, Commodity and Currency Trading Alerts




Let's Get Started Trading Gold, Crude Oil & Index ETF's

Musings: Upcoming Winter Could Be A Repeat Of Last Year's Winter

Recently, ImpactWeather, a Houston based weather forecasting and consulting firm, held a webinar in which they discussed their view of the weather trends that will impact temperatures and precipitation in the United States during both the next 30 days and the winter period of December through February. The bottom line is that the developing La Niña in the South Pacific Ocean is controlling the weather patterns. So far the pattern has allowed an active hurricane season to develop but has contributed to only a few of the storms entering the Gulf of Mexico and making landfall on the U.S. coast.

ImpactWeather showed a chart that contained the various global sea surface temperature (SST) anomalies that are influencing global weather patterns. ENSO (El Niño/La Niña Southern Oscillation) is probably the most prominent SST anomaly, but the Pacific Decadal Oscillation (PDO) Pattern, the Atlantic Multi-decadal Oscillation (AMO) Pattern and the Indian Ocean Dipole (IOD) Pattern are also strong weather influencing factors. As shown in the accompanying chart (Exhibit 3), ENSO and PDO are in their cold phase while the AMO and IOD are in their warm phase.

Exhibit 4. La Niña Dominates Winter Weather
La Niña Dominates Winter Weather 
Source: ImpactWeather

The impact of the PDO and La Niña phases is best shown by the forecasts showing the deviation in temperatures that can be expected in the future as a result of these patterns. As shown in Exhibit 5, the 2011-2012 winter forecast shows that temperatures should average between 1°C and 1.4°C below normal. The forecast for November called for a 1.4°C lower temperature range, which would seem to be consistent with the cooling that has been experienced since late October. The chart shows a multitude of temperature forecasts generated by computer models, virtually all of them showing negative deviations. If one compares the forecasted temperatures for this winter with the temperatures experienced last winter (the far left side of the chart), they look similar, but the forecasted temperature anomalies don't show the move back to zero as experienced last summer. That would suggest that in the United States we may not experience the extreme heat witnessed last summer. That doesn't mean that the drought conditions will end, but lower temperatures would be a welcome relief......Read the entire Musings From The Oil Patch Article.


Today’s Stock Market Club Trading Triangles

Crude Oil Market Summary and Trend Analysis For Tuesday November 22nd

We are now tracking the January contract. No change in our commentary from yesterday. As mentioned last week, we felt that the crude oil market was topping out. In retrospect, we have confirmation that is indeed the case. We are now expecting and look for support to come in at $94.55 (basis the January contract), which is a 61.8% Fibonacci retracement.

At the present time, both our monthly and weekly Trade Triangles remain in a positive mode, which is the direction of the major long term trend. Resistance is the $100 level. Long term, Intermediate term should be long this market with appropriate money management stops.

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative

Combined Strength of Trend Score = +85

EIA: North Dakota's Oil Production Has More Than Quadrupled Since 2005

North Dakota's oil production averaged over 460 thousand barrels per day (bbl/d) in September 2011, more than four and one half times its September 2005 level. Although the State's oil production growth slowed during the first few months of 2011, more favorable weather conditions helped operators significantly boost output in June, July, August, and September. North Dakota currently trails only Texas, Alaska, and California among oil-producing States.

The early 2011 slowdown in the State's oil production growth was due in large part to an especially severe winter and spring flooding that hampered exploration and development activity. Through May, monthly increases averaged just over 1%, well below the average monthly production growth of about 3% in 2010.


Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.


North Dakota operators reported stronger production gains more recently. In June 2011, oil production averaged 385 thousand bbl/d, an increase of nearly 6% over May. In July, oil production grew by more than 10% from the previous month, averaging 424 thousand bbl/d. Production in August and September rose by 5% and 4%, respectively. According to North Dakota's Department of Mineral Resources (DMR), warmer and dryer weather has resulted in a sharp increase in active drilling rigs and hydraulic fracturing activity as operators escalate exploration and development programs.

Production increases in North Dakota are mainly associated with accelerating horizontal drilling programs in the Bakken shale formation situated in the northwest portion of the State (and extending into Montana and portions of Canada). By combining horizontal wells and hydraulic fracturing (the same technologies used to significantly boost the Nation's shale gas production), operators increased North Dakota's Bakken oil production from less than 3 thousand bbl/d in 2005 to over 230 thousand bbl/d in 2010.

Citing a backlog of over 350 wells awaiting fracturing services, the DMR anticipates further oil production increases through the remainder of 2011 and over the next several years (reaching as much as 750 thousand bbl/d by about 2015, up from its earlier estimate of 700 thousand bbl/d mentioned in This Week in Petroleum). According to the DMR, the State's crude oil takeaway capacity (via pipeline, rail, and truck) is adequate to accommodate near term projected production increases.


Risk Surrounds Gold and the SP 500

Phil Flynn: Arab Spring Sprung

Ah another sign of spring. No, not the weather but the Arab spring. While oil got slammed yesterday on European Sovereign debt woes and fears that France may get a downgrade, the focus today may be on a new round of sanctions on Iran and another revolution in Egypt.

Oh sure it helps too that the rating agencies reaffirmed the US credit ratings after the Super Committee seemed to lose its super powers. Reuters News said, "rating agencies Standard & Poor's and Moody's said there will no immediate downgrade of their credit ratings on the United States due to the failure of a congressional "super committee" to reach an agreement on debt reduction. But Fitch, the third leading ratings agency, which currently has the most positive rating of the three on U.S. debt, said it could cut the outlook on its triple-A" rating, with a downgrade an outside possibility."

Yet while gold and silver plummeted, oil prices fought back off the lows despite the pressure in the outside markets as pictures of violence in Egypt flashed across the TV screen. Word that protesters were demanding an end to the military rule that has been in place since Hosni Mubarak was deposed caused the country's interim cabinet to resign. Yet the masses in the second Egyptian revolution don't seem to be buying it and appear even more determined than some of the "Occupy Wall Street" folks......Read Phil's entire article.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Monday, November 21, 2011

Natural Gas Bulls Score an "Outside Up Day" in Monday Trading

Crude oil [now trading January contract] closed down $0.53 a barrel at $97.14 today. Prices closed nearer the session high today. A stronger U.S. dollar index again today and a sell off in the U.S. stock market pressured energies. Recent price action in crude does hint that a near term market top is in place. Crude bulls do still have the overall near term technical advantage, but they have faded.

Natural gas [also trading January contract] closed up 7.7 cents at $3.573 today. Prices closed nearer the session high today after hitting another fresh contract low early on. Today's price action scored a bullish “outside day” up on the daily bar chart and if there is good follow through buying on Tuesday then that would confirm a bullish “key reversal” up on the daily bar chart, which could be one early technical clue that a market low is finally in place. But right now the bears still have the solid overall near term technical advantage.

December gold futures closed down $56.40 an ounce at $1,668.90 today. Prices closed near the session low today as the market was hammered to a fresh four week low. The key “outside markets” were bearish for gold today, as the U.S. dollar index was firmer and crude oil prices were lower. Near term technical damage has been inflicted recently, including more today. Bears now have the slight near term technical advantage.


Here is a preview of our MarketClub Trade Triangle Chart Analysis and Smart Scan technology

Crude Oil Takes a Bearish Tone as January Contract Comes Into Play

Attention we are now tracking the January contract.

As we mentioned last week, we felt that the crude oil market was topping out. In retrospect, we have confirmation that is indeed the case. We are now expecting and look for support to come in at $94.55 (basis the January contract), which is a 61.8% Fibonacci retracement. At the present time both our monthly and weekly trade triangles remain in a positive mode, which is the direction of the major long term trend. Resistance is the $100 level. Long term, Intermediate term should be long this market with appropriate money management stops.

Combined Strength of Trend Score = +55

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative


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Risk Surrounds Gold and the SP 500

By JW Jones - Options Trading Signals.com

The current trading environment is one of the most difficult that I can recall in recent memory. Risks abroad regarding the European sovereign debt crisis is keeping market participants on edge as headline risk seemingly surrounds traders at every turn.

In addition to the risk posed by Europe, the market’s reaction to the Congressional Super Committee’s upcoming statements also poses risks. As it stands now, the media is reporting that the committee is in gridlock and has yet to compromise. The deadline for the Super Committee is Wednesday, November 23rd. The gridlock leads to uncertainty, and Mr. Market hates uncertainty. High levels of uncertainty corresponds with increased volatility levels, thus caution is warranted.

Recently I have been actively trading around the wild price action, but I have been utilizing smaller position sizes in light of the elevated volatility levels. In addition to the smaller position sizes, I have been aggressively taking profits and moving stops in order to protect trading capital.

This past week, members of my service enjoyed two winning trades. We were able to lock in gains on a SPY Put Calendar Spread for a nice 20% gross gain. On Friday we closed a USO Put Calendar Spread for a gross gain of 17%. These trades were relatively short term in duration, but the gains they produced were strong.

Both trades took advantage of increased volatility which resulted in enhanced profits. If volatility remains elevated going forward which I expect, these types of trades will offer great risk / reward going forward. Volatility is an option traders friend, and this past week members of my service were able to lock in some strong gains with relatively muted levels of risk.

Gold Futures
I have not written much about gold recently as I have honestly not seen a great deal of opportunity in either direction there. The price action has been quite volatile, but this past week we saw gold futures sell off sharply. I believe the explanation for the selloff is partially due to strength in the U.S. Dollar. The daily chart of the U.S. Dollar Index is shown below:


The recent selloff in gold can likely be attached to the increase in margin calls around the world as a likely consequence of the MF Global bankruptcy. Uncertainty surrounds the commodities market as the collapse of MF Global has interrupted traditional capital flows and broad based volume around the world. The MF Global situation continues to provide a negative headwind for financial markets in general.

I continue to be a long term bull regarding precious metals as nearly every central bank is either printing money deliberately or is increasing the money supply through quantitative easing. With multiple calls coming out of Europe over the weekend for the European Central Bank to print money to monetize European sovereign debt, it may not be long before the ECB begins their own quantitative easing program. In the long term this can only mean higher prices for gold.

Right now the short term looks bearish for gold as the daily chart of gold futures shows gold tested near the top of a recent rising channel and failed. The selloff was strong, but  a pullback here makes sense from a technical perspective. The daily chart of gold is shown below:


The longer term time frame continues to remain technically positive for the yellow metal. As long as gold prices hold in their multi-year rising channel, higher prices remain likely. Right now the $1,500/ounce price level needs to hold as support if the bulls are going to remain in control in the long term time frame. The weekly chart of gold futures shown below illustrates the long term rising channel:


Right now we are in a seasonally strong period for gold. I am going to be watching closely in coming weeks for a solid entry point to get long the yellow metal for a longer term time frame. Right now the short term remains bearish, but the longer term is bullish from technical and fundamental viewpoints.

S&P 500

The S&P 500 Index sold off sharply during the past week. In my most recent article, I discussed two key price levels to monitor to the downside. The key support levels were the 1,230 and 1,190 price levels respectively. The bulls need the 1,190 area to hold as support to give them any chance for a “Santa Claus Rally” into year end.

Last week the S&P 500 Index closed below the 1,230 support level meaning the 1,190 area has to hold. Otherwise, we could see a sharp selloff into the end of the year. The daily chart of the S&P 500 below illustrates the key support levels:


The S&P 500 looks vulnerable to the downside presently. However, headlines coming out of Europe and/or the Super Committee this week could push prices higher. The key pivot line remains around the 1,257 price level on the daily chart. If the bulls can regain the 1,257 price level on a weekly close a test of 1,290 will become more likely. However, as long as prices remain below 1,230 and 1,257, the S&P 500 is vulnerable to additional downside.

I would not be shocked to see the S&P 500 push higher this week to work off short term oversold conditions. Truncated weeks result in lower than average volume which generally favors the bulls. However, in this environment anything could seemingly happen. Risk is high in either direction.

Subscribers of Options Trading Signals have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out my OTS service at Options Trading Signals.com and join the hundreds that are taking home the profits.

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