Tuesday, January 31, 2012

Global Natural Gas Production Doubled Between 1980 and 2010

animated map of World dry natural gas production by region, 1980-2010


Global dry natural gas production increased 110% between 1980 and 2010, from 53 trillion cubic feet (Tcf) in 1980 to 112 Tcf in 2010. The combined share of North America and the Former Soviet Union, the top two producing regions during the time period, fell from 72% in 1980 to 49% in 2010. While all regions increased natural gas production between 1980 and 2010, the Middle East grew most rapidly, increasing more than eleven fold.

tables of Growth in regional natural gas production and Share of world natural gas production by region, as described in the article text

Natural gas production in the United States has grown rapidly in the past several years. Rapid increases in U.S. natural gas production from shale gas formations resulted from widespread application of two key technologies: horizontal drilling and hydraulic fracturing.

Shale gas resources, which have recently provided a major boost to U.S. natural gas production, are also available in other regions of the world. An initial assessment of 48 shale gas basins in over 30 foreign countries includes 5,760 Tcf of technically recoverable shale gas resources.

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Crude Oil Bulls Can't Seem to Take Advantage of Price Action Above $100

Crude oil closed down $0.42 a barrel at $98.35 today. Prices closed nearer the session low today and scored a bearish “outside day” down on the daily bar chart. Prices were pressured by a firmer U.S. dollar index today. Crude oil bulls have the overall near term technical advantage. However, the going does get tough for the bulls once prices move above the key $100.00 level.

Gold futures closed up $4.00 an ounce at $1,783.30 today. Prices closed near mid range today, hit a fresh seven week high and closed at a bullish monthly high close. Gold bulls still have the solid overall near term technical advantage and still have upside near term technical momentum. A steep four week old uptrend is in place on the daily bar chart.

Natural gas closed down 20.9 cents at $2.504 today. Prices closed nearer the session low today. Bulls faded today. Bears have the overall near term technical advantage. The next upside price breakout objective for the bulls is closing prices above major psychological resistance at $3.00.

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Monday, January 30, 2012

The Long Term Bull Market "E" Wave Count

I have to be honest that I am grappling with a few possible counts since the March 2009 Bull market commenced in terms of the big picture.

With Elliott Wave Analysis, you have to anticipate, monitor, and then adjust.  Most of the time I go with my instinct and then only adjust if it looks like I was way off the tracks.  The only time I tend to get way off the tracks is when I read too many opinions, so I’ve shut myself off from reading other’s opinions and below is my gut  right now:

I know I have labeled one option as the 1074 lows being primary wave 2, with primary wave 3 underway since (1074 to current).  However, I have to admit my instincts still tell me that the 1074 lows may have been primary wave 4, and we are in primary wave 5 up now.

Whether it was 2 or 4 is not super important short term because we would either be in a Primary 3 up or Primary 5 up now which is bullish either way.  However… if it’s a primary 5 up, then it changes the longer term pictures and also 5th waves can be difficult to assess.
There is another rule that says wave 3 can’t be the shortest of waves 1, 3 and 5 (All up waves).  Therefore, if we are in primary 5 up now from the 1074 lows then we can’t rally more than 360 points from the 1074 lows (Wave 3 was 360 points).

So here is the possible count if this is Primary 5 from the March 2009 lows with normal fibonacci relationships:

666 to 1221-  1
1221-1010- 2 (38% of 1)
1010-1370- 3 (61.8% of 1)
1370-1074- 4 (38% of 1-3)
1074-??? – 5 (Normally 50-61% of 1-3)

So if wave 5 cant  be longer than wave 3, and let’s say wave 5 is 50% of waves 1-3… that would put a top target at about 1426 on the SP 500 index.  That would make wave 5 just shorter than wave 3 following the rules and would complete 5 full waves.

So that is what I’m grappling with because if this is a primary wave 5 up from the Oct 2011 lows of Primary 4… then we would need to be on our toes for a bull market pivot top.  If its primary wave 3 up , then we have much further to stretch.

Right now, the evidence is leaning to this being primary 5 up… below is my chart and I will keep you updated.  The volume, MACD, and other indicators will help point the way.

Note how the volume has been declining on every primary wave rally 1, 3, and 5 so far.  Note how the MACD line uptrends on each primary wave rally as it is now…..Stay tuned.

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Crude Oil, Gold and Natural Gas All Start The Week Lower

Crude oil closed lower on Monday and the low range close sets the stage for a steady to lower opening on Tuesday. March crude oil declined over Greece's debt and U.S. consumer spending stalled raising concerns that economic growth and fuel demand will decline. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 102.24 are needed to confirm that a short term low has been posted. If March renews January's decline, December's low crossing at 92.95 is the next downside target. First resistance is the reaction high crossing at 102.24. Second resistance is this month's high crossing at 103.90. First support is last Monday's low crossing at 97.40. Second support is December's low crossing at 92.95.

The Fed, the S&P 500, & Why Gold Is Shining Bright

Gold closed slightly lower due to light profit taking on Monday as it consolidates some of the rally off December's low. The mid range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If April extends the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.28 is the next upside target. Closes below the 20 day moving average crossing at 1654.80 would confirm that a short term top has been posted. First resistance is today's high crossing at 1742.80. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the 10 day moving average crossing at 1689.30. Second support is the 20 day moving average crossing at 1654.80.

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Natural gas closed lower on Monday as it consolidated some of the rally off last week's low. Stochastics and the RSI remain neutral to bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 2.770 are needed to confirm that a short term low has been posted. If March renews the multi year decline, monthly support crossing at 1.960 is the next downside target. First resistance is the 20 day moving average crossing at 2.770. Second resistance is January's high crossing at 3.153. First support is last Monday's low crossing at 2.289. Second support is monthly support crossing at 1.960.

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Friday, January 27, 2012

The Fed, the S&P 500, & Why Gold Is Shining Bright

Well here we are, caught between resistance in the S&P 500 around the 1,330 area and support around the 1,300 price level. My last two articles have discussed why I was expecting a top in the coming days and weeks ahead, but prices just continued to work higher.

One of the things that I pride myself in as a person who trades and writes about financial markets in public is that I am always honest. If I blow a call I fess up and admit it. When I have made mistakes in the past, I always try to learn something new from them and I discuss losing trades publicly with readers and members of my service.

This time is different. I honestly do not know if I am going to be right or wrong. The price action in the S&P 500 Thursday was certainly bearish short term, but a back test of 1,300 or possibly even 1,280 could give rise to a Phoenix. Granted, the Phoenix is nothing more than Ben Bernanke’s pet, but that is a topic for a different time.

I have scanned through my list of indicators which discuss sentiment based on momentum, put/call ratio, the advance/decline line, Bullish Percent Indicators, and several ratio based indicators and they are all SCREAMING that a top is near. The interesting thing about the previous statement is that it would have been true a week ago and mostly true two weeks ago, yet prices have continued to climb.

The daily chart of the S&P 500 Index demonstrates the recent price action that has continued to climb the “Wall of Worry” for several weeks:

S&P 500 Daily Chart
 

The culmination of the massive run higher for the S&P 500 was the dovish comments coming from Ben Bernanke during Wednesday’s press release and press conference.

The U.S. & European Central Banks are seemingly in a perpetual race to debase their underlying fiat currencies. The race will not end well. In fact, this type of situation smells like a Ponzi scheme where Ben Bernanke and Mario Draghi (ECB President) are the wizards behind the curtains. Their loose monetary policies and forced reflation are synthetic drugs that juice risk assets higher and ultimately Mr. Market will have his vengeance in due time.

At this point, it seems like Ben Bernanke will do anything to juice equity prices higher. I think his hope is that they will be able to artificially keep the game going until the recovery is on a more sound footing. However, when the entire recovery is predicated on cheap money and liquidity and is not supported by organic economic growth it just prolongs the inevitable disaster.

As an example, the daily chart of the Dow Jones Industrial Average is shown below. I would point out that that Dow came within 35 points (0.27%) from testing the 2011 highs. Furthermore, the Thursday high for the Dow was only 1,356 points (10.55%) from reaching the all-time 2007 October high.

Dow Jones Industrial Average Daily Chart
 

I have argued for quite some time that the economy and the stock market are two different things. If Bernanke and his cronies succeed in reflating the financial markets and the Dow reaches its October 2007 high in the near term, more retail investors will regard equity markets as being rigged.

Who could blame them for viewing financial markets as a giant rigged casino that stands to win while they continue to lose their hard earned capital? We all recognize that the current economy is nowhere near as strong as it was in 2007. But alas, the regular retail investor does not recognize that the stock market and the economy do not portray the same meaning.

One specific underlying catalyst that has gone largely unnoticed by most of the financial media during this sharp run higher in stocks is the total lack of volume associated with the march higher. The NYSE volume over the past 2 months has been putrid when compared to historical norms.

As a trader, I am forced to take risk through a variety of trade structures. However, the idea that a crash could be coming seems hard pressed as long as Big Bad Ben is at the wheel.

If the Russell 2000 drops 10%, I am convinced that Ben will be out making announcements that the Fed stands ready to intervene with all of the supposed tools they have at their disposal. Let’s be honest here, they really have one tool comprised of 3 separate functions which are all a mechanism to increase liquidity in the overall system. To express this liquidity, the following chart from the Federal Reserve shows the M2 money supply levels:

Current M2 Money Supply
 

The 3 functions are the printing of currency, the monetization of U.S. Treasury debt (QE, QE2, QE2.5, Operation Twist), and exceptionally low interest rates (ZIRP) near 0 for an “extended period of time (2014).” Since monetary easing is all that the Federal Reserve has done since the financial crisis began, it begs to reason that the Federal Reserve has no other solutions or tools available. If they did, they seemingly would have used them by now.

The first bubble they created due to loose monetary policy was the massive bubble in oil in 2008. Fast forward to the present, and they are currently supporting another bubble in U.S. Treasury obligations. The bubble that they will create in the future when the game finally ends will be in precious metals. The precious metals bubble will be building while the Federal Reserve and the U.S. Treasury attempt to keep the Treasury Bond bubble from bursting.

At this point in time, if we continue down this path stocks will not protect investors adequately from inflation should the Treasury bubble burst. I would argue that the central planning and monetary policy we have seen the past few years continues in the United States and Europe that gold, silver, and other precious metals are likely to begin their own bubble of potentially epic proportions.

As the weekly chart of gold futures illustrates below, gold has recently pulled back sharply and has broken out. I will likely be looking for any pullbacks in gold as buying opportunities as long as support holds.

Gold Weekly Chart
 
In closing, for longer term investors the stock market might have some serious short term juice as cheap money and artificially low interest rates should juice returns. However, eventually equities will start to underperform. At that point, gold will be in the final stages of its bubble and the term parabolic could likely be applied.

If central banks around the world continue to print money there are only a few places to hide. Precious metals and other commodities like oil will vastly outperform stocks in the long run if the Dollar continues to slide. The real question we should be asking is who will win the race to debase, Draghi or Bernanke?


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Thursday, January 26, 2012

Crude Oil, Gold and Natural Gas Market Commentary For Thursday January 26th

March crude oil closed higher on Thursday due to light short covering. Profit taking tempered early session gains and the low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are still possible near term. If March extends this month's decline, December's low crossing at 92.95 is the next downside target. Closes above the reaction high crossing at 102.24 are needed to confirm that a short term low has been posted. First resistance is the reaction high crossing at 102.24. Second resistance is this month's high crossing at 103.90. First support is Monday's low crossing at 97.40. Second support is December's low crossing at 92.95.

How To Trade Market Sentiment

April gold closed higher on Thursday as it extends the rally off December's low. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If April extends the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.28 is the next upside target. Closes below the 20 day moving average crossing at 1636.60 would confirm that a short term top has been posted. First resistance is today's high crossing at 1734.50. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the 10 day moving average crossing at 1670.50. Second support is the 20 day moving average crossing at 1636.60.

How to Use Money Management Stops Effectively

March natural gas closed lower on Thursday ending a three day short covering rally off Monday's low. Stochastics and the RSI are turned bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 2.807 are needed to confirm that a short term low has been posted. If March renews the multi-year decline, monthly support crossing at 1.960 is the next downside target. First resistance is the 20 day moving average crossing at 2.807. Second resistance is January's high crossing at 3.153. First support is Monday's low crossing at 2.289. Second support is monthly support crossing at 1.960.

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EIA: Domestic Supply of Liquid Fuels Projected to Increase, Resulting in Fewer Imports

U.S. dependence on imported liquids declines through 2035 in the 2012 Annual Energy Outlook (AEO2012) Reference case projection, primarily as a result of growth in domestic oil production, an increase in bio fuels use, and slower growth in consumption of transportation fuels. In this projection, net petroleum imports as a share of total U.S. liquid fuels supplied drop from 49% in 2010 to 36% in 2035.

Net petroleum imports are projected to make up a smaller share of total energy consumption in response to modest economic growth, increased efficiency, growing domestic oil production, and continued adoption of nonpetroleum liquids. Although not included in the Reference case, proposed fuel economy standards for future vehicles (model years 2017 through 2025) would further reduce projected liquids use and the need for imports.

Projections in the Annual Energy Outlook 2012 Reference case assume current laws and regulations remain generally unchanged throughout the projection period, thus serving as a starting point for analysis of energy policies. More highlights from the Reference case, as well as projections for several energy factors through 2035, are available in the AEO2012 Early Release Reference Case Overview and supporting materials.

graph of U.S. liquid fuel supply, 1970-2035, as described in the article text

Gold Appears to Break Out of it's Down Trend

Wednesday, January 25, 2012

Gold Appears to Break Out of it's Down Trend

The stock markets had a very solid session. Most charts shot higher after Apple beat estimates Tuesday night surging over 10%. This set the tone for stocks Wednesday. Also the FOMC said they would keep interest rates low until mid 2014 and projected a 2% inflation rate which took the market by surprise. Looking at the 10 minute intraday charts of gold, silver, oil, and the SP500 you would think it was the 4rth of July with everything shooting higher.

My gut feeling before the FOMC meeting was that there would be no QE3 announced. This I figured would trigger the dollar to rise which in turn would put pressure on stocks and commodities. But the low interest rates until mid 2014 was the wild card trumping that scenario.

Trading around FOMC meetings always brings a heightened level of uncertainty to traders and investors. The news is unpredictable making that much more of beast to try and out smart. I personally do not trade on any news because of the added risk involved.
Let’s take a quick look at gold and silver...

The Weekly Gold Chart:


Gold has started to break out of its down trend and if it can hold up into Friday’s close then it will be a very positive sign for the shiny metal. It is still mid week and a lot can happen, so let’s see how it holds up and go from there.


The Weekly Silver Chart:

Silver has some work to do before it’s back in an uptrend on the weekly chart. I would not be surprised to see it catch up with gold and run toward the $35 resistance level in the next couple days.


Mid-Week Trend Conclusion:

In short, gold is on the move and in the next few weeks I figure we will be getting involved. Silver I think will unfold a little different from a chart pattern point of view, but I do feel there will be a buying opportunity soon also.

Looking more broad based we are seeing the stock market continue to make new highs with solid volume behind it while Crude oil continues to tread water.

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Chris Vermeulen


Crude Oil Moves Higher on Federal Reserve Statement

Crude oil closed higher on Wednesday after Federal Reserve officials said the U.S. benchmark interest rate will stay low until at least 2014 to bolster growth and cut unemployment, boosting fuel demand. The high range close sets the stage for a steady to higher opening on Thursday.

But stochastics and the RSI are still neutral to bearish signaling that sideways to lower prices are possible near term. If March extends this month's decline, December's low crossing at 92.95 is the next downside target. Closes above the reaction high crossing at 102.24 are needed to confirm that a short term low has been posted.

First resistance is the reaction high crossing at 102.24. Second resistance is this month's high crossing at 103.90. First support is Monday's low crossing at 97.40. Second support is December's low crossing at 92.95.

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Tuesday, January 24, 2012

Stalemate Between European Policy Makers Holds Crude Oil Bulls Back

March crude oil posted an inside day with a lower close on Tuesday. Today's setback was triggered by a stalemate between European policy makers and Greek bondholders over debt relief increased concern that the European credit crisis will spread. The low range close sets the stage for a steady to lower opening on Wednesday.

Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. If March extends this month's decline, December's low crossing at 92.95 is the next downside target. Closes above the reaction high crossing at 102.24 are needed to confirm that a short term low has been posted.

First resistance is the reaction high crossing at 102.24. Second resistance is this month's high crossing at 103.90. First support is Monday's low crossing at 97.40. Second support is December's low crossing at 92.95.

With a Chart Analysis Score of -60 today, this market has moved into a trading range. We are longer term positive on this market, however it must move over resistance at $104 to get its upside momentum into high gear. With only our monthly Trade Triangle in a positive mode, we expect we will see further market consolidation in crude oil. Long term traders should be long this market with appropriate money management stops.

Let's look at today's 50 Top Trending Stocks

Apache CEO Steve Farris on Cordillera Acquisition

Apache CEO, Steve Farris, discusses the acquisition of Cordillera Energy Partners for $2.85B, saying its a unique bolt on opportunity that more than doubles Apache's acreage in a highly liquids-rich fairway in the Anadarko Basin.



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Monday, January 23, 2012

European Union Ban on Iranian Imports Give Crude Oil Bulls a Boost

March crude oil closed higher on Monday for the first time in four days after the European Union agreed to ban crude imports from Iran, raising concern that retaliation from the Islamic Republic may disrupt oil supply from the Middle East. A 27 nation bloc indicated that it would implement the crude embargo starting July 1 to pressure the country over its nuclear program.

Iran has threatened to close the Strait of Hormuz, the transit point for about a fifth of global oil, if its exports are banned. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term.

If March extends this month's decline, December's low crossing at 92.95 is the next downside target. Closes above the reaction high crossing at 102.24 would confirm that a short term low has been posted. First resistance is the reaction high crossing at 102.24. Second resistance is this month's high crossing at 103.90. First support is today's low crossing at 97.40. Second support is December's low crossing at 92.95.

Check out our gold trend forecast for the 1st Quarter of 2012

EIA: Arctic Crude Oil and Natural Gas Resources

Resource basins in the Arctic Circle region (click to enlarge)

map of Resource basins in the Arctic Circle region, as described in the article text
Source: U.S. Geological Survey.


The Arctic holds an estimated 13% (90 billion barrels) of the world's undiscovered conventional oil resources and 30% of its undiscovered conventional natural gas resources, according to an assessment conducted by the U.S. Geological Survey (USGS). Consideration of these resources as commercially viable is relatively recent despite the size of the Arctic's resources due to the difficulty and cost in developing Arctic oil and natural gas deposits.

Studies on the economics of onshore oil and natural gas projects in Arctic Alaska estimate costs to develop reserves in the region can be 50-100% more than similar projects undertaken in Texas.

Profitable development of Arctic oil and natural gas deposits could be challenging due to the following factors:
  • Equipment needs to be specially designed to withstand the frigid temperatures.
  • On Arctic lands, poor soil conditions can require additional site preparation to prevent equipment and structures from sinking.
  • Long supply lines and limited transportation access from the world's manufacturing centers require equipment redundancy and a larger inventory of spare parts to ensure reliability, while increasing transportation costs.
  • Employees expect higher wages and salaries to work in the isolated and inhospitable Arctic.
  • Natural gas hydrates can pose operational problems for drilling wells in both onshore and offshore Arctic areas.
Natural gas development could be especially challenging. Although the Arctic is rich in natural gas, the development of Arctic natural gas resources could be impeded by the low market value of natural gas relative to that of oil. Furthermore, natural gas consumers live far from the region, and transportation costs of natural gas are higher than those for oil and natural gas liquids.

Overlapping and disputed claims of economic sovereignty between neighboring jurisdictions also could be an obstacle to developing Arctic resources. The area north of the Arctic Circle is apportioned among eight countries—Canada, Denmark (Greenland), Finland, Iceland, Norway, Russia, Sweden, and the United States. Under current international practice, countries have exclusive rights to seabed resources up to 200 miles beyond their coast, an area called an Exclusive Economic Zone (EEZ). Beyond the EEZ, assessments of "natural prolongation" of the continental shelf may influence countries' seabed boundaries.

Along with economic and political challenges, environmental stewardship and regulatory permitting may also affect timelines for exploration and production of Arctic resources. Environmental issues include the preservation of animal and plant species unique to the Arctic, particularly tundra vegetation, caribou, polar bears, seals, whales, and other sea life. The adequacy of existing technology to manage offshore oil spills in an arctic environment is another unique challenge. Spills among ice floes can be much more difficult to contain and clean up than spills in open waters.

See further information on the Arctic's energy resources and the challenges associated with their development in the December 21, 2011 edition of  This Week In Petroleum.

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Saturday, January 21, 2012

ONG: Crude Oil Weekly Technical Outlook For Saturday January 21st

Crude oil's recovery attempt was limited at 102.06 last week and weakened sharply since then. As noted before, consolidation pattern from 103.37 or 103.74 is still in progress. Initial bias is on the downside this week and break of 97.70 will target 100% projection of 103.74 to 97.70 from 102.06 at 96.02 and below. though, we'd expect strong support from 92.52 cluster support (38.2% retracement of 74.95 to 103.74 at 92.74). to contain downside and bring rebound. On the upside, above 102.06 will bring retest of 103.74 resistance.

In the bigger picture, pull back from 114.83 was completed at 74.95 already and medium term rally from 33.2 is not finished yet. We'd tentatively treat rise from 74.95 as resuming of such rally. Sustained break of 114.83 will target 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40. On the downside, though, break of 92.52 support will indicate that correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before completion.

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

Gold Trend Forecast for the 1st Quarter of 2012

Friday, January 20, 2012

OilPrice: China to Aid Saudi Arabia in Nuclear

Ever since the end of World War Two, the U.S. has come to regard Saudi Arabia as almost its exclusive oil producing enclave.

In February 1945, after the Yalta Conference with Soviet General Secretary Iosif Stalin and British Prime Minister Winston Churchill, on his way home U.S. President Franklin Delano Roosevelt and King Ibn Saud met aboard the New Orleans class heavy cruiser U.S.S. Quincy in the Suez Canal’s Great Bitter Lake. During the meeting, instigated by Roosevelt, he and Ibn Saud concluded a secret agreement in which the U.S. would provide Saudi Arabia military security, including military assistance, training and a military base at Dhahran in Saudi Arabia, in exchange for secure access to supplies of oil.

Sixty seven years later, my, how things have changed, as China is now muscling into the Kingdom of the Two Holy Places.

On 15 January Visiting Chinese Premier Wen Jiabao and Saudi Arabian King Abdullah bin Abdul Aziz agreed to make concerted efforts to enhance bilateral relations. The spectacle of OPEC’s leading petro-state and East Asia’s superpower economy making common cause has surely caused the burning of the midnight oil inside the Beltway.

While Wen said that China is willing to strengthen coordination with Saudi Arabia on all major issues by expanding cooperation in trade, investment, infrastructure, high-tech, finance, security and law enforcement, what must have surely caught the eye of Washington’s mandarins was him adding that China intends to develop a cooperative partnership with Saudi Arabia in the energy sector.

And why not? Saudi Arabia is the largest supplier of oil to China and bilateral trade between the two countries soared to $58.5 billion in the period January-November 2011.

And the fruits of such bilateral proximity were on the table even before Wen made his fulsome remarks, as the state-owned Saudi Press Agency reported on 14 January that Saudi state oil giant Aramco has signed an agreement with state owned giant China Petroleum and Chemical Corporation Ltd. (Sinopec) to build an oil refinery, named Yasref, in the Red Sea city of Yanbu, which will become operational in 2014, processing 400,000 barrels per day.

What is really going to catch Washington’s and the foreign investment community’s attention is how the agreement is structured, Saudi Aramco will hold a 62.5 percent stake with Sinopec holding the remainder.

In one of 2012’s greatest understatements, Aramco president and CEO Khalid al-Falih said that the contract "represents a strategic partnership in the refining industry between one of the main energy producers in Saudi Arabia and one of the world's most important consumers."
Continuing his victory lap around the western shores of the Persian Gulf, Wen will also visit Qatar and the United Arab Emirates, two other stalwart U.S. allies.
And the eastern side of the Gulf?

Commenting on Iran, China’s third largest source of oil imports, on 11 January Chinese Foreign Ministry spokesman Liu Weimin said at a press briefing that China will maintain its trade ties with Iran despite efforts by U.S. Treasury Secretary Timothy Geithner to convince Beijing to join a proposed embargo of Iranian oil exports.

But perhaps the most intriguing element of the Riyadh-Beijing lovefest was the announcement that on 15 January Saudi Arabia signed an agreement with China for cooperation in the development and use of atomic energy for peaceful purposes, an event of significant importance that both Abdullah and Wen attended.

No comment is really needed here, except to note that many of the questions asked about Iran’s civilian nuclear power program, such as why does a leading "petro state" need nuclear energy, are unlikely to be asked about this particular venture, underling that once again, reality in the Middle East is whatever your perceptions tell you in advance it is.

Posted courtesy of John C.K. Daly at Oilprice.com


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Thursday, January 19, 2012

Crude Oil Bulls Gaining Much Needed Momentum

Crude oil closed lower on Thursday as it consolidated some of the rally off last Friday's low. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. If March renews the rally off December's low, the 75% retracement level of the 2011 decline crossing at 105.23 is the next upside target.

If March renews this month's decline, December's low crossing at 92.95 is the next downside target. First resistance is this month's high crossing at 103.90. Second resistance is the 75% retracement level of the 2011 decline crossing at 105.23. First support is last Friday's low crossing at 97.93. Second support is December's low crossing at 92.95.

The consolidation in crude oil above the $98 a barrel level continues. We are longer term positive on this market, however it must move over resistance at $104 to get upside momentum into high gear. With a Chart Analysis Score of +90, this market is in a strong trend and with all our Trade Triangles in a positive mode we expect we will see this market breakout to the upside. Long and intermediate term traders should be long this market with appropriate money management stops.

Check out our gold trend forecast for the 1st quarter of 2012

Wednesday, January 18, 2012

Crude Oil, Gold and Natural Gas Mid Week Market Commentary For Wednesday January 18th

Crude oil [March contract] closed lower on Wednesday as it consolidates some of Tuesday's rally. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. If March extends last week's decline, December's low crossing at 92.95 is the next downside target. If March renews the rally off December's low, the 75% retracement level of the 2011 decline crossing at 105.23 is the next upside target. First resistance is this month's high crossing at 103.90. Second resistance is the 75% retracement level of the 2011 decline crossing at 105.23. First support is last Friday's low crossing at 97.93. Second support is December's low crossing at 92.95.

February natural gas posted an inside day with a lower close on Wednesday as it extends the multi year decline. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near term. If February extends the aforementioned decline, monthly support crossing at 2.409 is the next downside target. Closes above the 20 day moving average crossing at 2.966 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 2.819. Second resistance is the 20 day moving average crossing at 2.967. First support is Tuesday's low crossing at 2.439. Second support is monthly support crossing at 2.409.

Gold closed higher on Wednesday as it extends the rally off December's low. The high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If April extends the rally off December's low, the 38% retracement level of the September-December decline crossing at 1678.70 is the next upside target. Closes below the 20 day moving average crossing at 1614.30 would temper the near term friendly outlook. First resistance is Tuesday's high crossing at 1670.80. Second resistance is the 38% retracement level of the September-December decline crossing at 1678.70. First support is the 20 day moving average crossing at 1614.30. Second support is December's low crossing at 1526.20.


Gold Trend Forecast for the 1st Quarter of 2012


Tuesday, January 17, 2012

The Dollar, Weak Earnings Indicate a Top is Near For The S&P 500

Can we still look to the financials to guide us on market movements?

Earnings season is now upon us and so far the only major earnings component that has been released is the J.P. Morgan earnings report that came in Friday before the market opened. After the report was digested by the marketplace, prices fell dramatically.

While the charlatans in Washington try to sell the American public into believing that the U.S economy is starting to firm up, the underlying truth is that the recovery has been relatively weak. If it were not for the massive liquidity injections provided by the Federal Reserve through multiple quantitative easing adjustments, risk assets would likely be priced significantly lower.

Inquiring minds combed through the data provided in the J.P. Morgan earnings release and a few major outcomes were placed front and center. Earnings disappointed overall due to a massive decline in investment banking activity. Investment banking profits represent a large portion of all of the major banks’ earnings.

On Friday the guys at Zero Hedge provided the following chart in its article titled, “Charting Disappearing Investment Banking Revenues And Profits, JPM Edition.” The chart below illustrates the massive decline in investment banking revenue:


To make the chart a bit easier to follow, the blue bars represent investment banking revenue. It is rather obvious that investment banking revenue is in free fall having dropped nearly 50% since the first quarter of 2011. In addition, I would point out the sharp declines in total net income (purple) and the massive decline in equity market revenue (green).

It is without question that the other major banks that have a large investment banking presence are likely to experience similar revenue losses. A significant reduction in investment banking gross revenue puts tremendous pressure on total bank revenues in this quarter and looking ahead.

I am of the opinion that major money-center banks like Bank of America and Citigroup are likely to experience similar revenue reductions. We will know for sure in the coming weeks as most of the large banks are set to report earnings in the near term. Clearly this expected reduction in overall revenue will likely have a major impact on the financial sector of the economy.

The financial complex is absolutely critical when looking at broad index returns. It is common knowledge that broad indexes such as the S&P 500 and the Dow Jones Industrial Average struggle to rally when the financial complex lags. The same can be said for the semiconductor sector as well.
Recently financials (XLF) and the semiconductor (SMH) sectors have worked considerably higher on relatively light volume. Both XLF and SMH are trading into major resistance and both are starting to show signs that they are nearing a potential top  The daily charts of XLF and SMH are shown below:

XLF Daily Chart


SMH Daily Chart


Both the XLF and SMH daily charts illustrate that a major top may be forming in both sectors. It is widely noted that if the financials and semiconductors are not showing strength in a rising market, a correction or major reversal may not be far away.

I have been writing about the potential for a major top to be forming for several weeks now and I find that I am not in the majority in this viewpoint. Recent sentiment and momentum in U.S. equities demonstrate that we are very overbought at this time. Retail investors are extremely bullish and the Volatility Index (VIX) is trading near recent lows.

I am unsure whether this is a major top that leads to strong selling pressure or whether a correction is a more likely outcome. What I do know is that tops are a process, not a singular event and at this point more and more evidence is supporting the viewpoint that equities may be getting tired and some profit taking is likely.

In addition to the lackluster price action in the charts above, earnings releases have been revised lower in the 4th quarter of 2011. In fact almost 3.5 companies have announced earnings revisions to the downside for every company that has indicated a stable to rising earnings announcements. This type of scenario has not been present since the first quarter of 2008 which as we know was not exactly a great time frame to be looking to put cash into risk assets.

Furthermore, Goldman Sachs analysts came out with the following commentary, “While the 4th Quarter is typically the strongest quarter for earnings, estimates have fallen 9% since the summer and are now below both realized 2nd and 3rd Quarter results.” Goldman Sachs is also expecting significant price pressure coming from a weak U.S. economy and the fears of a European recession in 2012. Overall, the estimates are far from bullish and are in fact quite concerning when looking at the current valuation of U.S. equities.

The impact that a stronger U.S. Dollar will have on domestic companies which are used to having a competitive advantage when looking at earnings due to currency adjustments could produce negative surprises. Typically positive earnings adjustments are likely to be revised to the downside as the U.S. Dollar has rallied sharply higher in light of the weakening Euro currency. The weekly chart of the U.S. Dollar Index is shown below:


The U.S. Dollar Index is consolidating directly beneath resistance which is generally seen as a bullish development. I expect a breakout over new highs is only a matter of time. It is unlikely that in the long term the U.S. Dollar can rally while stocks trade flat or work their way higher. While this is always possible, the likelihood of that scenario is unlikely due to earnings pressures that would occur if the Dollar pushes higher in the intermediate term.

In addition to the variety of above mentioned factors which could have a major impact on equity valuations, the S&P 500 Index is trading into major resistance. Unless the S&P 500 Index can work above the 1,325 area it is unlikely that a new bull market has begun.

If the S&P 500 Index manages to work above the 1,325 level then my analysis may be proven completely incorrect. However, right now the S&P 500 Index has a lot of overhead resistance at the 1,292, 1,300, and 1,310 price levels. The daily chart of the S&P 500 Index is shown below’


Ultimately we are coming into the final week for the January options contracts which are set to expire at the close of business this coming Friday. I would not be shocked to see some volatility late this week and potentially even higher prices for equities.

However, my expectation is that once the January expiration hangover is behind us, increased volatility and lower prices are likely ahead for U.S. equities. The earnings announcements this week will likely have a large impact on the price action. Heads up, risk is exceptionally high!

To learn more about Options Trading Signals visit J.W. Jones Options Newsletter website.

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Crude Oil Closes Higher But Bears Maintain the Momentum

February crude oil closed higher on Tuesday as it consolidates some of last week's decline. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If February extends last week's decline, December's low crossing at 92.70 is the next downside target.

If February renews the rally off December's low, the 75% retracement level of the 2011 decline crossing at 104.84 is the next upside target. First resistance is this month's high crossing at 103.74. Second resistance is the 75% retracement level of the 2011 decline crossing at 104.84. First support is last Friday's low crossing at 97.70. Second support is December's low crossing at 92.70.

Gold Trend Forecast for the 1st Quarter of 2012

Sunday, January 15, 2012

Gold Trend Forecast for the 1st Quarter of 2012

Over the past five months gold has fallen sharply and is no longer headline news which it once dominated back in 2011 when it was making new highs every day. The shiny metal has been under pressure because traders and investors started to pull some money off the table to lock in gains. 

Gold prices had surged so fast most advanced traders knew that final high volume surge was not sustainable. But the main reason gold topped out in my opinion was because the US Dollar index had put in a bottom and started to build a base. As we all know a rising dollar typically means lower stocks and commodity prices.

I have posted some charts below covering gold in detail using multiple time frames. The weekly which is long term, daily which is the intermediate trend and the 4 hour chart which shows gold momentum and intraday action. At the very bottom I talk about the US Dollar and what is happening with that.

Gold Weekly Long Term Trend Analysis
The weekly chart is not the most exciting time frame to follow as you will grow old watching it. That being said it is crucial for understanding the long term trend, price and volume analysis.

Below you can see that gold’s recent pullback has been a 3 wave correction, which is a normal pullback for any investment. But taking into account the rally from 2008 – 2011 I feel this pullback will have one more low put in before bottoming out. This would make for a 5 wave correction much like what happened in 2008.

Gold Trend Forecast

Daily Chart of Gold Showing the Intermediate Trend

The daily chart allows us to see gold intra week price action and use the 150 moving average which is my preferred daily moving average. As you can see we are getting a similar pullback as 2008 with gold now trading under the 150 MA.

I would like to see gold make another lower low in the next 2-3 months. If that happens I feel it complete the correction and trigger a strong multi month or multiyear rally in gold.

Gold Price Forecast

4 Hour Intraday Chart of Gold
The 4 hour chart of gold allows us to see all the intraday price action which would normally not be seen with a daily chart. It also gives us enough data to build our analysis upon.

My preferred setup for gold which I feel if happens will trigger major buying in the yellow metal. If/when we get a rally in gold would also likely mean some more economic uncertainty has entered the market either from within the USA, Europe or China…

Gold Trading Newsletter Forecast

Weekly Dollar Index Long Term Analysis
The dollar has the potential to rally to the 87 – 88 level before putting in a major top. For this to happen we will need to see the Euro crumble (both currency and countries divide) in my opinion.

If you look at the weekly chart of gold and this chart of the dollar index you will notice that gold topped when the dollar bottomed. Over the past couple year’s gold and the dollar have had an inverse relationship to each other.

With all kinds of crap about to hit the fan overseas I think it’s very possible gold will rally with the dollar. Reason being there is way more people overseas who want to unload their euro’s and with all the negative talk and doubt with the US Dollar individuals will naturally want to buy more gold.

Dollar Index Trend

Weekend Trend Trading Conclusion:

In short, I expect a bumpy ride for both stocks and commodities in the first quarter of 2012. With any luck gold will pull back into my price zone shaking the majority of short term traders out just before it bottoms.  And we will be positioning ourselves for a strong rally buying into their panic selling.

To just touch base on the general stock market quickly. I have a very bearish outlook for stocks. If the dollar continues to rise it is very likely the stock market will fall into a bear market. So I am VERY cautious with stocks at this time.

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Chris Vermeulen

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