Saturday, March 31, 2012

Option Trading: A Basic Explanation of Debit Spreads

Welcome back to the world of options. My reality exists in three dimensions and far more combinations of potential positions than does the one-dimensional world of the stock trader.
The view from my turret is ruled by the three primal forces of options — time to expiration, price of the underlying, and implied volatility. Consider for a moment the fact that each of these factors can independently impact a given option.
Multiply this by several available expiration dates and strike prices; add in the fact that individual option positions can include a variety of short and long positions at different strikes and expirations, and the potential combinations that make up an option position in a single underlying can approach a very large number.
For those traders first beginning to navigate this unfamiliar world, I think it is important to understand trade selection is manageable. There are certain families of trades that are unified by similar characteristics.
It is important to become familiar with the various trade constructions available to the knowledgeable options trader. Grouping the potential trades into related groups dramatically reduces the number of trade setups you must consider before entering a new trade.
If you are familiar with the various trade constructions, it makes discussion of a specific family member whom we may consider for employment in a trade far easier to understand.
Description of the family characteristics will take a little time, but it forms the framework on which we can hang the individual trades we will discuss in future postings.
I want readers to begin to become familiar with these patterns because it is these families of multi-legged option trades that we will return to on a regular basis to consistently perform for us.
Let me begin discussion of the various families by pointing out the redheaded stepchild of the trade constructions available. This family member, the single-legged position of being long either a put or call, is not completely without utility.
The reason for its seldom use is that for the knowledgeable options trader, this position rarely represents the best risk / reward structure given the variety of available trade constructions.
One basic and important family is that of the vertical spread. We will return several times to this family not only because of its utility in its basic form, but also because these spreads form the basic building blocks for more advanced spreads such as butterflies and iron condors.
The basic vertical spread is constructed by both buying and selling an option of the same type, either puts or calls, within the same expiration series. This is a directional spread with one breakeven point that reaches maximum profitability at expiration or when the spread has moved deep in-the-money.
It has a defined maximum profit and defined maximum loss when established. The spread is used to trade directionally in a capital efficient manner and largely neutralizes impacts of changes in implied volatility.
There are four individual vertical spread family members — the call debit spread, the call credit spread, the put debit spread, and the put credit spread. Each has its distinct and defining construction pattern. These are not the only names by which these spreads are known. Trying to keep independent option traders confined to a single set of terminologies is like trying to herd cats — it is not going to happen.
For this reason, the additional confusing and duplicative names for these spreads include bull call spread, bear call spread, bear put spread, and bull put spread. To make matters even more confusing, traders often refer to “buying a call spread” or “selling a put spread.” This multiplicity of names for the same trade structure is mightily confusing to those getting used to my world.
I am a visual learner and find that a picture is worth well more than the often cited thousand words. When I review in my mind the various option families available to use in trade construction, I think of the characteristic family portrait of each as displayed in the profit and loss, or P&L, curve.
Attached below is the first in our series of family portraits, but remember within this framework is abundant room for individual variation.

This particular example is a call debit spread, a bullish position in Apple (AAPL).
We will see trades displayed in this format with many variations as we meet the different families. The solid red line represents the profit or loss at expiration. The dotted line represents the P&L curve today and the dashed line the curve halfway to options expiration from today.
In future articles I will discuss other trade constructions that are regularly employed by experienced option traders. Until then, be sure to manage your risk accordingly.
In 2012 subscribers of my options trading newsletter have won 12 out of 13 trades. That’s a 92% win rate,  pocketing serious gains with the trades focusing only on low risk credit spread options strategies.
If you are looking for a simple one trade per week trading style then be sure to join Option Trading Signals.com today with our 14 Day Trial

Thursday, March 29, 2012

Looks Like Crude Oil Has Posted a Top in the Market

Crude oil closed sharply lower [May contract] on Thursday and below trading range support crossing at 104.90 following yesterday's bearish stocks report. Today's downside breakout of the aforementioned trading range and the October-February uptrend line confirm that a top has been posted. The low range close sets the stage for a steady to lower opening on Friday.

Stochastics and the RSI are turning bearish again signaling that sideways to lower prices are possible near term. If May extends today's decline, the 38% retracement level of the October-March rally crossing at 97.84 is the next downside target. Closes above the reaction high crossing at 108.70 would confirm that a short term low has been posted.

First resistance is the reaction high crossing at 108.70. Second resistance is March's high crossing at 110.95. First support is today's low crossing at 102.13. Second support is the 38% retracement level of the October-March rally crossing at 97.84.


Don't miss today's "50 Top Trending Stocks"

Wednesday, March 28, 2012

Current Gold & Crude Oil Trading Patterns Unfolding

The past two months we have seen all the focus from traders and investors be on the equities market. And rightly so and stocks run higher and higher. But there are two commodities that look ready to explode being gold and oil (actually three if you count silver).

Below are the charts of gold futures and crude oil 4 hour charts. Each candle stick is 4 hours allows us to look back 1-2 months while still being able to see all the intraday price action (pivot highs, pivot lows, strong volume spikes and if they were buyers or sellers…).

The 4 hour chart is one time frame most traders overlook but from my experience I find it to be the best one for spotting day trades, momentum trades and swing trades which pack a powerful yes quick punch.

As you can see below with the annotated charts both gold and silver are setting up for higher prices in the next 1-2 weeks from a technical point of view. That being said we may see a couple days of weakness first before they start moving up again.

4 Hour Momentum Charts of Gold & Oil:


By: Chris Vermeulen catch all of Chris videos and post at the Gold & Oil Guy.com

Tuesday, March 27, 2012

Crude Oil Closes Above $107, Bulls Maintain a Near Term Advantage

Crude oil [May contract] closed up $0.22 a barrel at $107.25 today. Prices closed near mid range today in more quiet trading. Trading has been choppy on the charts. Prices have been trading sideways at higher price levels for the past month. Crude oil bulls have the overall near term technical advantage.

Natural gas [May contract] closed down 2.4 cents at $2.295 today. Prices closed near mid-range today and hit a fresh contract low. The bears have the solid overall near term technical advantage. There are no early clues to suggest a market low is close at hand.

Gold futures [April contract] closed down $1.30 an ounce at $1,684.30 today. Prices closed nearer the session low today and did hit another fresh two week high early on. Bulls and bears are on a level near term technical playing field as the bulls have gained some fresh upside technical momentum recently.

Time to review the "Secrets of the 52 Week High Rule"

Nearly 69% of U.S. Crude Oil Imports Originated From Five Countries in 2011

 The amount of crude oil the United States imported from its top five foreign suppliers—Canada, Saudi Arabia, Mexico, Venezuela, and Nigeria—increased slightly during 2011, even though total U.S. crude oil imports fell to their lowest level in 12 years. As a result, the crude oil from these five countries accounted for a bigger share of overall U.S. crude oil imports, nearly 69%, or just over 6.1 million barrels per day (bbl/d).

Canada, Saudi Arabia, Mexico, Venezuela, and Nigeria have consistently been America's five largest crude oil suppliers, although their rankings varied from year to year. However, U.S. purchases of crude oil in 2011 increased from Canada and Saudi Arabia and declined from Mexico, Venezuela, and Nigeria, according to final trade data from EIA's February 2012 Company Level Imports report.

Combined crude oil imports from the five countries increased by less than 1% during 2011 to 6.1 million bbl/d. At the same time, total U.S. imports fell about 3%, or 0.3 million bbl/d, to 8.9 million bbl/d. That marked the lowest annual level of crude oil imports for the United States since 1999.

The combination of lower total U.S. crude oil imports and higher crude oil shipments from the top five foreign suppliers boosted their market share to about 69% of all U.S. crude oil imports during 2011, compared to 66% in 2010.

graph of Monthly U.S. crude oil imports, January 2007 - December 2011, as described in the article text
 Highlights from the U.S. top crude oil importing countries in 2011 included:
  • Canada. Crude oil imports averaged a record 2.2 million bbl/d, up 12% from the year before, and topped 2 million bbl/d for the first time because more oil is now being transported by rail.
  • Saudi Arabia. Crude oil imports averaged 1.2 million bbl/d, up 10% from the year before, and were the highest level since 2008.
  • Mexico. Crude oil imports of 1.1 million bbl/d were down 4.5% from the year before and the second lowest since 1995, reflecting the steady decline in Mexico's crude oil production and rising domestic fuel demand.
  • Venezuela. Crude oil imports of 0.9 million bbl/d were down 5% from the year before and the lowest since 1992.
  • Nigeria. Crude oil imports of 0.8 million bbl/d were down 22% from the year before and the lowest since 2002, due in part to civilian unrest that disrupted the country's crude oil production.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Monday, March 26, 2012

Is Crude Oil Ready to Break Out into the Next Trading Range?

Crude oil [May contract] closed higher on Monday while extending the trading range of the past five weeks. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near term.

If May renews this winter's rally, the 2011 high crossing at 113.75 is the next upside target. Closes below the reaction low crossing at 104.29 would confirm a downside breakout of a five week old trading range.

First resistance is this month's high crossing at 110.95. Second resistance is the 2011 high crossing at 113.75. First support is the reaction low crossing at 104.29. Second support is the reaction low crossing at 98.38.


Check out today's 50 Top Trending Stocks

Friday, March 23, 2012

The Federal Reserve, Gold, the S&P 500, & the Retail Mindset

The recent rally has been breathtaking, however the majority of investors have missed out on a large portion of these gains as significant levels of cash have been either moved to bond funds or taken out of equity markets consistently during this rally. Let’s face it, financial markets around the world are not what they once were.

U.S. equity markets in particular are manipulated by high frequency trading which is wreaking havoc in the marketplace in terms of potential short term volatility expansions and “flash crashes” that can be isolated to one underlying stock.
In addition to the high frequency trading robots, the Federal Reserve is equally involved in the direct manipulation of financial markets through record easing adjustments. The Federal Reserve has unleashed massive amounts of liquidity while keeping interest rates incredibly low which has produced an environment where the risk-on attitude permeates the landscape.
As a basic example of the failure of recent Federal Reserve policies and their impact generally on the valuation of various underlying assets, I submit for consideration to readers a 20 year price chart of the U.S. Dollar Index.

 20 Year U.S. Dollar Index Chart

It boggles the mind to consider that Chairman Bernanke routinely denies that the Federal Reserve has failed to maintainwhat he calls “price stability.” When looking at the chart of the valuation of the U.S. Dollar against a basket of foreign currencies, most 5th graders if given the context would proclaim that the Federal Reserve has failed in their objective to maintain price stability.
As time passes and the financial crisis moves further into the rear view mirror, average Americans have varied views about the economy, the stock market, and trust in their government. For most Americans, the stock market does not make sense because they view the stock market and the economy as the same thing. Sophisticated investors understand that stocks and the economy are two totally separate issues, particularly with the amount of manipulation that has been taken place since 2007.
This manipulation has not gone unnoticed by the average American. Now more than ever regular people are not only distrustful of domestic financial markets, but they do not trust Wall Street, and for good reason. In light of this, data compiled during the recent uptrend suggests that retail investors have been pulling money out of equities for weeks even though prices continue to move higher. The chart shown below courtesy of ZeroHedge.com illustrates the recent trend.

U.S. Domestic Mutual Fund Flows

The chart above shows the price of SPY represented as the black line and equity fund inflows/outflows as the red area. As can be seen above, retail investors have been pulling massive amounts of capital out of equity based mutual funds over the past few months as equity prices have rallied. The retail crowd, commonly referred to as sheep or courtesy of Goldman Sachs “muppets,” are selling into the rally.
So why is the retail crowd selling? They do not believe that this rally will last because the real world around them is arguing in the face of everything that this rally stands for. Gasoline prices are crippling the lower and middle classes further reducing their disposable income. Higher food and energy prices paired with job scarcity and serious concerns have begun to mount.
The average retail investor believes the game is rigged at this point and the everyday investor is only helping Wall Street bankers fund their lavish lifestyles. Ultimately, the retail crowd likelybelieves that the only way to win the game is to simply not play.
Will time prove the supposed sheep wrong? Statistically one would think so, but in this case the retail folks may just be right. Headwinds surround the global macroeconomic landscape. Europe is moving into a recession which is being exacerbated by austerity measures. Data came out yesterday (Thursday) that the PMI in several European countries and China contracted. Ireland missed growth targets and central banks around the world continue to print unprecedented levels of fiat currency as if printing money and creating more debt will solve a debt problem.
All of these issues are concerns, but ultimately price is the final arbiter in the world of flickering ticks. From these eyes there are two possible outcomes for the price action in the S&P 500. The first outcome which I believe is more likely is a test of the 2011 highs which results in a snap-back rally that takes us deeper into the 1,420 – 1,440 resistance zone. The chart below demonstrates the bullish potential outcome.

SPX Bullish Outcome

Price action at some point will backtest the 2011 highs and the reaction at that point will be critical. Generally speaking price action does not break a key support or resistance level on the first attempt. Usually the 2nd or 3rd attempt will result in a break of a key support / resistance level.
In this case, a test in coming days would likely result in a bounce and reversion to the previous trend. A possible, albeit unlikely outcome would be a break below the 2011 support zone which would then come close to triggering a trend change. The daily chart below demonstrates the bearish potential outcome.

SPX Bearish Outcome

I do firmly believe that the U.S. Dollar Index will hold clues about the future for the price action of equities. According to cycle analysis, the Dollar should come into is daily cycle low sometime in the next few weeks, if not sooner.
From that low, we should see another move higher for the Dollar Index which I anticipate will test the recent highs near 81. The daily chart of the U.S. Dollar Index futures is shown below.

U.S. Dollar Index Futures Daily Chart

If my expectations are somewhat accurate, the short term weakness in the Dollar will assist stocks and risk assets in a move above recent highs. In the case of the S&P 500, a move to key resistance at 1,420 – 1,450 could occur.
Readers should keep in mind that weakness could be disguised as just a consolidation near the 20 period moving average which has occurred in the past when analyzing the Dollar Index. However, I would not rule out one more leg lower before the Dollar finds a bottom.
Gold, silver, and the miners have been under selling pressure for some time and are likely due for a bounce to the upside. The weakness in the Dollar discussed above would allow precious metals and miners to work off some of the short term oversold conditions that we are seeing presently. The daily chart of gold futures is shown below.

Gold Futures Daily Chart

After a move higher into or around the $1,700 / ounce price level for gold, I believe that another leg lower will be quite likely.

Conclusion

Readers should be mindful that the 1st Quarter will end on March 30th for financial markets. Window dressing and portfolio painting are likely to occur next week. I would not be at all surprised to see the tape painted to the upside during the final week of March after this brief pullback that we witnessed on Thursday and Friday morning.
Money managers want to show off their returns while demonstrating ownership of key names that drove performance during the quarter such as AAPL. I expect the price action on Friday and the rest of next week to have relatively light volume and a bias to the upside.
Barring any major financial news or geopolitical event, I do not expect to see price action work below the 2011 highs in the near term. The possibility cannot be totally ruled out, but it would seemingly be a rare occurrence to see a major support level break down on the first back test attempt. We may see lower prices early next week, but if the 2011 highs hold the bulls remain in control in the short term.
The real question readers should ask themselves is if prices do extend higher and we reach my target resistance zone for the S&P 500, will the retail crowd jump in and push prices higher, or will the banks be trading with each other as a major top forms? In coming days and weeks we should find out once and for all just who the real muppets truly are.
Over the past 5 months subscribers of my options trading newsletter have won 19 out of 20 trades. That’s a 95% win rate,  pocketing 294% in gains focusing only on low risk credit spread options strategies.
If you are looking for a simple one trade per week trading style then be sure to join Option Trading Signals.com today with our 14 Day Trial

Rigzone: Building On Stability, 2012's Offshore Outlook Appears Bright

The total number of offshore rigs under contract has shown a high degree of stability over the past eight months. Contracted floaters, rigs capable of deepwater drilling, have not budged relative to the fourth quarter's average. Contracted jackups have fallen by 5 rigs versus the fourth quarter. But both jackups and floaters are in better shape than the third quarter. Looking ahead, oil field service companies like Schlumberger and Transocean recently made comments that hinted of further strengthening in the offshore markets both globally and in the Gulf of Mexico.
Schlumberger's 4Q11 Conference Call – "We anticipate a continued recovery in the deepwater Gulf of Mexico with strong demand for high-value technologies. In the international markets, we expect 2012 rig count to be up around 10 percent versus 2011, driven by strong offshore activity in West Africa, the North Sea and Brazil…"
Transocean's 4Q11 Conference Call – "While the global economic uncertainty still lingers, our major customers' capital spending budget for 2012 pertains a year-on-year increase averaging around 12 percent to 15 percent."
Worldwide utilization for the mobile offshore drilling fleet has averaged 72.3 percent over the last 12 months. Most recently, utilization was 72.5 percent spanning the entire global fleet. Utilization has been holding steady between a range of 71 to 73 percent since setting a recent low of 69 percent back in February 2011.
Looking at absolute numbers, the count for offshore rigs is up 35 rigs (+11 drillships, +16 jackups, and +8 semisubs) to 560 rigs contracted globally over the past 12 months. On a net basis, the entire fleet of marketed rigs has grown to 772 rigs throughout the globe, up 37 (+17 drillships, +6 jackups, +14 semisubs) rigs versus one year ago.
Currently, there are 60 drillships working (from a global fleet of 78), implying 77 percent utilization. Semisubs number 163 contracted from a total of 213 rigs, also approximately 77 percent utilization. Globally, the jackup segment, the largest of the three groups, has had a dampening effect on the overall utilization with 337 under contract out of a total fleet of 481 rigs or utilization of 70 percent.
We continue to see a mending and recovery for offshore rig usage, in the Gulf of Mexico (GOM), nearly two years after the Macondo oil spill. However, we would note that there are still 13 fewer rigs working in the region relative to levels prior to the incident. Currently, 89 (10 drillships, 59 jackups, 20 semisubs) rigs are under contract in the region with a combined utilization of 62 percent. Rigs situated in U.S. waters of the GOM comprise 71 percent (100 percent of drillships, 63 percent of jackups, and 80 percent of semisubs) of the mix in the region. The rest of the rigs (i.e. 26 rigs) are in Mexico's territorial waters.
Posted courtesy of Rigzone.Com

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Thursday, March 22, 2012

Crude Oil Falls as China’s Factory Activity Shrinks

Crude oil fell to a one week low [We are now following the May crude oil contract] on Thursday after manufacturing in the euro area and China contracted this month, signaling that fuel consumption may decline. Initial indications out of China indicated that industrial activity decreased.

Crude's decline accelerated as equities retreated and the dollar climbed against the euro. The low range close sets the stage for a steady to lower opening on Friday.

Stochastics and the RSI are turning neutral signaling that sideways to lower prices are possible near term. Closes below last Thursday's crossing at 104.29 are needed to confirm that a short term top has been posted. If May renews this winter's rally, the 2011 high crossing at 113.75 is the next upside target.

First resistance is this month's high crossing at 110.95. Second resistance is the 2011 high crossing at 113.75. First support is last Thursday's low crossing at 104.29. Second support is the reaction low crossing at 98.38.

We continue to like the long term chart formation, which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April, May period. With a Score of -70, this commodity is in an emerging trend.

 With our monthly Trade Triangle still in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Wednesday, March 21, 2012

Crude Oil Closes Lower Despite a Surprising Decline in Supplies

Since reaching a high of just over $110 a barrel, this market has fallen back and moved sideways. We view the current action as positive longer term to drive crude oil prices up to the $120-$125 levels. A close this week over the $108.20 level should be viewed as extremely positive for this commodity.

We continue to like the chart formation which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April May period. With a Score of -55, this commodity is in a trading range. With our monthly Trade Triangle in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

April crude oil closed lower on Wednesday due to profit taking despite a surprising decline in domestic supplies. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI have turned bullish despite today's setback signaling that sideways to higher prices are possible near term.

If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target. Closes below last Thursday's crossing at 103.78 are needed to confirm that a short term top has been posted. First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is last Thursday's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Tuesday, March 20, 2012

Refinery Utilization Rates React to Economics in 2011

The divergence of West Texas Intermediate (WTI) and Brent crude oil prices in 2011 affected refinery utilization in the United States, particularly in the East Coast (PADD 1) and Midwest (PADD 2) regions. Historically, refineries in these districts operated at 80-90% of their capacity. Changes in refining economics last year contributed to real contrasts in refinery utilization in some of the PADDs (see Overview chart).


graph of Average monthly refinery gross inputs and operable capacity, 2005 and 2011, as described in the article text
Source: U.S. Energy Information Administration, Refinery Utilization and Capacity.

 Some key findings by PADD include:
  • PADD 1. East Coast refining typically relies on imports of crude oil based on the Brent crude price, which, on average, increased to a $16-per-barrel premium over WTI spot prices in 2011. As a result, two East Coast refineries idled capacity due to poor economics, while another is considering selling or shutting down. PADD 1 utilization averaged only 68% of operable capacity in 2011, which includes the idle capacity of closed refineries. This utilization rate reflects both the drop in East Coast refining capacity and lower crude oil inputs.
  • PADD 2. Midwest refineries benefitted from supplies of less expensive crude oil coming from Canada and increased production in the Bakken formation. Thus, PADD 2 refineries averaged about 91% utilization in 2011, even with increased refining capacity. As a result, PADD 2 average crude oil inputs of nearly 3.4 million barrels per day were at the highest level since 2000.
  • PADD 3. Gulf Coast (PADD 3) continued capacity expansions as refineries upgraded infrastructure to maximize yields. Growing oil production in Texas and the Midwest contributed to increased inputs. The Gulf Coast refineries were able to use different types of crude oil to maximize production. Refineries in this region used cheaper sources of crude compared to the rest of the country.
  • PADDs 4 and 5. Refinery closures, outages, and a lack of access to less expensive crude oil reduced inputs in 2011 to refineries in PADDs 4 and 5 and helped drive down utilization rates.
 

Monday, March 19, 2012

Crude Oil Closes Above $108....Is This a Positive Sign?

Crude oil [April contract] closed higher on Monday while extending the trading range of the past two weeks. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target.

Closes below last Thursday's crossing at 103.78 are needed to confirm that a short term top has been posted. First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is last Thursday's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

The close in crude oil today over the $108.20 level should be viewed as extremely positive for this commodity. We believe the low that was seen last Thursday is a cyclic low similar to what occurred in early February and the middle of December. If this is indeed the case, we expect this market to start moving higher this week.

We continue to like the chart formation which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April, May period. With a Score of +75, we believe this market is regrouping to move higher later in the month. With two of our Trade Triangles in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Today’s Stock Market Club Trading Triangles

A Bullishness Vibe in the Air as Traders Move From Bonds into Stocks

This week may provide some trading opportunities for us if all goes well now that most traders and investors are all giddy about stocks again. Last week we saw money move out of bonds and into stocks and the bullishness vibe in the air reminds of many market peaks just before a 5%+ correction in stocks.

Depending how the SP500 unfolds we may be going long or short equities, long precious metals, long bonds, and our VXX trade may spike in our favor.


Bonds: After last week’s strong move down in bonds as the HERD moved out of bonds and into stocks it may be providing us an opportunity to catch a dip or bounce in the price of bonds. If the stock market sees strong selling this week money will run back into bonds.


Looking at precious metals it looks as though gold, gold miners and silver may still head lower this week. The charts are still bearish and pointing to another multi percent drop in value. Gold will look bullish around $1600, Gold miners (GDX) around $48, and Silver around $30 but we need to see one more wave of strong distribution selling for that to take place.


Crude oil has recovered nicely from its 5 wave correction which shook us out of the trade for a profit. I still like the chart for higher prices but with it trading at resistance and a high possibility of sellers stepping back in at this level I am not getting involved here.


The SP500 made a new high last night but has run into sellers early this morning taking prices straight back down. The chart in pre-market looks as though we will see lower stock prices later today and with any luck the fear index (VIX) will continue to rise in our favor.



Chris Vermeulen

Sunday, March 18, 2012

Crude Oil Weekly Technical Outlook For Sunday March 18th

From the staff at Oil N Gold.......

Crude oil dripped to 103.78 last week as consolidation from 110.55 extended but quickly recovered. Such consolidation might have completed already. Initial bias is mildly on the upside this week for retest of 110.55. Break will confirm resumption of recent rally and should target 114.83 key resistance next. On the downside, though, below 103.78 will extend the correction to 61.8% retracement of 95.44 to 110.55 at 101.21.

In the bigger picture, the medium term up trend from 33.2 shouldn't be completed yet. Rise from 74.95 is indeed tentatively treated as resumption 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 95.44 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

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Friday, March 16, 2012

Did Crude Oil Make a Cyclic Low on Thursday?

We believe the low that was seen on Thursday, which has good support at the $104 level, is a cyclic low similar to what occurred in early February and the middle of December. If that is indeed the case, we would expect this market to start moving higher next week. We continue to like the chart formation, which we believe will eventually push this market higher until early April.

We are looking for crude oil to make its highs probably somewhere in the April, May period. With a Score of -60, we believe this market is regrouping to move higher later in the month. With our monthly Trade Triangle in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Crude oil [April contract] closed higher on Friday as it extends the trading range of the past two weeks. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI remain neutral to bearish hinting that a short term top might be in or is near.

Closes below last Wednesday's crossing at 104.35 are needed to confirm that a short term top has been posted. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target.

First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is Thursday's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

U.S. Natural Gas Net Imports at Lowest Levels Since 1992

The preliminary estimate of U.S. natural gas average daily net imports—imports minus exports—was just over 5 billion cubic feet per day (Bcfd) in 2011, which was the lowest level since 1992 (see chart above). Net import declines are due to both lower imports and higher exports; U.S. net imports of natural gas peaked in August 2007 at 10 Bcfd, and have fallen markedly since.

graph of U.S. annual average natural gas net imports, 1973-2011, as described in the article text

Imports
The United States imports natural gas via pipelines from Canada and Mexico, and from tanker deliveries to liquefied natural gas (LNG) terminals. Some key points include:
  • The vast majority of U.S. natural gas imports arrive via pipeline from Canada (see chart below). Significant increases in U.S. natural gas production have led to decreased U.S. demand for Canadian natural gas. Imports from Canada for 2011 were significantly below the previous five-year range, and have been lower for much of 2012 so far (some of this decline, however, can be attributed to warmer-than-usual weather across much of the United States).
  • LNG is the other main source of imported natural gas, however average daily deliveries from U.S. LNG terminals from January 1, 2012 through March 15, 2012 averaged 0.6 Bcf/d, down about 44% from a comparable period in 2011. Higher natural gas prices in competing markets abroad are attracting "spot" LNG cargoes that can be delivered under flexible pricing terms. LNG imports through U.S. terminals peaked in 2007 at over 2.1 Bcfd.
  • U.S. natural gas imports from Mexico are negligible, totaling just 2.7 Bcf, or about 7.3 million cubic feet per day in 2011. Imports from Mexico enter primarily through southern Texas and southeastern California.
graph of U.S. daily net natural gas imports from Canada, as described in the article text


Exports
U.S. exports of natural gas are up over the past decade. Some key factors underpinning the growth in exports are:
  • Domestic natural gas production is growing, primarily from shale gas formations. Some of this production is being shipped on pipelines into Canada and Mexico (see chart below).
  • Much of the growth in natural gas exports to Canada is due to increased deliveries on U.S. pipelines to natural gas storage facilities in Ontario.
  • Exports to Mexico reached a high in 2011, averaging almost 1.4 Bcfd for the year, exceeding the previous high of 1.1 Bcfd in 2004.
graph of Montly average U.S. natural gas exports, January 1990 - December 2011, as described in the article text
Source: U.S. Energy Information Administration, Natural Gas Monthly, Table 4 - U.S. Natural Gas Imports and Exports.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Thursday, March 15, 2012

Rumor of Strategic Oil Reserves Being Released Push Market Lower

As we have stated before the 104 area is an area of support for the April contract. Today’s non announcement rumor of strategic oil reserves being released by Britain and the US push this market down to the 104 support level. We still believe that this market is going to move higher.

We continue to like the chart formation which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April May period.

With a trading score of -70 we believe this market is regrouping to move higher later in the month. With our monthly trade triangles in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Crude oil [April contract] closed lower on Thursday as it extends the trading range of the past two weeks. The mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI remain bearish hinting that a short term top might be in or is near.

Closes below last Wednesday's crossing at 104.35 are needed to confirm that a short term top has been posted. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target.

First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is today's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Five States Accounted for About 56% of Total U.S. Crude Oil Production in 2011

Combined oil production (crude oil and lease condensate) from the top five U.S. oil-producing states increased during 2011 (see chart above). The biggest gains were in North Dakota and Texas, due in large part to increased horizontal drilling and hydraulic fracturing activity. Texas, Alaska, California, North Dakota, and Oklahoma accounted for about 56% of U.S. oil production last year, according to EIA's February Petroleum Supply Monthly report.

graph of Annual crude oil production, 2000-2011, as described in the article text

Source: U.S. Energy Information Administration, Petroleum Supply Monthly.
Note: Production data includes crude oil and lease condensate.

 Highlights from the top oil producing states in 2011 included:
  • Texas. The Eagle Ford shale formation in south Texas contributed to gains in the state's oil production, which averaged 1,425 thousand barrels per day (bbl/d), the highest level since 1997.
  • Alaska. Oil production fell for the ninth year in row, averaging 563 thousand bbl/d.
  • California. Oil production averaged 535 thousand bbl/d, the lowest level in at least three decades.
  • North Dakota. Preliminary data indicate increasing oil production from the Bakken formation pushed North Dakota ahead of California in December as the third biggest oil-producing state. North Dakota's oil production averaged 535 thousand bbl/d in December 2011 and 419 thousand bbl/d for the year.
  • Oklahoma. Oil production averaged 204 thousand bbl/d during 2011, topping 200 thousand bbl/d for the first time since 1998.
graph of Monthly crude oil production, 2000-2011, as described in the article text

Source: U.S. Energy Information Administration, Petroleum Supply Monthly.
Note: Production data includes crude oil and lease condensate. 

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Tuesday, March 13, 2012

Crude Oil, Natural Gas and Gold market Commentary For Tuesday March 13th

Crude oil [April contract] posted an inside day with a higher close on Tuesday as it extends the trading range of the past two weeks. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain neutral to bearish hinting that a short term top might be in or is near. Closes below last Wednesday's crossing at 104.35 are needed to confirm that a short term top has been posted. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target. First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is last Wednesday's low crossing at 104.35. Second support is the reaction low crossing at 97.73.

Natural gas [April contract] posted a key reversal up due to short covering on Tuesday as it consolidated some of the decline off February's high. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 2.537 would confirm that a short term low has been posted. If April extends the multi year decline, monthly support crossing at 1.960 is the next downside target. First resistance is the 10 day moving average crossing at 2.376. Second resistance is the 20 day moving average crossing at 2.537. First support is today's low crossing at 2.204. Second support is monthly support crossing at 1.960.

Gold [April contract] closed sharply lower due to strength in the financial markets on Tuesday. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a low is in or near. Closes above the 20 day moving average crossing at 1726.90 would temper the near term bearish outlook. If April renews the decline off February's high, the reaction low crossing at 1652.20 is the next downside target. First resistance is the 20 day moving average crossing at 1726.90. Second resistance is February's high crossing at 1792.70. First support is last Tuesday's low crossing at 1663.40. Second support is the reaction low crossing at 1652.20.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Monday, March 12, 2012

The Dead Cat (SP500) Did Bounce Just As We Expected!

Stocks are pushing deep into a resistance level with very light volume… not a bullish sign. This is why we took profits yesterday with our SSO trade once we reached our dead cat bounce target of 2.5%. With it being Friday volume should only get lighter as the say progresses. I am starting to look at buying SDS as risk is low in my opinion but I’m going to let the morning play out first and re analyze in the afternoon.

Pre-Dead Cat Bounce Warning:

The rising market has sent the volatility index tumbling lower and this just goes to show why you must manage position and use protective stops. I know many of you were angry that I said to take partial profits and that we got stopped out yesterday on the VXX trade for a net gain of 2.9% in three days. Maybe one day emotional traders will see that you must trade with the market and adjust your trade outlook while in the trade. The market does not stop and wait for you to see the light, rather it will just steam roll you and never look back.

So with that being said I am starting to really like the VXX again for another buy signal. With any luck it could keep dropping for most of the session and we could go long this afternoon.



Crude oil is moving nicely in our favor today up another 2% on our 2x leveraged ETF’s. I am keeping my stop at breakeven for now as but that may change by the end of the day if we break the $109 level which is unlikely. Where to put your stops for any trade is always a tough call. It varies on the time frame, overall market condition and the size of your position so don’t think it’s just as simple s using the previous pivot high or low. That being said, those are good places for them if you have the timing correct or if the market co-operates with you…



*One key thing to point out today, the dollar bounced off support which is what I warned about last night and again this morning in pre-market. The strong bounce in the dollar has not caused any selling in oil or stocks this morning. I think that is based on the strong jobs report this morning. More jobs means businesses should be getting stronger and the more gas/oil will be consumed. But if the dollar keeps on moving higher and breaks above this key resistance level in the next few trading sessions then it will likely cause selling in stocks. Oil may hold up because demand will still be there.


Let’s see how this week unfolds!

Chris Vermeulen – Get our free Trade Ideas at Technical Traders.Com

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