Thursday, May 31, 2012

King Dollar Dominates Crude Oil and Gold....Again!

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Crude oil closed lower on Thursday as it extends the decline off March's high. The low range close sets the stage for a steady to lower opening when Friday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 93.86 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 90.60. Second resistance is the 20 day moving average crossing at 93.86. First support is today's low crossing at 85.86. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas closed slightly higher due to short covering on Thursday as it consolidated some of this week's decline. The mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If July extends this week's decline, the reaction low crossing at 2.338 is the next downside target. If July renews the rally off April's low, February's high crossing at 3.104 is the next upside target. First resistance is the reaction high crossing at 2.838. Second resistance is February's high crossing at 3.104. First support is today's low crossing at 2.377. Second support is the reaction low crossing at 2.338.

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Gold closed lower on Thursday as it extended the trading range of the past two weeks. The mid range close sets the stage for a steady opening when Friday's night session begins trading. Stochastics and the RSI are bullish signaling sideways to higher prices are possible near term. Closes above the reaction high crossing at 1601.40 are needed to confirm that a short term low has been posted. If August renews the decline off February's high, the 75% retracement level of the 2010-2011 rally crossing at 1461.30 is the next downside target. First resistance is the 20 day moving average crossing at 1583.90. Second resistance is the reaction high crossing at 1601.40. First support is the reaction low crossing at 1529.30. Second support is the 75% retracement level of the 2010-2011 rally crossing at 1461.30.

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OPEC Spare Capacity in the First Quarter of 2012 at Lowest Level Since 2008

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The U.S. Energy Information Administration (EIA) estimates that global spare crude oil production capacity averaged about 2.4 million barrels per day (bbl/d) during the first quarter of 2012, down about 1.3 million bbl/d from the same period in 2011 (see chart below). The world's spare crude oil production capacity is held by member countries of the Organization of the Petroleum Exporting Countries (OPEC). Spare capacity can serve as a buffer against oil market disruptions, and it gives OPEC additional political and economic influence in world markets. There is little or no spare capacity outside of the OPEC member countries.

graph of Quarterly OPEC spare crude oil capacity and WTI spot prices, as described in the article text

Spare crude oil production capacity is now less than 3% of total world crude oil consumption—the lowest proportion since the fourth quarter of 2008—based on EIA estimates.

Spare crude oil production capacity is an important indicator of producers' ability to respond to potential disruptions; consequently, low spare oil production capacity tends to be associated with high oil prices and high oil price volatility. Similarly, rising spare capacity tends to be associated with falling oil prices and reduced volatility. However, spare capacity must also be considered in the context of a number of other market factors that can drive crude oil prices, such as global supply, demand, and inventory levels.

EIA defines spare crude oil production capacity as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. This does not include oil production increases that could not be sustained without degrading the future production capacity of a field.


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Wednesday, May 30, 2012

Crude Oil Closes Below 62% Retracement Causing Severe Chart Damage

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Crude oil closed lower on Wednesday and below the 62% retracement level of the 2011-2012 rally crossing at 90.26 as it renewed the decline off March's high. The low range close sets the stage for a steady to lower opening when Thursday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 94.79 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 91.22. Second resistance is the 20 day moving average crossing at 94.79. First support is today's low crossing at 87.39. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas closed lower on Wednesday as it extended yesterday's breakout below the 20 day moving average crossing at 2.576. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near term. If July extends this week's decline, the reaction low crossing at 2.338 is the next downside target. If July renews the rally off April's low, February's high crossing at 3.104 is the next upside target. First resistance is the reaction high crossing at 2.838. Second resistance is February's high crossing at 3.104. First support is today's low crossing at 2.393. Second support is the reaction low crossing at 2.338.

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Gold closed higher due to short covering on Wednesday. The high range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are neutral to bullish signaling sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 1591.30 are needed to confirm that a short term low has been posted. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. First resistance is the 20 day moving average crossing at 1586.30. Second resistance is the reaction high crossing at 1599.00. First support is the reaction low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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Let's Compare Notes....ONG Crude Oil Daily Technical Outlook

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If you are a regular reader here you know we like to include trade ideas and opinions from many different sources. Here's is the "Crude Oil Daily Technical Outlook" from the staff at ONG. They really take the emotion out of trading and stick to the facts. And the fact is, the bulls are in trouble here.

Crude oil's decline resumed by taking out 89.28 temporary low and reaches as low as 87.75 so far. 61.8% retracement of 74.95 to 100.55 at 88.55 is broken firmly, suggesting downside momentum is building up again. Deeper decline should be seen to 80 psychological level and then 74.95 support. On the upside, break of 92.21 resistance is needed to signal short term bottoming. Otherwise, near term outlook will remain bearish even in case of recovery.

In the bigger picture, price actions from 114.84 are developing into a three wave consolidation pattern. And, the third leg should have already started at 110.55. Deeper fall should eventually be seen to 74.95 low and possibly below. Though, we'd likely see strong support from 64.23 cluster level, 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise. Hence we'll look for reversal signal below 74.95.

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


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Tuesday, May 29, 2012

Natural Gas Falls Below 20 Day Moving Average....Gold and Oil Close Lower

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Crude oil [July contract] closed lower on Tuesday but remains above the 62% retracement level of the 2011-2012 rally crossing at 90.26. The low range close sets the stage for a steady to lower opening when Wednesday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 95.74 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 91.91. Second resistance is the 20 day moving average crossing at 95.74. First support is last Wednesday's low crossing at 89.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas [now the July contract] closed lower on Tuesday and below the 20 day moving average crossing at 2.578 confirming that a short term top has been posted. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near term. If July extends today's decline, the reaction low crossing at 2.338 is the next downside target. If July renews the rally off April's low, February's high crossing at 3.104 is the next upside target. First resistance is the reaction high crossing at 2.838. Second resistance is February's high crossing at 3.104. First support is today's low crossing at 2.466. Second support is the reaction low crossing at 2.338.

Today’s Stock Market Club Trading Triangles

Gold closed [still the June contract] lower on Tuesday. The low range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI are neutral to bearish signaling sideways to lower prices are possible near term. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. Closes above the 20 day moving average crossing at 1591.30 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1591.30. Second resistance is this month's high crossing at 1672.30. First support is the reaction low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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Carl Icahn Bought Chesapeake Energy, Should You?

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Last week, it was announced that corporate raider Carl Icahn was up to his usual antics, acquiring a 7.6 percent activist stake in the natural gas E&P giant Chesapeake Energy Corp (NYSE: CHK). In a move that makes him the company’s third largest shareholder, Icahn bought 50 million shares of CHK worth nearly $800 million between April 19th and May 24th. Icahn has pledged to make a host of changes within Chesapeake, beginning with his appointment of four new board members. In the longer term, it is expected that he will look for CHK to shore up its troubled business model, which has led to cash flow shortages, and large declines in shareholder wealth. Over the past year, the company’s stock has lost nearly 50 percent, having recently hit a post recession low below $14 a share. The everyday investor may be wise to consider following Icahn into Chesapeake now, due to stock’s undervaluation, strong earnings growth, and future expansion potential.

One thing that sets this E&P operator, which stands for exploration and production, apart from its competitors is its dominance in the unconventional natural gas arena. In layman’s terms, unconventional natural gas is not extracted from traditional well based platforms; instead, it is gathered in a less economical manner.
 In CHK’s case, it extracts natural gas from six distinct sources.....

(1) gas below 15,000 feet underground
(2) gas trapped in sandstone or limestone
(3) shale deposits
(4) coalbed methane
(5) geopressurized gas
(6) methane hydrates.

 The latter is the newest form of natural gas in Chesapeake’s energy staple. From a macroeconomic standpoint, unconventional natural gas usage has nearly doubled in the past decade, and currently comprises 42 percent of all natural gas production in the U.S. It is estimated that this figure will reach 64 percent by 2020, driven by growth in the shale and coalbed markets.

Looking at its income statement, CHK has seen revenues remain stagnant since the recession, though the industry’s average has actually shrank during this time period, as it has yielded a 3-year average growth rate of -2.8 percent. More notably, competitors like Devon Energy (NYSE: DVN) at -6.2 percent, Anadarko Petroleum (NYSE: APC) at -2.7 percent have also experienced shrinking revenues, though EOG Resources (NYSE: EOG) and Apache Corp (NYSE: APA) have seen positive top line growth. From an earnings standpoint, CHK has been more impressive, generating a 3-year average EPS growth of 35.6 percent, higher than the industry average (-5.4%) and peers DVN, APC, and EOG.

From a valuation standpoint, CHK is undervalued, as it currently sports a P/E ratio (6.4X) below the industry average (16.3X), and it’s own 10-year historical average (13.5X). Moreover, shares of CHK have historically traded at a 20 percent discount relative to the S&P’s average over the past decade. This year, the stock is cheaper than usual, trading at a 58 percent discount. Using the industry average P/E in conjunction with a modest year-ahead EPS forecast of $1.80, we can set a target price of $29.34 by next spring.

It should also be pointed out that Chesapeake has had a host of cash flow problems, reporting negative free cash flows of at least -$3.0 billion since 2007. Interestingly, the company reported recently that it was expecting a positive FCF in 2012, due to sales of assets in its Mississippi Lime, Permian Basin, and Texas Panhandle Granite Wash regions. Icahn and other CHK shareholders are hoping that these sales can offset historic lows in natural gas prices, and it seems that the markets are responding favorably. Since company execs announced these plans on May 14th, shares of CHK have risen nearly 2 percent.

Looking to the hedge fund industry, CHK has a favorite of mega fund managers like Mason Hawkins, Curtis Macnguyen, John Rogers, and Peter Eichler over the past few years. Moreover, this month’s 13F filings show that funds like Millennium Management, Tetrem Capital Management, and Samlyn Capital increased their holdings in CHK in the first quarter of 2012. Whether its Carl Icahn’s promise to restore shareholder value back to this natural gas E&P, or the stock’s attractive valuation, investors may be wise to consider a long position in Chesapeake (CHK).

Posted courtesy of our friends at Insider Monkey.Com. If you aren't following the hedge funds you should be, and you should be doing it at Insider Monkey.Com

Here is the simple truth about trends

Monday, May 28, 2012

SP 500 Update.... U.S. Markets wear the Heavy Crown

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The US market is one of very few trying to maintain a long term uptrend Bull cycle around the world.  Most major world indices are in decline, only Germany and London are also trying to hang in of the major indices.

Will the rest of European problems continue to spillover and weigh down our markets in finally cause a flush?  Or… will the US stay strong and lead higher amidst the turmoil?

The threat of debt repudiation resonates throughout Europe and has major headwinds for the Banking industries and otherwise… and it may be hard for the US market to gain much traction until we find out if there are any resolutions near term.

The Technical picture is mixed.  The drop to 1292 from 1422 highs created a 38% fibonacci retracement of the October lows at 1074 and the March highs of 1422.  This is typical for a 4th wave correction after 3 waves of rally.  In addition, we had Mclellan Oscillators at extreme lows coming into this past week, investor sentiment running at multi month lows not seen since last summer, and many other oversold indicators.

This led to a 36 point bounce early in the week from 1292 to 1328, but it had trouble holding into the end of the week. I was looking for a strong close over 1322 to help confirm the downtrends lows were in place at 1292, but we did not get that just yet.  Near term we have to see a very strong bounce this coming week over 1330 on a closing basis or the market will be at risk of a rising bearish wedge and then another large downleg to new lows since the 1422 highs.  Therefore, Tuesday and Wednesday in my opinion will likely immediately tell us which way this market is about to go.

We have a few outlooks that are valid.  One is that we had an ABC correction from 1422-1292 and we are in the early stages of a Major Wave 5 up bullish pattern.  The  other is we had 3 waves down, this is a 4th wave bounce, and a 5th wave to new lows on the move is next.  Again, early in the week will be key in my opinion.

Here are two charts. One shows the Weekly SP 500 pattern and prior pivot points where downtrends halted and reversed. In each case the candlestick pattern for the week was inside and above the prior weeks lows and closed higher (White Candlesticks).  This also happened this past week, but I again would like to see higher closing levels early in the week to confirm.

The other chart is a daily chart showing the 1330 barrier we would like to see crossed to avoid a rising bearish wedge pattern.

Join us at Market Trend Forecast and sign up for free weekly updates. Alternatively, you can use our 33% discount on that page to subscribe and receive 4-5 updates per week on US Markets, Gold, and Silver!


David Banister

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Sunday, May 27, 2012

CNBC: Crude Oil May Slip Towards Mid $80s on Greece and Spain Worries

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Crude oil prices will likely extend losses for a fifth straight week as fears about a Greek exit from the euro zone and Spain's banking system continue to trigger outflows from riskier assets including commodities and into the relative safety of the U.S. dollar, according to CNBC's weekly survey of oil market sentiment.

Getty Images

Many traders and strategists polled forecast U.S. crude futures could make a sustained breach below $90 a barrel and test $85 or possibly $84 a barrel this week. Much will depend on the U.S. labor report on Friday. A solid reading may help establish a floor in the oil market while a poor number could compound the woes of the global economy.

The poll showed consensus opinion was overwhelmingly bearish: Ten out of the eleven respondents in the sample group expect prices to fall this week. Phil Flynn of PFGBest, the survey's sole respondent with a bull call, expected a rebound based on technical indicators which suggested markets were oversold and fears that tensions would resurface.

Talks last week between Tehran and world powers did not result in any agreement, with negotiations continuing next month at another meeting in Moscow, Reuters reported. Meanwhile, the U.N.'s International Atomic Energy Agency found uranium particles refined to a higher than expected level than what Iran has disclosed.

"Right now, I continue to expect a general 'risk-off' or 'short the world' attitude," said Tom Weber at Portfolio Managers, Inc. Commodity Futures & Options. "However, I won't underestimate the ability of the political elite to save the day with pronouncements and promises of solidarity. I believe traders have adapted to a 'show me' approach to global markets. The market is going to call the bluff of central bankers regarding QE."

Posted courtesy of CNBC

This should create some controversy, when is the best time of day to profit?

Friday, May 25, 2012

Low Volume Crude Oil Trading Day Ends with a Fractional Gain

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Crude oil [July contract now] closed higher due to short covering on Friday as it bounces off the 62% retracement level of the 2011-2012 rally crossing at 90.26. The mid range close sets the stage for a steady opening when Tuesday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 96.47 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 92.35. Second resistance is the 20 day moving average crossing at 96.47. First support is Wednesday's low crossing at 89.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas closed lower on Friday and below the 10 day moving average crossing at 2.613 signaling that a short term top might be in or is near. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are overbought and are turning neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 2.492 would signal that a short term top has been posted. If June extends the rally off last week's low, February's high crossing at 3.040 is the next upside target. First resistance is last Friday's high crossing at 2.759. Second resistance is February's high crossing at 3.040. First support is the 20 day moving average crossing at 2.492. Second support is the reaction low crossing at 2.387.

Every trader must see this video ....

Gold closed higher due to short covering on Friday. The low range close sets the stage for a steady to higher opening when Tuesday's night session begins trading. Stochastics and the RSI are turning bearish signaling sideways to lower prices are possible near term. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. Closes above the 20 day moving average crossing at 1597.00 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1597.00. Second resistance is this month's high crossing at 1672.30. First support is last Wednesday's low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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Billionaire T. Boone Pickens’ Favorite Energy Stock

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By guest blogger Meena Krishnamsetty and our friends at Insider Monkey......
T-Boone-PickensBillionaire T. Boone Pickens’ favorite energy stock is BP Plc (BP). This is the largest position in Pickens’ 13F portfolio which was disclosed to the SEC this afternoon. We think this is an excellent choice. The stock currently trades at $38 and yields 5%. This is a much better choice than long-term Treasuries.
Boone Pickens also like Encana and National Oilwell Varco. Pickens also disclosed a $11 million position in Chesapeake Energy (CHK).

Chesapeake Energy Corporation Releases Letter to Shareholders

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The Board of Directors of Chesapeake Energy Corporation (NYSE:CHK) today released a letter to shareholders addressing certain issues recently raised by the Comptroller of the City of New York, John C. Liu, who oversees New York City pension funds that beneficially own less than 0.25% of Chesapeake’s common shares outstanding. The letter, which outlines numerous recent actions the Board has taken to enhance Chesapeake’s corporate governance and further strengthen its financial position, was issued in advance of the Company’s Annual Meeting of Shareholders to be held Friday, June 8, 2012. The full text of the letter follows:

From May 23, 2012....

Dear Fellow Shareholder:

You may have recently seen a letter from the Comptroller of the City of New York, John C. Liu, who oversees New York City pension funds that beneficially own less than 0.25% of Chesapeake’s common shares outstanding. While the Board of Directors appreciates constructive input from our shareholders, we wish to address issues raised by Mr. Liu and reiterate important steps the Board and Company have been taking as we approach our 2012 Annual Meeting of Shareholders.

CHESAPEAKE’S BOARD HAS IMPLEMENTED SIGNIFICANT COMPENSATION CHANGES AND IMPROVED GOVERNANCE WITH INTENTION TO SEPARATE POSITIONS OF CHAIRMAN AND CEO

Click here to read the entire letter to CHK Shareholders

This should create some controversy, when is the best time of day to profit?

Thursday, May 24, 2012

Natural Gas Rig Count Briefly Drops Below 600

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The natural gas rotary rig count, as reported by Baker Hughes Incorporated, rose by 2 this week to 600, after falling to a 10 year low of 598 last week. After increasing modestly to 936 active rigs in the fall of 2011, the natural gas rig count has dropped sharply. The oil rig count, currently at 1,382, has generally risen steadily since 2009, largely in response to increasing crude oil prices.

Natural gas rigs are currently down about 31 percent from their level at the same time last year, while oil rigs have risen by 45 percent over the same period. However, increased productivity from shale gas formations (generated by horizontal drilling and hydraulic fracturing) and rising associated production from expanding oil directed development activity have helped maintain robust natural gas production.
Oil and Natural Gas Rigs, 2002 - 2012
number of rigs
Source: Baker Hughes Incorporated


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Has Crude Oil Found Support at 90.26? How Indicators Say......

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Crude Oil

Crude oil [July contract now] closed higher due to short covering on Thursday as it bounces off the 62% retracement level of the 2011-2012 rally crossing at 90.26. The mid range close sets the stage for a steady opening when Friday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 97.19 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 92.91. Second resistance is the 20 day moving average crossing at 97.19. First support is Wednesday's low crossing at 89.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

Monthly Long Term Trend = Bearish
Weekly Intermediate Term Trend = Bearish
Daily Short Term Trend = Bearish

Natural Gas

Natural gas [still June contract] closed lower on Thursday as it extends this week's trading range. The low range close sets the stage for a steady to lower 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 June extends the rally off last week's low, February's high crossing at 3.040 is the next upside target. Closes below the 20 day moving average crossing at 2.474 would signal that a short term top has been posted. First resistance is last Friday's high crossing at 2.759. Second resistance is February's high crossing at 3.040. First support is the 10 day moving average crossing at 2.608. Second support is the 20 day moving average crossing at 2.474.

With a Trade Triangle Analysis Score of -90, this market is in a strong trend to the downside. Long term, intermediate term, and short term traders are in short positions in crude oil with appropriate money management stops.

GOLD

Gold closed higher [June contract] due to short covering on Thursday. The low range close sets the stage for a steady to lower opening when Friday's night session begins trading. Stochastics and the RSI are turning bearish signaling sideways to lower prices are possible near term. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. Closes above the 20 day moving average crossing at 1601.70 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1601.70. Second resistance is this month's high crossing at 1672.30. First support is last Wednesday's low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

With a Trade Triangle Analysis Score of -100, the gold market is in a strong downtrend. Long term, intermediate term, and short term traders are in short positions in gold with appropriate money management stops.

Monthly Long Term Trend = Bearish
Weekly Intermediate Term Trend = Bearish
Daily Short Term Trend = Bearish

E-Minis Unfair Advantage....Have You Watch This Yet?

Video: Horizontal Drilling Boosts Pennsylvania’s Natural Gas Production

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Between 2009 and 2011, Pennsylvania's natural gas production more than quadrupled due to expanded horizontal drilling combined with hydraulic fracturing. This drilling activity, which is concentrated in shale formations that cover a broad swath of the state, mirrors trends seen in the Barnett shale formation in Texas.

The animation illustrates Pennsylvania's relatively recent transition from conventional vertical wells (black diamonds) to horizontal wells (red diamonds), drilled mostly in sections of the Marcellus, Utica, and Geneseo/Burket shale formations located in the northeast and southwest portions of the state. The animation also shows that as horizontal drilling increased, the number of vertical wells—which are typically less productive—fell, resulting in an overall decline in the state's new well count.



Historically, natural gas exploration and development activity in Pennsylvania was relatively steady, with operators drilling a few thousand conventional (vertical) wells annually. Prior to 2009, these wells produced about 400 to 500 million cubic feet per day of natural gas. With the shift to and increase in horizontal wells, however, Pennsylvania's natural gas production more than quadrupled since 2009, averaging nearly 3.5 billion cubic feet per day in 2011. Natural gas wells accounted for virtually all (99%) of the horizontal wells started over this period.

graph of Pennsylvania's natural gas production, 2005-2011, as described in the article text
Source: U.S. Energy Information Administration (2005-2010); Pennsylvania Department of Environmental Protection (2011).

         

Drilling programs in Pennsylvania's shale formations, like those in other, more established plays such as the Barnett and Eagle Ford in Texas, are migrating to more liquids-rich areas due to the price premium of crude oil and natural gas liquids. The effect of low natural gas prices is apparent in Pennsylvania's 2012 well count for the first third of the year. From January through April, drilling began on 618 new natural gas wells; over 700 new natural gas wells were started over the same period in 2011. In contrast, 263 new oil and "combination" (oil and natural gas) wells were started in Pennsylvania from January through April 2012, well above the 164 new wells that began drilling during the corresponding period in 2011.

graph of Annual natural gas well starts in Pennsylvania, 2005-2011, as described in the article text

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Wednesday, May 23, 2012

Crude Oil Charts Collapse Including Trades Below the $90 Level

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Crude oil closed lower on Wednesday and below the 62% retracement level of the 2011-2012 rally crossing at 90.26. The mid range close sets the stage for a steady opening when Thursday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 97.93 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 93.63. Second resistance is the 20 day moving average crossing at 97.93. First support is today's low crossing at 89.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

Natural gas closed higher on Wednesday and 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 June extends the rally off last week's low, February's high crossing at 3.040 is the next upside target. Closes below the 20 day moving average crossing at 2.448 would signal that a short term top has been posted. First resistance is last Friday's high crossing at 2.759. Second resistance is February's high crossing at 3.040. First support is the 10 day moving average crossing at 2.593. Second support is the 20 day moving average crossing at 2.448.

Gold closed lower due to profit taking on Wednesday. The high range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are neutral to bullish signaling a low might be in or is near. Closes above the 20 day moving average crossing at 1607.60 are needed to confirm that a short term low has been posted. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. First resistance is the 20 day moving average crossing at 1607.60. Second resistance is this month's high crossing at 1672.30. First support is last Wednesday's low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

Let's see what were Today's 50 Top Trending Stocks!

Gold and Silver Long Term Signal

Long time readers know that we have been and remain bullish on gold and gold stocks in the longer term. However, the reasons why I believe gold and silver will perform well in the longer term are a bit different than what many economists and pundits are expecting.
I am a contrarian by nature. I generally try to do the opposite of the crowd in every situation I find myself regardless of whether I am in a movie theater or trading options. Before getting into the gold and gold miners analysis, I thought I would explain my position publicly to readers. I do not consider myself an expert economist, but I try to read those who many consider to be experts looking for similarities in their viewpoints and expectations.
The herd mentality exists in financial markets and a similar behavior exists among economists. Most economists in the mainstream media today tend to be Keynesians or neo-classical economists. Both viewpoints are generally accepted as the correct interpretation of economic and monetary policies by academia.
However, the academic world can actually reduce open thought through ridicule and persecution. In the world of academia the herd is right, until someone proves that they are wrong using logic based reasoning.
Very similar to political ideologies, economic ideologies are deeply rooted. Paul Krugman is a great example of Keynesian economist. Like it or not, the majority of economists believe his views are correct regardless of whether they are based on fact, history, or dare I say “common sense.”
This leads me to the reason why precious metals and commodities in general may be approaching a major bottom and the potential for a monster rally. The reasoning stems from the fact that across the world central bankers generally share the same views as Paul Krugman. They believe that the modern finance system does not need gold and that fiat currency is the answer even though history argues in their face across multiple millennia.
Most economists and financial pundits believe that sovereign debt is going to bring down the economy and they may be correct. Many believe that the debt will unleash a massive deflationary spiral that will consume fiat valuations, specifically on risk assets and debt obligations.
I do not necessarily disagree that this is a likely outcome, but what concerns me is the number of people that believe this is true. This is the herd’s idea and as I have said many times before the herd is rarely right. This time may be different, although it rarely is. For inquiring minds I offer a rather different potentiality.
What if the debt crisis causes a totally different outcome that very few economists envision? What if they follow Dr. Krugman’s ideas and create massive amounts of debt to stimulate the economy while printing vast quantities of fiat money to prop up failing financial institutions? Clearly increasing debt levels and debasing the currency do not imply a long term positive scenario.
Central banks do not have a strong track record when it comes to reducing liquidity or increasing liquidity at the appropriate times. Thus these actions are likely to facilitate some sort of crisis in the future whether it is a result of runaway deflation or inflation.
I believe that should a deflationary crisis caused by massive debt levels and diminishing economic strength present itself, central bankers around the world will behave exactly the same way. They will act simultaneously and through dovish monetary policy central bankers will flood the world with massive sums of freshly printed fiat currency with the intent to print away issues with a liquidity induced risk-on orgy.
Should that be their ultimate choice, risk assets will rally sharply higher initially. Paper assets like stocks will produce huge gains in a short period of time while supposedly safe assets such as Treasuries would likely arrive at negative interest rates across the yield curve in nominal terms. The next phase is the scary part and why I am bullish long term of precious metals specifically.
The devaluation of fiat currencies simultaneously around the world will result in a monster economic crash when the masses realize that the majority of the major worldwide currencies are becoming worth less and less. The resulting crash would be caused by the opposite force of runaway inflation while the herd mentality that anticipates a deflationary debt spiral espoused by most experts and pundits would be proven materially false.
Under those circumstances, precious metals will be the true safe haven. Gold and silver will prove to be a true store of wealth that they have been for centuries. So many so-called experts fail to recognize that gold and silver are currencies. Yes they have industrial uses, but gold and silver represent the last unequivocal bastion of wealth preservation against the constant debasement procured by central bankers and their minions.
Under the scenario whereby central bankers flood financial markets with cheap, freshly printed fiat currency one would expect other essential commodities such as oil to also perform well. Furthermore agricultural based commodities would also flourish under those economic conditions. Investors would be in much better fiscal condition owning things that they could hold in their hands versus stocks or bonds.
I posit this potentiality not to say that this is exactly what is going to happen, but to challenge readers to open their minds. The crowd is usually wrong. The central bankers and most economists generally share the same viewpoints and their behavior is literally a giant group think.
Is it possible that they are a herd which ultimately will be proven wrong? Will the herd mentality of economists and central bankers cause a massive currency crisis as they attempt to stem the tide of a deflationary debt crisis?
The two possible outcomes go hand in hand. I do not know what is going to happen, but neither outcome in the longer-term is especially optimistic. Should either scenario come to pass, the human condition will likely be threatened by a decrease in the standard of living across multiple developed countries and ultimately the threat of revolution and military action on a scale not seen in several decades could eventuate.
Clearly I have simplified the issues at hand presently for ease of reading, but the ultimate endgame will likely be one or a combination of both a debt crisis and a currency crisis. They will likely occur in close proximity to one other in terms of time, but the precise outcome will likely be different than what is commonly expected.
Regardless of which scenario occurs, precious metals will eventually be sought for their protection against the constant devaluation of fiat currencies by central banks around the world. For this reason, I remain a long term precious metals bull. With that said, why don’t we take a look at the recent price action in gold, silver, and gold mining stocks shown below.
A lot of writers have stated that gold has bottomed. I am not totally convinced, however I do believe that gold is in a bottoming process. For me to get completely in my gold bull suit I would need to see price action exceed the key resistance trend line shown below.
Gold Futures Contract Daily Chart
trading videos
As can be seen above, until we see price push through resistance I will remain cautious. I would also point out that the last two times gold found bottoms near current prices the bottom forming process took several weeks to complete.
I do not expect for gold to form a V shaped reversal. In fact, lower prices in the short term would help drive the bullish case for the longer term. Bottoms take weeks to form and can be very dangerous trading environments where active traders get chopped around.
Silver is very similar to gold in that it appears to have formed the beginning of a possible bottom. Bottoms are generally not formed in one day. During the recent selloff, silver showed relative strength against gold. It is important to acknowledge that silver has yet to test the key lows that should offer support.
Because of this divergence in these two precious metals, I continue to believe that gold may see more downside again before a much stronger rally begins to take hold. Similar to gold, the descending trend line offers a great resistance level where traders can flip from being short-term bearish to longer-term bullish if the resistance line is penetrated. If we see silver carve out multiple daily closes above the resistance trend line paired with strong volume, I would anticipate that a bottom has formed and silver prices will have an upward bias. The daily chart of silver is shown below.
Silver Futures Contract Daily Chart
silver trading videos
As expected, the gold miners have shown relative strength recently. The miners were just absolutely massacred during the recent sell off in equities and precious metals. However, gold miners similar to precious metals have a major descending trend line which they have already tested today. If the gold miners can push through resistance a large scale rally could play out. The daily chart of gold miners is shown below.
Gold Miners (GDX) Daily Chart
gold miners trading videos
In addition, if readers look at a long term GDX price range that dates back to the 2009 lows the recent pullback is almost precisely a 0.50% Fibonacci Retracement. Similar to gold and silver, I would expect to see the gold miners pull back a bit here before pushing through major resistance. We may be setting up for a possible major bottom in precious metals and gold miners in the near future. Only time will tell.
In closing, remember to keep an open mind with regards to the future. The more often you hear the same message coming from financial pundits and experts, the more cynical you should become. Both potential scenarios will likely not end well. The question is whether the reason for the crash is deflation, inflation, or a combination of both scenarios. Regardless of the outcome, the long term future for precious metals remains quite bright.
Happy Trading and Investing!

Tuesday, May 22, 2012

Crude Oil Closes Near 2012 Low on Tuesday

This should create some controversy, when is the best time of day to profit?

Crude oil prices dropped near their lows for the year following warnings of a “severe recession” in Europe and an apparent easing of tensions over Iran’s nuclear program.

Benchmark U.S. crude on Tuesday lost 91 cents to end the day at $91.66 per barrel in New York while Brent crude fell by 40 cents to end at $108.41 per barrel in London. Both contracts hit a low for 2012 on Friday at $91.48 and $107.14, respectively.

Oil has declined almost every day this month as elections in Greece and France threatened existing plans to fix the eurozone economy A top economist for the Organization for Economic Cooperation and Development warned Tuesday that the eurozone could fall into recession this year if leaders fail to stimulate the economy. .

If that happens, it would stunt growth in world oil demand at a time when supplies are expanding.

Saudi Arabia, Iraq and Libya are producing and exporting more oil this year. And analysts say Iran’s oil exports could keep flowing if it lets international inspectors into its nuclear facilities as part of a new deal announced Tuesday.

Western leaders fear Iran is building a nuclear weapon. They’ve been trying to cut off Iran’s oil exports this year to pressure the country to allow in nuclear inspectors. Many nations already have stopped buying Iranian crude and Europe is expected to embargo all oil imports from Iran in July.

Iran says its nuclear program is for peaceful purposes only, but it so far has barred independent inspectors. If it allows them in, Europe may reward Iran by canceling the embargo, said Michael Lynch, president of Strategic Energy & Economic Research.

“If they don’t end it, it could be significantly delayed,” Lynch said.

Fears of a protracted standoff with Iran had helped push benchmark crude near $110 per barrel in February. Prices have since fallen below levels of early November, when the United Nations first warned of a potential nuclear threat from Iran.

Uninterrupted Iranian exports could boost world oil supplies to an average of 89.15 million barrels per day, according to the latest projections from the Energy Information Administration. That would be more than enough to meet world demand.

At the pump, U.S. gasoline prices fell nearly a penny to $3.68 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded has dropped by 25.6 cents since peaking this year in early April.

In other futures trading, natural gas added 9.8 cents, up 4 percent, to finish at $2.707 per 1,000 cubic feet. Natural gas prices have jumped by 42 percent since hitting a 10 year low on April 19 as supplies declined. Weather forecasters also predicted a toasty Memorial Day weekend across much of the country, which implies that people will crank up their air conditioners and power plants will burn more natural gas for electricity.

Heating oil and wholesale gasoline were both flat, ending the day at $2.8614 and $2.937 per gallon, respectively.

20 Survival Skills for the Trader

Can the Stock Market Reverse and Rally to Highs?

Do the Bulls still stand a chance to make another run?

That is the question this weekend after we saw the 1340, 1322 pivots crashed right through following the “SP 500 Bear Case” weekend report on May 13th I sent to subscribers with a chart last weekend (May 13th SP 500 at 1353).

We ended the week with the SP 500 falling from 1353 to about 1292 and the US Dollar having rallied 13 of the past 15 days to the upside. We also have The Mclellan Oscillator at extreme oversold levels as in the November 2011 lows and close to the August 2011 lows. The Sentiment gauges are running at only 24% Bulls as opposed to the historic 39% averages, and the Percentage of NYSE listed stocks trading above the 50 day moving average plummeted to 12%. That is about as low as it has been during this bull market, other than last August when we hit 5%.

So that means that the sentiment/human behavioral ingredients are actually in place for a marked rally to the upside. What we examine this week is whether that can still happen and what type of Elliott Wave pattern would we need to see to validate it.
We can still make a case that this correction of 130 points from 1422 to 1292 (about 9.1% similar to many Bull market corrections since 2009 lows) is a wave 4 correction of waves 1-3. Wave 1-3 rallied in total from 1074-1422 and a 38% retracement of that entire cycle would put us right around 1291/92 pivots.

So below we have the chart that the Bulls would hang onto as possible for a dramatic recovery to new highs past 1422 and onward to 1454 or so. This needs to begin very shortly though and much below 1285 we can wipe this idea off the slate in my opinion.
So, last weekends Bear View is now a 50% probability and the Bullish count below is also 50%. The good news is I think we will know which one is taking control very early in the week. This is probably not a good time to place a big bet just yet in either direction, we are at an inflection point.

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Phil Flynn: Downgrade Dilemma

E-Minis Unfair Advantage....Have You Watch This Yet?

The oil market wanted to believe that the worst was over for the global economy, bouncing back from a 6 month low but a downgrade of Japan means the market will have to struggle to find the lower end of our trading range. As the June contract trades its last, more drama will ensue as the market awaits talks with Iran and their nuclear program and perhaps a Japan downgrade won’t be enough to keep the oil down.

Oh Fitch, talk about the timing of you Japanese downgrade. Oil stated to fall resuming its massive retreat as Fitch lowered sovereign debt rating to A+ with a negative outlook. Oil traders reacted as the dollar rallied and demand expectations again began to fall. It appears that oil may not have found the absolute low of its trading range just yet.

Of course the offset to that will be worries surrounding Iran and the nuclear talks. The market has been hopeful that a conflict can be avoided. This comes after the US Senate keeps the pressure on by voting more sanctions on the sanction overwhelmed regime. Reuters News reported the U.S. Senate unanimously approved on Monday a package of new economic sanctions on Iran's oil sector just days ahead of a meeting in Baghdad between major world powers and Tehran.

The pressure became more apparent when Iran said that they would allow the International Atomic Energy agency to allow weapon inspectors into sites that are suspected to be producing materials needed to make a nuclear weapon. CBS and the AP reported that, “despite some differences, a deal has been reached with Iran that will allow the U.N. nuclear agency to restart a long-stalled probe into suspicions that Tehran has secretly worked on developing nuclear arms, the U.N. nuclear chief said Tuesday.

The news from International Atomic Energy Agency chief Yukiya Amano, who returned from Tehran on Tuesday, comes just a day before Iran and six world powers meet in Baghdad for negotiations and could present a significant turning point in the heated dispute over Iran's nuclear intentions. The six nations hope the talks will result in an agreement by the Islamic Republic to stop enriching uranium to a higher level that could be turned quickly into the fissile core of nuclear arms.”

Yet will oil stay optimistic if Iran at any point tries to limit what the inspectors can do? We have seen this cat and mouse game many times before not only with Iran, but the king of the cat and mouse, the late Saddam Hussein. While oil traders can remain optimistic can Israel?

The Wall Street Journal is asking whether some investors wagering on natural-gas prices are losing their spark. The Journal says that, “natural-gas prices have jumped as much as 44% since sinking to decade lows last month. Much of that rally had been powered by rising demand from utilities, which had taken advantage of the low prices by using more natural gas instead of coal. But the higher prices are making coal competitive once again. Coal prices are down 22% since the start of the year."

The Journal says that utilities are continuously fine-tuning how much coal and natural gas they're burning to generate electricity. In recent months, they've increasingly favored natural gas due to the steep drop in natural gas prices. Utilities keep the breakdown of their fuel use a trade secret. How utilities will respond to higher gas prices has spurred debate among investors. Some analysts and traders say the rally threatens to erode natural gas recent gains in market share as utilities switch back to coal, and that could limit any further price increases. A must read in the Journal Today!

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Monday, May 21, 2012

Warm Weather and Low Natural Gas Prices Dampen Spot Electricity Prices This Winter

E-Minis Unfair Advantage....Have You Watch This Yet?

 The combination of one of the warmest winters (November-March) in decades and low spot natural gas prices contributed to low wholesale electric prices at major market locations during the winter of 2011-2012 (see chart below). Warm weather kept electric system load low across the East Coast and helped dampen the need for coal fired generation. Natural gas generation was up significantly to take advantage of low natural gas prices. Reduced nuclear generation due to outages and reduced hydropower generation both served to moderate declining electricity prices in much of the country.
graph of Average winter price for wholesale on-peak electricity at major trading points, as described in the article text

On peak, wholesale electricity prices generally ranged from $20-$50 per megawatt hour last winter, with some exceptions. Electricity prices dropped during the winter, especially starting in January, as spot natural gas prices neared their lowest levels in the past decade.  

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Crude Oil Bulls Start the Week Higher, Bears Still Have the Advantage

Is Your Favorite Stock Here? Get Today's 50 Top Trending Stocks

Crude oil closed higher due to short covering on Monday as it consolidated some of this month's decline. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If June extends this month's decline, the 62% retracement level of the 2011-2012 rally crossing at 89.90 is the next downside target. Closes above the 20 day moving average crossing at 98.88 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 94.53. Second resistance is the 20 day moving average crossing at 98.88. First support is today's low crossing at 90.84. Second support is the 62% retracement level of the 2011-2012 rally crossing at 89.90.

20 Survival Skills for the Trader

Natural gas closed lower due to profit taking on Monday as it consolidates some of the rally off April's low. The low range close sets the stage for a steady to lower 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 June extends the rally off last week's low, February's high crossing at 3.040 is the next upside target. Closes below the 20 day moving average crossing at 2.388 would signal that a short term top has been posted. First resistance is last Friday's high crossing at 2.759. Second resistance is February's high crossing at 3.040. First support is the 10 day moving average crossing at 2.535. Second support is the 20 day moving average crossing at 2.388.

6 Things Successful Traders Have in Common

Gold closed slightly lower on Monday but remains above the 10 day moving average crossing at 1579.00. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI have turned bullish signaling a low might be in or is near. Closes above the 20 day moving average crossing at 1615.10 are needed to confirm that a short term low has been posted. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. First resistance is the 20 day moving average crossing at 1615.10. Second resistance is this month's high crossing at 1672.30. First support is last Wednesday's low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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