Tuesday, May 31, 2011

Rigzone: Crude Oil Climbs to a Three Week High in Tuesdays Trading

Crude futures climbed to a three week high Tuesday as concerns eased over Europe's debt crisis.

July's oil prices gained $2.11 Tuesday before settling at $102.70 a barrel on the New York Mercantile Exchange. The greenback fell against the euro as the European Union debated on sending additional financial aid to boost Greece's economy. Luxembourg Prime Minister Jean-Claude Juncker said a new aid package will be decided on by the end of June. A weaker dollar increases the appeal of the dollar denominated commodities making it cheaper for foreign buyers.

After noticing a 40 barrel spill at a pump station in Kansas, TransCanada temporary closed down its Keystone pipeline further pressuring oil prices Tuesday. The Keystone pipeline carries half a million barrels of crude per day from Alberta to Cushing, Okla., the largest oil storage hub in the U.S.

Oil prices peaked at $103.39 a barrel and bottomed out at $99.60 on Tuesday.

Natural gas for July delivery traded up Tuesday, adding 15 cents to settle at $4.67 per thousand cubic feet. Prices rose to their highest in four weeks on forecasts predicting above average weather. Hotter weather increases demand for fuel which is required for air conditioning. The intraday range for natural gas was $4.525 to $4.71 per thousand cubic feet.

Gasoline prices also ended higher Tuesday. After fluctuating between $3.07 and $3.165, gasoline settled at $3.15 a gallon, 5.84 cents higher from the previous trading session.


Monday, May 30, 2011

Morgan Stanley Report....the Future of American Domestic Energy Production Lies in Oil

A new report out from Morgan Stanley on the "renaissance" of the American oil industry argues that -- contra the natural gas bulls, the future of American domestic energy production lies in oil.
Specifically, they argue that technological innovation is now allowing for oil extraction from previously un-economical shale deposits. This is game changing. The report is huge, but these four charts really stand out.

shale oil gas

The changeover is happening NOW.
shale oil gas
Meanwhile, and this is quite eye popping, after a 20 year decline, domestic oil production has finally had positive years.
shale oil gas
And finally, if key shale oil regions pan out, the impact in just the next few years could be significant.
shale oil gas

Posted courtesy of The Business Insider


Saturday, May 28, 2011

Rigzone: Crude Oil Gains; Natural Gas Surges

Crude oil for July delivery entered the holiday weekend in the black, gaining 36 cents to settle at $100.59 a barrel. Oil received a boost from a weaker dollar, which made the commodity a more attractive buy for investors holding currencies other than the greenback. The ICE Dollar Index, which tracks the dollar's value against foreign currencies, fell more than 0.8 percent Friday. Crude oil traded within a range from $100.04 to $101.24 Friday. For the week, oil is up 1.1 percent.

Memorial Day marks the traditional start of summer in the U.S., and summerlike temperatures should prevail throughout the Midwest, South, and East during the next two weeks. As a result, investors expect stronger demand for air conditioning and gas fired power. Natural gas consequently ended the day 18 cents higher at $4.52 per thousand cubic feet. The July contract price peaked at $4.56 and bottomed out at $4.365. Since last Friday, natural gas has gained 6.9 percent. June gasoline settled four cents higher at $3.09 a gallon. The futures price fluctuated from $3.04 to $3.08, and gasoline is up 5.1 percent for the week.

Posted courtesy of Rigzone.Com


Thursday, May 26, 2011

Dan Dicker: Oil's Endless Bid

We all know Dan from his appearances on CNBC and The Street.Com but don't hold that against him. Dan's insight into the world of trading crude oil and natural gas is great for the "home Gamer" that needs help trading these commodities using tickers they can both buy and understand.

The price of oil is negatively impacting both companies and consumers. In Oil's Endless Bid, taming the Unreliable Price of Energy to Secure Our Economy, energy analyst Dan Dicker recalls his experiences as an oil trader and reveals the changes that have taken place in the oil markets during the past twenty years, and particularly the last five, as investment banks, energy hedge funds, and managed futures funds have come to dominate energy trading and wreak havoc on prices.

Get started trading crude oil today, just click here to order your copy of "Oil's Endless Bid"


Wednesday, May 25, 2011

How Many Times Have we Seen This Movie.....Goldman Sachs says Oil Going Much Higher!

Analysts from Goldman Sachs are declaring that oil prices will likely increase in the near to intermediate term. Price action so far on Tuesday has just about totally negated the nasty red candle from Monday. Oil continues to consolidate near the lows and will eventually either breakdown to new lows and possibly test the 200 period moving average or we will see an extension higher to the $103 – $105 / barrel price level. The daily chart of oil futures is shown below:

In the longer term, we remain extremely bullish on energy as the fundamentals indicate that oil demand will likely continue to rise while supply levels remain flat or begin to increase. Oil prices are likely to go much higher than what most analysts are expecting. For now, I’m going to be watching the key support level illustrated above. If oil prices continue to consolidate at these levels a breakout is nearly inevitable. The question remains which way will oil break?


Monday, May 23, 2011

Where Now for Gold and Silver?

Well, that was fun wasn’t it gang? A huge drop in silver from $49.75 to the $32 ranges after 8 months of rallying from 19 to near 50. A 150% gain in Silver in eight Fibonacci months, sounds like a pretty overbought situation. Gold in the same time frame lagged badly, but all of that was predicted by me late last August due to the consolidating “B wave” in Silver that was preceding what I felt would be a “massive rally” in the metal. Quite simply I said, investors will view silver as “cheap” relative to Gold and they will buy it instead of gold. 

I realize that makes no logical sense, but since when are the herd behaviors ever logical?

What everyone wants to know still is what is next for both Gold and Silver in their bull markets? When dealing with human behavioral patterns, it’s as much art as science, so I do my best to ferret out the coming pivot highs and lows, and here is where I am at right now.

Gold should work higher in a current “5th wave up” from the $1462 pivot lows to a bogey target of $1627, and once that is hit or close investors should be enjoying rallies in the Gold and Silver stocks but looking to trim back positions aggressively assuming I’m right. Where that forecast could go wrong is if we close much below $1440 on spot gold before attacking and piercing through the old $1577 highs. 

As this final thrust up completes, not too many people will be on board because they all just got spooked out of the market with the silver crash. I expect a bunch to come in near the end and they may get smoked as Gold peaks out and reverses hard into a stronger correction than what we just saw. My subscribers will be informed at every pivot along the way as to the best action to take.

Silver will have the potential now to rally back up to the $38.70-$41.50 ranges if I’m right about the Gold forecast. We had an interesting retracement in Silver that was between two Fibonacci pivots of 61.8% and 78.6%. Often in my forecasting career, I have seen retracements that end up around 71% of the prior major wave pattern up and therefore they throw off many Fibonacci watchers who are looking for that lower or higher level to make their entries. This is partially why I think Silver has bottomed out in price, but traders are hesitant to make a bold move here.

Silver and Gold have another three Fibonacci years left in a 13 Fibonacci year bull market cycle, so other than some intermediate term tops and bottoms and chopping action, I am looking for much higher prices by the year 2014 in both metals.

Below is my outlook for Gold intermediately:

If you would like to be informed 3-5 times per week on SP 500, Gold, and Silver intermediate direction and price movements in advance… take a look at Market Trend Forecast.Com today for a 24 hour 33% off coupon, and/or sign up for our occasional free updates.


Saturday, May 21, 2011

Rigzone: Obama Orders Expansion of Oil Drilling

Nine months after the end of the nation's worst oil spill, President Obama is ordering the Interior Department to expand drilling in the Gulf of Mexico, hold annual lease sales in Alaska's National Petroleum Reserve and speed up geological research of exploration prospects off the south and mid Atlantic coasts.

The moves, announced in the president's Saturday radio address, are not so much a reversal as a return to the policy stance Obama adopted in March 2010, shortly before the Deepwater Horizon drilling rig exploded in flames and BP's Macondo well began gushing millions of barrels of oil into the Gulf of Mexico.

In his four minute address, Obama touched on the hardship caused by $4 a gallon gasoline, but made no mention of last year's spill, an environmental disaster that temporarily derailed new wells and set off political sparring over drilling permits that Republicans and oil executives say have been needlessly delayed.

Instead, the president said he would increase access to the Alaskan reserve, an area four times the size of New Jersey. He said that he was also ordering Interior to hold a Gulf of Mexico lease sale this year and two in 2012, thus completing the department's five year plan for the area. And he said that seismic work off the Atlantic coast would map out new areas for future lease sales.....Read the entire article.


Monday, May 16, 2011

David Banister: The Dollar Bull Monkey Dance Will End Badly, with a QE3 party?

Interesting to watch all of the Silver and Gold Bears running out into the streets from their caves beating their chests due to the silver shellacking we just saw. Getting jiggy with the US Dollar rally is all the rage right now, and stomping on the precious metals Bulls is the hot sport. The only problem is calling for a crash after a crash is kind of like picking the winner of the NCAA tournament at your office the day after the tournament ends. It’s rare to get a crash on top of a crash, and trying to predict any crash is a fool’s game anyways.

The reality is the US can’t even keep their continually rising debt ceiling in check let alone run a normal break even budget. The constant calls for the end of Q2 are kind of funny, because in one form or another, we will see a Q3…....call it what you will. Getting on board now with being bearish on silver or gold and bullish on the US dollar is probably going to be short lived near term. 

One of the confirmations I look for at bottoms is not just with my Elliott Wave patterns or charts, it’s headlines, forecasters, and erstwhile market seers are going the same direction and high fiving each other. When everyone stops trying to call the top in Gold and Silver, then we will probably have a major top in 3 years or so, but not yet.

The dollar should bounce a bit higher yet between 76.20-77 ranges on this chart below then resume the decline......Giving the Bin Laden news credit for the Dollar rally is a bit silly to say the least; it was overdue no matter what the news of the day was.

The bottom line is that Silver was likely to top in the $45-$47 per ounce range after a huge rally from $26.50 whether or not the COMEX raised equity requirements. I had forecasted a run to the $45 highs way back in the mid 26’s for my subscribers. I had mentioned that as we approach those highs, predicting the next “D wave” correction would be very difficult indeed. Certainly the COMEX raising equity requirements made that D wave that much more difficult to assess. The fact that they did it four times in one week certainly sped up the correction and caused an “overthrow bottom”.

Now if we can step back and take a deep breath, we can see that Silver roughly retraced a Fibonacci 61% of the rally from 26.xx to $49.xx and this is typical of a major wave correction in sentiment and price. Gold has so far retraced 61% of its prior 3rd wave up, and that does happen as well. Investors and forecasters simply like to use the day’s headlines to explain the action, so they can feel justified with what just occurred.

I believe that the headlines don’t much matter during rallies or corrections. Instead what matters is typical crowd behavioral patterns and trying to outline pivot highs and lows as best as I can for my paying subscribers. With Gold’s recent bottom at 1462 being a likely “A Wave” of an A B C correction, we then saw a “B wave” rally as I forecasted would occur to “About $1520 or so”, and then a C wave so far to a higher low than $1462. I thought the pullback from the $1520 area would bottom at a higher level than $1462 and so far that is still the case. I am looking for Gold to rally past $1577 and complete a large 5 wave rally from October of 2008 at $1627 or higher. At that time, or close to that time, you will then be wise to take a fair amount of cash off the table.

Indeed, we have had a stellar rally in Gold and Silver from the October 2008 lows and there will be eventually longer periods of consolidations and corrective wave patterns to work that off. However, my theory has been that we are in a 13 year bull cycle for the metals and this is like 1997 in the Tech stocks, still a few good years left and probably one of those 1999 years is still in front of us for the better gold/silver junior exploration companies. 

Certainly after rallying from $681 in October of 2008 to the $1577 recent highs of April, we are getting a little long in the tooth on this multi-wave pattern to the upside. This next top at $1627 or higher will be followed by a multi-month corrective pattern, and I’ll keep my subscribers on top of the coming moves as best as possible. Consider joining us now and save 33% off the annual subscription covering Silver, Gold, and the SP 500 with a 24 hour limited offer at Market Trend Forecast.com and or sign up for occasional weekly reports.


New Video.....Where is This Market Headed Today!

Adam's back with a video update on todays market action.

Get a Free MarketClub
analysis of your
portfolio instantly - Click Here!


Is a Stock And Commodity Meltdown About to Take Place?

Here is quick pre-week analysis video explaining what "The Gold and Oil Guy" thinks could happen in the gold, silver, oil and the stock market this week.

It looks like the dollar continues to control the short term movements in both stocks and commodities

We are about to see some fireworks across the board in the next few trading sessions and Chris seems to be leaning more towards lower prices.

It looks as though we are at a tiping point similar to March 9 - 10th on the SP500......

This week should shed some light on what the market wants to do, Rally or Selloff.

Just  Click Here to Watch the Video Analysis


Sunday, May 15, 2011

George S. Patton....Take calculated risks. That is Quite Different From Being Rash.....HI YO Silver, Away!

Last week silver was the focus of incredible price swings which left many licking their wounds and shaking their heads at the trading losses they had incurred. This sell off was likely triggered by the increase in margin requirements for futures contracts, but the stunning price decline extended to all vehicles like exchange traded funds use to trade the glimmering metal.

I recognized the potential opportunity early in the week, and began to look at various position structures using options on Tuesday morning. In order to understand the thinking behind this trade, it is necessary to understand the concept of implied volatility of an option contract. Implied volatility, together with time to expiration and price of the underlying security, form the three primal forces that rule the world of option pricing. This measure of volatility is best described as the collective opinion of traders as to the future volatility of the price of the underlying. Implied volatility is the variable which determines if options are priced cheap or overvalued.

One of the fundamental behavioral characteristics of options is the reaction of implied volatility to rapid price change. As a general rule, implied volatility goes down as the price of the underlying increases and vise-versa. Another functional characteristic is that it tends to revert to its historic mean once rapid price movements have moderated and actual price volatility returns to its historic range. The chart below is from a historical database of SLV implied volatility. Note the dramatic rise, indicated by the blue line, beginning in mid April and reaching historically unprecedented levels in early May.

Books have been written to describe details of various option trade structures, and a discussion of all potentially useful strategies is beyond the scope of my mission today. Suffice it to say that individual trades can be structured to respond either positively or negatively to reductions in implied volatility. Given the extremely elevated state of the SLV implied volatility, which side would you want to take? Hint: Volatility doesn’t remain elevated forever. A well-established characteristic of implied volatility is its tendency to revert to its historic mean.

The trade structure I chose to use was that of a calendar spread. This two legged spread is constructed by selling a short dated option and buying a longer dated option. The options selected to construct each spread are at the same strike price and are of the same class, either puts or calls. Maximum profit of each spread occurs at expiration of the shorter dated option when the price of the underlying is at the strike price of the spread. The main profit engine for this spread is the more rapid time decay of option premium in the shorter dated option relative to the longer dated option. My trade plan was to buy the May monthly option series which had 18 days of life remaining and sell the weekly options, an option series with only 4 days of life remaining when the trade sequence was started. An essential part of my plan was to adjust the spread as required by price movement to keep in the profit zone of the P&L curve.

It is important to recognize the “secret ingredient” of the spread that put the wind at my back; this special ingredient was the much greater implied volatility of the option I was selling compared to the option I was buying. In the language of the option trader, this situation is termed a positive “volatility skew”. This positive volatility skew increases our odd of success because we are selling a richly priced option and buying a more reasonably priced option; the old adage of “buy low, sell high” applies to volatility as well as price.

The trade that I will discuss began mid-morning on Tuesday, May 3 when SLV was trading around $42.50. My opening traded was to establish the calendar spread at the 42 strike, in options peak, this is known as an at-the-money calendar spread. The opening trade is displayed below:

Price continued to decline for the next several hours and by mid afternoon, SLV was trading around $40. This rapid decline was beginning to approach my lower breakeven price point at $39.24 and I felt I needed more room to allow for price action movement. At this point I chose to add an additional calendar spread at the 38 strike using puts to create a double calendar spread. The resulting trade lowered my breakeven point on the low side from the original $39.24 to $36.21. The new spread’s profitability curve is graphed below:

Price action the next day, Wednesday May 4, was a bit more subdued, and price remained within my profitable zone. Time decay of the short option premium was accelerating and no further action was required. All systems were “go”. The following day, Thursday May 5, price movement resumed its rapid decline and price had moved beyond the profitable zone of our double calendar spread. Action was required; “wishing and hoping” in these situations is strictly not allowed

The original position needed to be modified in order to re-establish a new zone of profitability surrounding the current price of SLV. Because SLV had moved well below the lower breakeven point of the double calendar, radical surgery was necessary. I chose to remove the entire position and re-center the spread. I closed both the 42 call calendar and the 38 put calendar and bought 2 put calendars at the 34 and 35 strikes. As Thursday ended, I had the position illustrated below:

Price movement during the next day, Friday, remained within the range of $33.60 to $35.57. These price extremes for the day were within our limits of profitability of the new double calendar. I closed the spread by mid afternoon when the time premium of the options I had sold short had largely eroded.

This trade had a profit of 15.9% net of commissions for trade duration of approximately 72 hours. I think the lesson to be learned from this trade is that a knowledgeable option trader can survive and prosper in a variety of market conditions. This demonstration is, I think, an example of the tremendous power of options to mitigate risk and provide controlled risk trading opportunities in fast moving markets.
This trade has been part of a strong period of performance for members at OptionsTradingSignals.com

Recent performance has been outstanding as 6 out of 7 trades have produced profits while the final trade remains open. The following returns are based on trade entry and executions. Commissions have not been factored in as option commission structures are different and members may have received a better or worse trade execution. With that said, the gross returns are listed below:

GLD Call Calendar Converted To Vertical Spread – 58%
RUT Call Calendar Spread – 12%
SPY Call Vertical Spread – 32%
SLV Call Calendar Spread Converted to Double Calendar Spread – 18%
AMZN Call Calendar Spread – 37%
SLV Call Calendar Spread Discussed Above – 20%

The cumulative return of the most recent 6 trades is 177%. Obviously the recent track record has been strong and the overall return for members would differ based on position size, risk tolerance, and account size. Since the beginning of the service in December, the overall win / loss record is 14 winning trades, 1 breakeven trade, and 8 losing trades. The overall successful trade percentage based on the trades that have been closed is just shy of 61%. In full disclosure, two trades remain open at this time.

Recently I have used a lot of calendar spreads due to the low volatility environment we have been trading in. The trade constructions that I use adjust based on volatility levels of underlying assets and the VIX index in general. Essentially the service does not use the same trades over and over unless the volatility environment is little changed. Recently we have had consistently low volatility levels and calendar spreads have been attractive. In the future, volatility levels will likely change and other trade constructions would be warranted at that time.

The special offer currently being presented to new members is an extreme value. Most long term members have pointed out that they would be willing to subscribe just for the daily technical analysis provided as well as the 2 – 3 weekly videos that members receive that contain technical analysis of key indices, futures, and ETF’s. My primary focus is to deliver value to members beyond just solid trade management and performance.

I am focused on performance, but my greatest thrill is watching novice option traders start to learn how to trade options in spreads effectively and for consistent profits. Options are one of the most overlooked trading tools in financial markets and the power they offer individual investors is consistently overlooked. Options are more than just hedging tools; they offer individual investors the power to diversify away from standard assets.

Join J.W. Jones at Options Trading Signals.Com and learn to harness the power that options offer investors and traders alike!


Friday, May 13, 2011

Market Sentiment Reaching Extreme Levels for Gold & SP500

Chris Vermeulen has kept us ahead of the market so far in 2011, what's he got to say today?..........

This week we are seeing fear across the board from traders and investors as they dump their long positions is stocks and commodities. Just in the past two trading sessions alone we have seen extreme overbought conditions and extreme oversold conditions which generally mean another big move is brewing…

Fear (panic selling) has very distinct characteristics when looking at the intraday charts and we are seeing those price and volume patterns forming now. When waves of buying and panic selling start to take place back to back, I start to prepare for a trading setup which should form within a couple of trading sessions.

Keep in mind that fear is a much more powerful force in the market and once extreme levels are reached, we typically tend to see continued selling for 1-3 more days afterwards. This is the reason I tend to scale into oversold market conditions as I can potentially enter at lower prices within the next couple of sessions to build a position with a reduced cost basis.

SPY 10 Minute Chart of My Market Sentiment Readings
Panic selling, coupled with oversold NYSE market conditions and fearful options traders makes for an extreme reading in stock prices.

GLD 10 Minute Chart of My Market Sentiment Readings
Sentiment readings many times carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions etc..

Mid-Week Market Trading Update:
In short, I feel the market is at a major tipping point along with the US Dollar. It is just a matter of time before we get another low risk setup and take a position for the next move in either direction.

Get Chris Vermeulens Weekly Reports Free Here  The Gold and Oil Guy.Com


Monday, May 9, 2011

COMEX Drops Nepalm Bomb on Silver, What Next for the Precious Metals?

What was David Banister thinking......

What was I thinking trying to forecast a normal “wave 4” correction in Silver without the required insider information that the COMEX was going to raise margin/equity requirements four times in a week? My pullback silver low target of $40.10 was obliterated after two consecutive days of equity requirement increases early last week, knocking silver into the low 33’s before it got off the mat and staggered around a bit. Gold followed right behind as margin calls and stop losses required over- zealous traders on the long end to liquidate everything they could find to avoid complete meltdown of their trading accounts.

That is all well and good, but now all of my subscribers want to know just one thing…what now? For starters, Silver had completed an A B C rally pattern from around $18.50 in late August to $49.90 about eight Fibonacci months later. I had written about that coming rally late last August with Silver at $18.73, so we were prepared for the opportunity. I even looked for long term targets as high as $45. That rally was pure crowd behavior in motion, and when you reach the extremes of a “C Wave” in optimism, the next leg down (Which I call the “D wave”) is extremely difficult to predict. I trade A-B-C patterns all the time, looking for that imminent “C wave breakout”, and last August I forecasted a huge move in Silver mostly because a very long B wave triangle had just about completed, and the powerful C wave rally was nigh.

Now that we ended that rally by touching the all time highs near $50 from 1980, it was clear we would have a corrective pattern, and the problem was trying to come up with a reasonable “Crowd Behavioral” bottom pivot forecast amidst the COMEX interfering. This D wave ended in catastrophe for those who were over exposed, or shall I say… “Greedy”. You know what they say on Wall Street, Hogs get fat and pigs get slaughtered. Well, for those who want to dip their toe back in the water, here is the likely path going forward.

1. I expect Silver to recover over several months and re-attack the $50 zone again.
2. Silver will get past $50 by year end and probably reach $60 before the next strong correction.
3. With three years left in the Gold and Silver bull cycle from 2001, there is a very good chance silver will be well north of $100 an ounce by 2014, but one week at a time.

I do not trade Silver or Gold futures, and never have… I just forecast direction and price as best as I can for my subscribers. Probably one of the reasons I’ve been lucky and accurate for many years is I have no bias, as I am not forecasting my own book… just what I see. Near term look for Silver to try to rally back to about $38 to $41.50 ranges, with another pullback to follow.

Gold should have bottomed at $1462 in what I call an “A wave” down, with the “B wave” currently bouncing to about $1520 if I’m right. Once this bounce is completed, I look for a soft pullback to $1489 or so, followed by a strong rally to re-test the $1577 highs. Gold should reach a minimal target of $1627 on this final 5th wave up from the January 1310 lows, with potential to spill higher than that.

Silver has tripped on itself for now, and Gold will probably move a tad smoother over the near term, but look for Silver to regain it’s sprinting abilities this summer-fall and re-take the baton from Gold and continue it’s out-performance. If you would like to have frequent updates during the week, lots of good charts, and avoid scratching your head while the action unfolds, take a look at Market Trend Forecast.Com for a special coupon offer today, or sign up for our occasional free reports!


Saturday, May 7, 2011

J.W. Jones: What's Next For The S&P 500, Gold, & Crude Oil

Brokers have made it easier then ever for the average investor to get started trading options. Don't even consider trading options without subscribing to J.W. Jones newsletter. Here's his weekend post that will prepare you for trading the amazing moves we are having in commodities this week......

The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Does this mean we are at the brink and risk assets are going to decline precipitously? Obviously that question cannot be answered with any certainty, but the underlying price action in the S&P 500 has been relatively strong compared to gold, silver, and oil.

Talking heads everywhere are predicting the commodity bubble has burst and pointing fingers at excessive speculation in silver and oil. Margin requirement changes in silver futures have been fingered as the primary catalyst for the nasty sell off. Silver had gotten way ahead of itself in terms of price and parabolic moves higher are usually followed by parabolic moves lower. For silver buyers on Friday, April 29 a painful lesson has been learned as their investment has declined more than 30% in 5 days.
It doesn’t take a genius to realize that we are going to bounce higher at some point. With a sell off of this magnitude it would not be shocking to see at least a 50% retracement of the entire move in coming weeks. 

It is also possible that this is a buying opportunity for precious metals and oil. It is too early to be certain, but a bounce next week is likely as silver went from being severely overbought to severely oversold on the daily chart in one week. The chart below illustrates the 50% retracement and the RSI reading for silver futures:
In the month of April OptionsTrading Signals members were able to capitalize on rising silver prices to close a trade that produced an 18% return in less than 5 days using a double calendar spread in order to produce outsized profits based on maximum risk. Members regularly receive trade alerts focusing on gold and silver using ETF’s GLD & SLV which have extremely liquid options.

While silver prices have been absolutely crushed, gold prices have held up a bit better. In fact, in this selloff gold has been less volatile in terms of intraday percentage price movement and has not suffered from near the losses that we have witnessed in silver. The gold futures chart below illustrates key price levels:
Members of the OTS service received a trade alert on April 6th for a calendar spread that was converted to a vertical spread. When the vertical spread was closed on April 26th the members realized a gain close to 56% based on the maximum risk of the trade.

Recently we have received some poor economic data which has put a drag on equities the past few weeks. This morning we are seeing a strong bounce in the S&P 500 futures and if we have another light volume Friday prices tend to drift higher throughout the trading day. The S&P 500 futures spiked to around 1,370 on the news of Osama Bin Laden’s death and then sold off from that point. The chart below illustrates the S&P 500 futures rally and subsequent sell off highlighting current key price levels:
Members of Options Trading Signals received a trade alert on April 12th to put on a call vertical spread to capitalize on rising prices. On April 21st partial profits were taken and eventually stop orders closed out the position on May 4th locking in a total gain of around 32% for the trade based on maximum risk.
Oil prices have sold off sharply, albeit not as sharp as the downside move in silver recently from a percentage standpoint, but a significant amount of the risk premium has come out of oil prices. I continue to believe that oil prices over the long term have only one direction to go based on tightening supply / demand going forward and lower production levels in the future. Similar to silver, a .500 retracement of the entire recent move is rather likely in coming weeks. The daily chart below illustrates key price levels in oil futures:
I continue to believe that oil prices are going to work higher over the longer term for a variety of reasons, but a drop in gasoline prices would not hurt U.S. Consumers and the domestic economy. Higher oil and gasoline prices weigh on the U.S. Economy heavily so this sudden decline in price is beneficial to most Americans which could juice consumption if prices stay lower for a longer period of time.

Overall, price action in the commodity space has been extremely volatile the past week with silver and oil really getting hammered lower. Gold and the S&P 500 held up a bit better and it would not be shocking to see the S&P 500 put on a rally from here if oil prices stabilize. However, if the U.S. Dollar continues its recent rally it will force the commodity space as well as equities lower. The daily chart of the U.S. Dollar Index futures is shown below:
In closing, I am expecting a bounce in coming days and a .382 or .500 retracement of the entire move in gold, silver, and oil would make sense so I would not be too aggressive shorting. However, I would not necessarily be an aggressive buyer either. It is going to take time for market participants to digest the recent moves. In weeks ahead it will be more apparent what price action is likely to do and I would be shocked if we did not see a few low risk, high probability trades setting up.

Speaking of low risk, high probability trades, the month of April was the best performance for the Options Trading Signals service so far year to date. Seven total trades were opened and six trades have been closed with sizable profits. Recent returns included an 18% return in SLV, a 56% return on a GLD trade, 32% return on an SPY call vertical spread, a 12% return on a RUT Calendar spread, and a 37% return on an AMZN calendar spread. The total cumulative return in April was 155%.

Assuming a trader had a $10,000 account and risked a maximum of $1,000 per trade, the gross gains would have been well over $1,400 in April alone. The overall service is up over 15% year to date handily beating the S&P 500 return while assuming less risk. Take advantage of the special offer going on now where new members get 3 months for the price of one!

To Get J.W.'s Free Trade Setups visit Options Trading Signals.Com


Thursday, May 5, 2011

Parabolic Moves are Only Temporary for Silver and Gold

The past few weeks we have been seeing the US Dollar slide to new lows at an increasing rate. The strong devaluation of the dollar has sent precious metals like silver and gold rocketing higher out of control sending them parabolic!

During the past 6 weeks both silver and gold have been rising in a parabolic formation. Meaning the price is going straight up with strong volume as everyone gets greedy and buys into the commodities at the same time. Most of you who follow my work already know that if the general public is piling into an investment rocketing prices higher, you better start focusing on tightening your protective stops and or taking some profits off the table before the price collapses.

Take a look at the weekly chart of Silver below:
Silver was grinding its way higher from July into March of this year. Only in the past 6-7 weeks did we start to see silver open up and run with expanding candles growing at an accelerated rate. This virtually straight up rally is a signature pattern and tells me that price action is now VERY unpredictable and anyone getting involved should be tightening their stops and or taking partial profits on price surges.
Parabolic moves can provide some big gains but most traders end of giving it all back and then some because the price can drop very abruptly as seen on this chart.

The weekly chart of gold below shows much of the same thing but without the extreme volatility that silver has.

Now, if you take a look at the US Dollar chart it’s starting to look very bullish in my opinion. The chart shows a falling wedge which typically means the selling pressure should be coming to an end soon. I’m not sure how large the bounce/rally will be. I do think a quick move to the 75 level is very likely in the near future though.

I find that metals tend to turn just before the dollar does. So I’m very cautious here on buying any stocks or commodities at the moment. The past 2 years we have seen stocks and commodities have an inverse relationship with the dollar so a rising dollar means a market pullback will take place. Sell in May and Go Away…?

Mid-Week Trading Conclusion:
In short, we exited our SP500 position this week for a nice 6% gain in a couple weeks making that our third profitable back to back index play. At this time I’m not ready to buy or short the market until all the charts line up for another low risk entry point. Things are 50/50 odds here and that’s not good enough for me.

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Monday, May 2, 2011

The SP 500 Just Might Hold Some Clues to the Peak in Gold and Silver

J.W Jones....."The warning signs were all Dismissed or shouted down So it goes".......

The single biggest news event this week besides the Royal Wedding (who actually cares) was Federal Reserve Chairman Ben Bernanke’s televised press conference. The Federal Reserve is attempting to appear more transparent after coming under pressure from the United States Congress because of their obscure and potentially nefarious operation. For most Americans, Ben Bernanke is someone they likely have never even heard of, but on Wednesday Mr. Bernanke got to bask in the sunlight that is generally only reserved for public elites such as celebrities, pro athletes, and the President of the United States.

While Chairman Bernanke had his brief moment of publicity, his answers to seemingly pre-screened questions were vague, misleading, and rather contrived. He answered questions using very long responses which generally obfuscated rather than clarified the situation. In my estimation, Mr. Bernanke solidified what many market participants already believed; he is nothing more than an academic.

Mr. Bernanke and the Federal Reserve have based every decision they seemingly make on antiquated models and algorithms which work in a classroom and fail in real time. To the average man (myself included), he blathered on speaking about things that most people do not even understand. It is almost as if he did this to prove his intelligence and ability.

For long time readers, my disdain for the Federal Reserve is relatively easy to recognize. While the U.S. Congress is nothing more than charlatans, the Federal Reserve is the greatest thief in American history. Through the debasement of the U.S. Dollar and a long time track record of reacting too late or not at all to economic events, the Federal Reserve has stolen purchasing power from the American people. 

The inflation that has been unleashed over the past 10 years has been tremendous and the long term impact on the standard of living in the United States has been negatively altered. In essence, the Federal Reserve took from everyone and “we the people” got nothing tangible in return.

Mr. Bernanke made comments about the U.S. Dollar including “that it fluctuates.” The only direction it has fluctuated since he has been in charge at the Federal Reserve is lower. If lower and fluctuation are synonyms, I wish my weight would fluctuate!

Where were the hard questions from reporters? Where were questions about gold and silver rallying to new highs nearly every day? Where was the question about the Fed’s credibility when it totally missed the sub-prime crisis and referred to it as a contained event? What has the Federal Reserve done a good job at besides causing inflation based bubbles immediately followed by nasty busts. However, the real question still remains, what does the future hold for financial markets?

What I’m about to say may surprise readers, but history supports my thought process. If the Federal Reserve continues on the same path it is possible that the U.S. Dollar could go through a real currency crisis. The potential for such an event is intensified by the fact that Asia and Europe are raising interest rates due to inflationary pressures. Time will tell, but gold and silver remain strong, however I would not fall in love with either commodity, or any commodity for that matter. Whether we have a currency crisis or not, there is going to be one nasty sell off in commodities in the future, specifically in silver.

I agree with many market prognosticators in that we are in a commodity bubble. The weekly chart of silver futures below illustrates just how parabolic the move has been:

At some point the U.S. Dollar will bottom, and when it does a significant rally will take shape. When the U.S. Dollar rallies it has the potential to be sharp and fast. Silver would be hit hardest as the chart above shows the parabolic move higher that has transpired over the past few months. The timing of the U.S. Dollar’s bottom is difficult to quantify, and picking bottoms is a fool’s game. Nevertheless, the commodity charts will tell us when it’s time for the rally to unfold, but for right now prices will likely continue higher for commodities and equities.

While I think longer term precious metals investors might be able to withstand the impending selloff, the other side of that selloff will likely see gold and silver work higher still. Longer term gold and silver will likely perform well, but traders must be aware that a sharp pullback is not only likely, but would be considered healthy by many market participants. The Dollar Index weekly chart illustrates the sharp selloff in the U.S. Dollar the past few months.

While several articles have been proffered by authors I respect deeply, they have not offered a means to determine when the Dollar has bottomed. While nothing is full proof, the longer term SPX chart may be a guide as to when the U.S. Dollar will begin to bottom. The SPX weekly chart shown below illustrates the long term ascending channel that the S&P 500 has been trading in for some time.

My “educated guess” as to when the Dollar will begin to bottom will likely coincide with a test of the ascending trend line. In previous articles, I opined that I thought we would see the S&P 500 rally and we are in that process now. My guess is that about the time the S&P 500 tests the rising channel, we will see the U.S. Dollar begin to bottom. The short opportunities that will be presented from a risk / reward perspective could be outstanding. Cycles typically line up, particularly when one particular asset, in this case the U.S. Dollar, are driving markets in one particular direction for a long period of time.

Typically business cycles end when commodities and commodity based stocks such Exxon or Barrick Gold rally. We are in that stage of the business cycle right now, and typically when that stage has been reached it is indicative that the economy is starting to overheat. Cyclicality in financial markets has been discussed for years, but often times technical analysis will align with the business cycle. While I may not be exactly right as to the timing, it certainly gives a solid framework for risk-based decisions going forward.

I believe that the actions taken by the Federal Reserve for the past 2-3 years are going to result in additional selling pressure in the future for the U.S. Dollar which will propel commodity prices and equity futures prices higher than what many will expect. While the selloff may occur within the confines of a short to intermediate term time frame, the U.S. Dollar will eventually bottom and a nasty selloff in commodities and stocks will transpire and the next leg of the secular bear market will begin. The business cycle and the technicals are aligned at this point, the question is really how long it is going to take to get there.

The end game will likely result in the Federal Reserve looking foolish while the American people and the global economy will suffer from the Fed’s ineptitude. The possibility that the Federal Reserve is forced to raise interest rates to slow down inflation at the same time the U.S. Dollar bottoms is a recipe for a potential economic disaster.

Slowing economic conditions based on higher oil prices and inflationary pressures paired with higher interest rates will result in another recession fueled by the Federal Reserve’s Keynes based economic models and decision making. Ben Bernanke was right about one thing, the Federal Reserve uses educated guesses based on their models when setting monetary policy. I posit to readers, what happens if the Federal Reserve Chairman and Governors’ price models and educated guesses are completely false?

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