Hate Mail, Crumbling Factories, and Sinking Stocks

By Tony Sagami 

The bulls are mad at me. I’ve been heavily beating the bear market drum in this column since the spring. The S&P 500, by the way, peaked on May 21, and this column has been generating a rising stream of hate mail from the bulls as the stock market has dropped. My hate mail falls into two general categories: (1) you are wrong, and/or (2) you are stupid.

Well, I may not be the sharpest tool in the Wall Street shed, but I haven’t been wrong about where the stock market was headed. This column, however, isn’t about me. It’s about protecting and growing your wealth—and that’s why I have been so forceful about the rising dangers the stock market is facing.

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One of the themes I’ve repeatedly covered in this column is the rapidly deteriorating health of the two most basic economic building blocks of the American economy: the “makers” (see August 25 column) and the “takers” (see July 14 and August 4 columns).

There are thousands of economic and business statistics you can look at to gauge the health of the US economy, but at the economic roots of any developed country is the prosperity of its factories (makers) and transportation companies (takers) delivering those goods to stores.

This week, let’s look at the latest evidence confirming the piss poor health of American factories.

Factory Fact #1: The Institute for Supply Management released its latest survey results, which showed a drop to 51.1 in August, a decline from 52.7 in July, below the 52.5 Wall Street forecast, and the weakest reading since April 2009.

NOTE: The ISM survey shows that raw-materials prices dropped for 10 months in a row. If you own commodity stocks—such as copper, oil, aluminum, or gold—you should consider how falling raw materials prices will affect the profits of those companies.

Factory Fact #2: Despite all the crowing from Washington DC about the improving economy, US manufacturing output is still worse today than it was before the 2008-2009 Financial Crisis, according to the Federal Reserve.

Factory Fact #3: Business inventories increased at the fastest back to back quarterly rate on record. Inventories increased 0.8% in Q2, following a 0.3% increase in Q1, and now sit at $586 billion. That’s a 5.4% year over year increase!

Remember, there are two reasons why businesses accumulate inventory:

• Business owners are so optimistic about the future that they intentionally accumulate inventory to accommodate an upcoming avalanche of orders.

OR

• Business is so bad that inventory is starting to involuntarily pile up from the lack of sales.

Factory Fact #4: The Manufacturers Alliance for Productivity and Innovation (MAPI), a trade association for US manufacturers, is none too optimistic about the state of American manufacturing.
The reason for the pessimism is simple: US manufacturers are struggling.

• U.S. manufactured exports decreased by 2% to $298 billion in the second quarter, as compared with 2014.

• The US deficit in manufacturing rose by $21 billion, or 15%, compared with the second quarter of 2014.

“The US $48 billion deficit increase in the first half of the year equates to a loss of 300,000 trade related American manufacturing jobs, and the deficit is on track for a loss of 500,000 or more jobs for the calendar year,” said Ernest Preeg of MAPI.

So what does all this mean?

When I connect those dots, it tells me that American manufacturers are struggling. Really struggling.
Take a look at the Dow Jones US Industrials Index, which peaked in February and started to drop well ahead of the August market meltdown.

You know what’s really nuts? The P/E ratio for this struggling sector is almost 19 times earnings and 3.3 times book value!

Is there a way to profit from this slowdown of American factories? You bet there is.

Take a look at the ProShares UltraShort Industrials ETF (SIJ). This ETF is designed to deliver two times the inverse (-2x) of the daily performance of the Dow Jones US Industrials Index. To be fair, I should disclose that my Rational Bear subscribers have owned this ETF since June 16, 2015, and are sitting on close to a 15% gain.

Critics could say that I am “talking up my book,” but I instead see it as “eating my own cooking.” My advice in this column isn’t theoretical—we put real money behind my convictions. That doesn’t mean you should rush out and buy this ETF tomorrow morning. As always, timing is everything, so I suggest you wait for my buy signal.

But make no mistake, American “makers” are doing very poorly, and that’s a reliable warning sign of bigger economic problems.

Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

The article Connecting the Dots: Hate Mail, Crumbling Factories, and Sinking Stocks was originally published at mauldineconomics.com.

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Riding the Energy Wave to the Future

By John Mauldin 

“Formula for success: rise early, work hard, strike oil.” –  J. Paul Getty

This week’s yuan devaluation was big news, but it’s really part of a much bigger saga. Events around the globe are combining to create huge economic change over the next few years. We are watching giant, multidimensional chess games played by some master players. Energy is the chessboard that connects all the players. What happens when the board changes shape in the middle of the game? If you don’t know the new energy landscape, you’ll have a hard time playing to a draw, much less winning.

Today I’ll tell you about some big shifts in the energy industry. These shifts are about as positive as can be, unless you need high oil prices to run your country. In the long run, these changes are bullish for the whole world, which I think this will surprise many of you. And though we’ve been used to thinking about energy and technology as two different facets of modern life, today they are inextricably linked.
When energy changes, everything else changes, too.

16 Candles

Thoughts from the Frontline is now entering its 16^th year of continuous weekly publication. I constantly meet readers who have been with me since the beginning – and even some who read an earlier print version of my letters. I put TFTF on the Internet in August 2000 as a free letter, starting with just a few thousand names, and was amazed at how rapidly it grew. It took just a few years for me to realize that this new thing called the Internet was the real deal, and I discontinued my print version. We now push the letter out to almost one million readers each week, and the letter is posted on dozens of websites.

I began to archive the letter in January 2001; and every issue – the good, the bad, and the sometimes very ugly – is still there in the archives, just as I wrote it. I will admit there are a few paragraphs, and maybe even a whole letter or two, that I would like to go back and expunge from the record. But I think it’s better just to let it all be what it is.

Investing in energy without the risk....Here's what our trading partner John Carter is doing.

I thank you for allowing me to come into your homes and offices each week. I consider it a privilege and honor to be able to offer you my research and thoughts. This letter has been free from the beginning, and my full intent is that it will always remain that way. Longtime readers know the topics can vary widely over the course of the year. I write about what I find interesting that week. I find that writing helps me focus my own thinking.

If you are reading this for the first time, you can go to www.mauldineconomics.com, subscribe by giving us your email address, and join my one million closest friends who get my letter each week. And if you’re a regular reader, why not give me a 16^th birthday present and suggest to your friends that they subscribe too! I also want to thank the staff and my partners, who make it possible for me to spend the bulk of my time thinking and writing. And traveling, of course. And now let’s think about energy.

The Cover Pic Indicator

Contrarian and value investors like to buy assets that are in distress, or at least “out of favor.” You don’t hear much about those assets at the time. That’s part of being distressed – everyone ignores you. So, following that logic, the last thing you want to buy is a stock or industry that appears on the cover page of popular financial publications. Commodity and energy bulls should take note of last weekend’s Barron’s cover.

“COMMODITIES: TIME TO BUY,” Barron’s practically screamed at its readers. In case you can’t read the fine print on the cover, it says, The harsh selloff in energy, gold, and other commodities is starting to look like capitulation. Opportunities in Exxon, Chevron, BHP, Goldcorp. Plus six funds and six ETFs to help build a position in this oversold sector.

I presume the photo is supposed to show the sun rising on an oil rig, not setting. The article quotes some very smart people who are bullish on commodities right now. Some energy stocks look like real bargains. Barron’s is simply repeating the market’s conventional wisdom: After a brutal decline, oil prices are stabilizing and should head higher as the global economy recovers.

That’s a perfectly defensible position – but I think it’s wrong.

It’s wrong because it misses a major shift in the way we produce energy. Many people think OPEC’s high oil and gas prices led to the US shale energy boom. That’s not right. The shale boom was born in a time of lower energy prices, and it was the result of new technologies that make recovering large quantities of oil and gas less expensive than ever.

I used to get the occasional letter from James Howard Kunstler, who would tell me that whatever letter I had just written was completely bass-ackwards, and how his books explained that we were going to run out of energy and then collapse. His books (Wikipedia lists about a dozen) and dozens of others warned us of Peak Oil. (For the record, James, a certain longtime editor on my staff made sure I got all your letters, reports, and more, as he is firmly in your camp! I kept smiling and saying that he was (and is) wrong; but Charley is a phenomenal editor, and you put up with a few quirks for brilliant editing that makes you look better. Besides, if the world does come to an end, I can wend my way to his survivalist farm and beg for a job and food, although I’m not exactly sure I’m ready to milk goats. Just for old time’s sake.)

I have written for years that Peak Oil is nonsense. Longtime readers know that I’m a believer in ever-accelerating technological transformation, but I have to admit I did not see the exponential transformation of the drilling business as it is currently unfolding. The changes are truly breathtaking and have gone largely unnoticed.

By now, you probably know about fracking, the technology where drillers pump liquids into a well to “fracture” the ground and release oil and gas deposits. It’s controversial in certain quarters, especially among those who hate anything carbon-related.

Fracking technology is moving forward like all other technologies: very fast. Newer techniques promise to reduce the side effects, at even lower operating costs. Furthermore, fracking is only the beginning of this revolution. The Manhattan Institute recently published an excellent (bordering on brilliant) report by Mark P. Mills, Shale 2.0: Technology and the Coming Big Data Revolution in America’s Shale Oil Fields. I highly recommend it.

Mills outlines the way the new technologies are turning this industry on its head. Shale production or “unconventional” production is really a completely new industry.

Here is a short quote: The price and availability of oil (and natural gas) are determined by three interlocking variables: politics, money, and technology. Hydrocarbons have existed in enormous quantities for millennia across the planet. Governments control land access and business freedoms. Access to capital and the nature of fiscal policy are also critical determinants of commerce, especially for capital-intensive industries. But were it not for technology, oil and natural gas would not flow, and the associated growth that these resources fuel would not materialize.

While the conventional and so-called unconventional (i.e., shale) oil industries display clear similarities in basic mechanics and operations – drills, pipes, and pumps – most of the conventional equipment, methods, and materials were not designed or optimized for the new techniques and challenges needed in shale production. By innovatively applying old and new technologies, shale operators propelled a stunningly fast gain in the productivity of shale rigs (Figure 4), with costs per rig stable or declining.

[Look at the above chart for a few moments; it’s truly staggering. In just seven years, the amount of oil per well in some shale plays has risen by a factor of 10! That is almost all due to new technologies that are increasingly coming online.]

Shale companies now produce more oil with two rigs than they did just a few years ago with three rigs, sometimes even spending less overall. At $55 per barrel, at least one of the big players in the Texas Eagle Ford shale reports a 70 percent financial rate of return. If world prices rise slightly, to $65 per barrel, some of the more efficient shale oil operators today would enjoy a higher rate of return than when oil stood at $95 per barrel in 2012.

Read that last paragraph again. Some shale operators can make good money at $55 a barrel. At $65, they can make higher returns than they did three years ago with oil at $95. I have friends here in Dallas who are raising money for wells that can do better than break even at $40 per barrel, although they think $60 is where the new normal will settle out. Texans are nothing if not optimistic.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best selling author, and Chairman of Mauldin Economics – please click here.

The article Thoughts from the Frontline: Riding the Energy Wave to the Future was originally published at mauldineconomics.com.

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Weekly Futures Recap with Mike Seery....Crude Oil, Gold, Coffee and More

Our trading partner Mike Seery is out with his calls for this week and he includes some of reliable rules to protect our profits.

Crude oil futures in the March contract settled last Friday at 49.00 while currently trading at 47.50 up about $.80 in early trade this Friday morning in New York as extreme volatility has occurred in recent days and if you’re still short this market I would now place my stop above yesterday’s high which currently stands at 51.73 risking around $4.25 or $4,250 per contract plus slippage and commission from today’s price levels. Crude oil futures are trading significantly below their 20 and 100 day moving average telling you that the trend still remains bearish as oversupply has decimated prices in recent weeks as who knows how far prices can actually go but stick to the rules as the 10 day high has tightened up considerably as prices have gone sideways in the last week or so with big trading ranges.

Crude oil prices have been dramatically cut in recent months due to the fact that Saudi Arabia refuses to cut supply coming out earlier this week reiterating that fact that they will not cut which keeps sending prices lower as they are trying to squeeze some American companies to get out of the business as the U.S is now a major producer which we weren’t just 5 years ago and that’s what’s changed the situation. The crude oil market I believe for the 1st time in history is not putting any price premium as in the past we always had a $10 or $20 price premium due to the fact of chaos in the Mideast but at this point problems in the Mideast are not affecting crude oil prices so this market still could remain bearish for some time to come especially with the U.S dollar hitting a 9 year high which is pessimistic all commodity prices.
Trend: Lower
Chart structure: Improving

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Gold futures in the February contract are slightly lower this Friday afternoon in New York after settling last Friday at 1,216 currently trading at 1,260 as I’m currently recommending a long futures position while placing your stop loss below the 10 day low which is around 1,209 risking around $50 or $1,650 on a mini contract plus slippage and commission. Gold futures are trading above their 20 and 100 day moving average hitting a 5 month high as the chart structure will also start to improve on a daily basis starting next week as the market has caught fire recently due to worldwide problems as money is pouring back into the precious metals and out of the S&P 500 in the beginning of 2015.

Yesterday the Swiss government announced they will let the Swiss Franc float rocketing that currency up while sending shock waves through the bond and currency markets and it certainly looks to me that problems are here to stay here for a while as Europe is a mess and this could push gold up to the next resistance level of 1,300 – 1,320 so take advantage of any price dip while maintaining the proper stop loss risking 2% of your account balance on any given trade as gold has finally turned into a short-term bull market once again.
Trend: Higher
Chart structure: Improving

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Coffee futures in the March contract have been extremely volatile in recent weeks due to the fact of concerns of lack of rain down in Brazil pushing prices up in over the last several weeks as I’m currently sitting on the sidelines in this market as coffee prices are trading above their 20 but still below their 100 day moving average telling you the trend is mixed. Coffee prices settled last Friday at 180 and are currently trading at 175.30 topping out around the 185 area as volatility should increase as the next 3 weeks are very critical to the coffee crop as traders are keeping a close eye on Brazilian weather.

As I’ve talked about in many previous blogs I think it’s very difficult historically speaking to have back to back droughts, but you never know as the weather is unpredictable, however this market has been choppy so wait for a better trend to develop and avoid any type of futures position at this time in my opinion. Many of the commodity markets are still heading lower because of the U.S dollar hitting a 9 year high and if adequate rain comes to key coffee growing regions over the next 3 weeks I would have to think that a retest of the 160 level would be in the cards so have patience and wait for a trend to develop.
Trend: Mixed
Chart structure: Poor

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The 10th Man....What a Correction Feels Like

By Jared Dillian

Back in the summer of 2007, when I was working for Lehman Brothers, I had a vacation to the Bahamas planned. This was unusual for me. Up until that point, in six years of working for Lehman, I had taken about five vacation days—total. But my wife and I were going to a semi primitive resort on Cat Island, the most desolate island in the Bahamas. Interesting place for a vacation. Suffice to say that it’s plenty hot in the Bahamas in August.

The market had been acting funny for a while, and I had a hunch that there was going to be trouble while I was gone, so I bought the 30 strike calls in the CBOE Market Volatility Index (VIX). I was betting that volatility was going to go up a lot in a short period of time. In fact, these options—which I spent a little over $100,000 on—would be worthless unless there was outright panic. I gave instructions to my colleagues to sell the call options if the VIX went over 35. (Note: my memory on the details of the trade, like the strike of the options and the level of the VIX, is a little hazy. The specifics might have been different, but you get the general idea.)

So there I was, sunning myself at this primitive resort on Cat Island and the world was melting down, and I was completely oblivious to what was going on back on Wall Street. Coincidentally, the local Bahamas newspaper had a picture of black swans on the cover one day. I staged a photo of me in a hammock reading the newspaper with the black swans on it. I still have that photo.

I got back to civilization and checked the markets. I saw the chart of the VIX. I could hardly contain myself. If my colleagues had executed the trades properly, I would have had a profit of over $800,000. But when I got back to work and opened my spreadsheet, I found that I’d made less than $100,000. What I had failed to consider was that if the world actually was blowing up, the guys would have been too busy to execute my trade.

So there is this whole idea of state dependence that we have to consider when we’re talking about the market. Like, you might have a plan to buy stocks when the index gets below a certain level, but when the market gets to that point, you: a) may not have the capital; and b) might be panicking into your shorts. It’s nice to have a plan, but, paraphrasing Mike Tyson, everyone has a plan until they get punched in the face.

I remember reading Russell Napier’s book about bear markets, called Anatomy of the Bear. It talked about all the big bear markets in the US, including the granddaddy of them all, the stock market crash of 1929 and the Great Depression. One of the things that I learned from this book was that if you can time the bottom exactly right, you can make a hell of a lot of money in very short order. For example, if you had bought the lows in 1932, you could have doubled your money in a matter of months.

I wanted to do that. I prayed for a bear market, so I would get my chance.

Little did I know that I would get my chance just two years later—and blow it.

When the market is down 60%, it’s scary as hell to buy stocks. Hindsight being 20/20, you can say, “What, did you think it was going to zero?” Actually, yes—in March of 2009, people thought it was going to zero.
But for those people who: a) had capital; and b) weren’t terrified, it was a once in a lifetime opportunity.

A Thousand Days with No Correction

So let’s talk about a). Does everybody have capital? Remember, the hard part of this is not picking bottoms. Many people can do this quite capably. Panic/liquidation is very easy to spot. But few people have the ability to take advantage of it, because they’re fully invested.

As for b), you tend not to be terrified if you have capital.

Everyone knows by now that the stock market is correcting. The price action is pretty terrible. Will it get worse? I think so. We’re seeing excesses (corporate credit, growth stocks, IPOs) that we haven’t seen in many, many years. It’s been over 1,000 days since we’ve had a correction of any magnitude. With the market down about 5%, nobody is particularly worried, because every other time the market was down 5%, it ended up going higher.

Back to state dependence. What is it going to feel like if the market goes down further? How will people behave if the S&P 500 gets to, say, 1,700?

I can tell you what it will be like if the S&P gets to 1,700. It’s going to be like it was in August of 2007 when my coworkers forgot to sell my VIX calls because they were buried under an avalanche of panicked sell orders from institutional money managers. Pre-algorithmic trading, the trading floor used to get pretty noisy. I used to be able to tell you what the market was doing just from listening to the floor. At SPX 1,700, trading floors will be very noisy.

It’s been so long since we’ve had a correction, I’m guessing that most people have forgotten what a correction feels like. When you go that long in between corrections, people are sitting on a mountain of capital gains. And unless the capital gains really start to disappear, there is little pressure to sell. But if you’re the owner of, say, airline stocks, and you’ve watched them evaporate to the tune of 30%, that tends to focus the mind a little bit.

As with any steep correction, there will be fantastic opportunities, but they will only be available to those who have capital. Remember, bear markets don’t just destroy the bulls’ capital, they destroy the bears’ capital, too.

Bear markets destroy everyone’s capital.

Jared Dillian

The article The 10th Man: What a Correction Feels Like was originally published at mauldin economics

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Where Should You Place Your Stops?

Identifying where stops exist in the market is an important lesson to learn because placing a correct stop loss will improve your trading tremendously over the course of time. Nobody knows for sure where stops should be located, however we have learned a couple of things over our 30 year career and we have a general idea where stops are placed and why.

Buy stops are generally placed above the 10 day high as well as above contract highs as the bulls generally are buying more and the short selling are getting stopped out. Sell stops are usually placed at the 10 day low as well as below contract lows which means the shorts are adding to their position and the longs are getting stopped out as they figure they are wrong. The other common places to have stops are at certain moving averages such as the 20 or 100 day moving average where traders think either the trend is turning bullish or the market is starting to break down.

Placing stops to close or not at important price levels can get very frustrating because the market can stop you out and then go the direction that you thought leaving you behind and out of the market. Placing stops is one of the most important aspects of trading in my opinion.

"What 10-Baggers (and 100-Baggers) Look Like"

Mid Week Market Summary - Gold, Dollar, Crude Oil , Natural Gas and Coffee

December Nymex crude oil closed up $1.49 at $94.85 today. Prices closed nearer the session high today and saw short covering in a bear market. Crude oil bears still have the overall near term technical advantage. A nine week old downtrend is still in place on the daily bar chart.

December natural gas closed up 3.3 cents at $3.499 today. Prices closed near mid-range today and saw short covering after hitting a contract low Tuesday. There was follow through buying today and a bullish “key reversal” up on the daily bar chart was confirmed. That is an early clue that a market bottom is in place for natural gas.

The December U.S. dollar index closed down 0.227 at 80.560 today. Prices closed nearer the session low. The greenback bears have the overall near term technical advantage. However, it still appears a near term market low is in place.

December gold futures closed up $8.90 an ounce at $1,317.00. Prices closed near mid-range in more quiet trading. The key “outside markets” were bullish for the gold market today as the U.S. dollar index was lower and crude oil prices were higher. The gold market bulls and bears are still on a level near term technical playing field.

And the world just wouldn't be right if we didn't include our favorite trade for 2013-14....coffee. December coffee closed down 230 points at 101.15 cents today. Prices closed near the session low and hit another contract low. The coffee bears have the solid overall near term technical advantage. However, this market is now way oversold on a short term technical basis, and due for at least a good corrective bounce very soon.


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Excellent Crop Conditions Give Coffee Bulls Little Hope

Is it our love for the "black stuff" that has us drawn to this coffee market? We continue to have hope of a bottom in this trade and so far....no such luck.

Our trading partner Mike Seery has some thoughts for us this week....

The coffee market continues to go absolutely nowhere but slightly lower on the weekly charts as prices hit a new 4 year low trading below their 20 and 100 day moving average with extremely low volatility closing this Friday in the March contract at 117.75 and I had been recommending to be buying coffee last week with a very tight stop and that trade did not work, however it was a relatively small loss. Volatility in coffee in my opinion is almost at all time lows as prices really are very quiet for such a volatile commodity.

The problem in coffee is the fact that global supplies are huge with excellent crop conditions around the world with the possibility of prices getting down to the 100 – 110 level and I do think if you’re lucky enough to get those prices & you’re a long term investor I would be buying at major yearly support. When prices hit this low people stop growing and that’s what causes higher prices and when higher prices come in farmers grow more and that’s what causes lower prices but sometimes it pays to be patient. Trend lower, chart structure excellent.

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Volatility in Syria = Volatility in the Markets. Risk off is ON!

The U.S. stock indexes closed solidly lower today on profit taking and amid a “risk-off” day in the world market place The U.S. appears poised to take military action against Syria, possibly within 48 hours, after the Syrian government regime used chemical weapons against its citizens. World stock markets sold off Tuesday on the jitters regarding Syria. There are worries any U.S. military intervention in Syria could escalate into further instability and violence in the already volatile Middle East. Emerging country financial markets and currencies also saw strains Tuesday amid the risk aversion in the market place. The Indian rupee hit another record low versus the U.S. dollar Tuesday.

October Nymex crude oil closed up $3.04 at $108.97 today. Prices closed nearer the session high today and hit a fresh contract high. Syria tensions have pushed oil sharply higher following U.S. Secretary of State Kerry's harsh condemnation of Syria Monday afternoon. Crude oil bulls have the strong overall near term technical advantage. Prices have now seen a bullish upside “breakout” from the choppy and sideways trading range at higher price levels.

December gold futures closed up $26.50 an ounce at $1,419.70 today. Prices closed nearer the session high and hit a nearly three month high today. Safe haven buying was featured, along with fresh technical buying interest. The key “outside markets” were also bullish for the gold market today, as the U.S. dollar index was lower and crude oil prices were sharply higher. The gold market bulls have the near term technical advantage. A two month old uptrend is in place on the daily bar chart.

October natural gas closed up 2.4 cents at $3.577 today. Prices closed near the session high. The nat gas bears still have the overall near term technical advantage. However, the bulls have gained a bit of upside momentum.

The September U.S. dollar index closed down .271 at 81.170 today. Prices closed near the session low. The greenback bears have the overall near term technical advantage. Prices are in a seven week old downtrend on the daily bar chart.

And you just have to know that we can't resist talking about coffee. December coffee closed down 110 points at 116.65 cents today. Prices closed near the session low today as prices hover near the recent contract low. The key “outside markets” were fully bullish for the coffee market today as the U.S. dollar index was lower and crude oil prices were sharply higher. Yet, the coffee market bulls could get no traction, which is another bearish clue for coffee. The coffee bears have the solid overall near term technical advantage.

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U.S. Dollar Safe Haven Demand Sends Crude Oil Lower....Much Lower

Gold and Silver on the Verge of Something Spectacular

Crude oil [August contract] closed down $2.93 a barrel at $78.52 today. Prices closed nearer the session low today and hit another fresh 8 1/2 month low. A bearish economic report out of China combined with a stronger U.S. dollar index and a downbeat assessment of the U.S. economy by the Federal Reserve combined to sink the crude oil market agaon today. The crude bears have the solid overall near term technical advantage.

Natural gas closed up 6.6 cents at $2.621 today. Prices closed near mid range today and saw short covering. Bulls and bears are on a level near term technical playing field.

Gold futures closed down $50.00 an ounce at $1,566.00 today. Prices closed near the session low and closed at a fresh three week low close as the bulls have faded badly. The key “outside markets” were fully bearish for gold today, as the U.S. dollar index was solidly higher while crude oil prices were sharply lower. Gold market bears have regained the overall near term technical advantage.

The September U.S. dollar index closed up 76 points at 82.51 today. Prices closed near the session high today and saw support on fresh safe haven demand after the FOMC's downbeat assessment of the U.S. economy and some weak China economic data. Bulls have the overall near term technical advantage and regained upside momentum today

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Crude Oil Breaks Through Strong Support Giving Crude Bears Downside Momentum

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Crude oil [August contract now] closed down $3.18 a barrel at $81.16 today. Prices closed near the session low today and hit a fresh 8 1/2 month low. A bearish weekly DOE report, a firmer U.S. dollar index and a downbeat assessment of the U.S. economy by the Federal Reserve combined to sink the crude oil market today. The crude bears have the solid overall near term technical advantage and gained fresh downside momentum today.

Natural gas closed down 1 1/2 cents at $2.559 today. Prices closed nearer the session low today after hitting a fresh four week high early on. Bulls have gained upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are on a level near term technical playing field.

Gold futures closed down $7.00 an ounce at $1,616.00 today in volatile trading. Prices closed nearer the session high and moved well up from the daily low of $1,590.50 following the FOMC statement. After an initial bearish reaction to the FOMC statement, traders digested the wording and reckoned the Fed has indeed laid the groundwork for more aggressive easing of monetary policy in the near future. The key “outside markets” were bearish for gold today as the U.S. dollar index was near steady but up from lower levels early today.

The September U.S. dollar index closed up 22 points at 81.81 today. Prices closed nearer the session high today and saw support on some fresh safe haven demand after the FOMC's downbeat assessment of the U.S. economy. Bulls have the overall near term technical advantage but are fading as prices have been trending lower for nearly three weeks.

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Fed "Hopes" Giving Bulls Some Fresh Upside Near Term Technical Momentum

The U.S. stock indexes closed higher today as the bulls are gaining some fresh upside near term technical momentum. The market place was calmer and in more of a “risk on” mentality Tuesday following the weekend Greek elections that have at least temporarily assuaged the European Union debt and financial crisis.

There were reports Tuesday that Greece will form a new coalition government as soon as Wednesday. Traders and investors are awaiting the conclusion of the U.S. Federal Reserve's Federal Open Market Committee meeting and its statement Wednesday afternoon. The Fed is determining its next course of U.S. monetary policy. Recent downbeat U.S. data has led to growing expectations for further easing of U.S. monetary policy.

Most reckon the Fed will implement some form of fresh easing of U.S. monetary policy at this week's meeting. The key will be how aggressive the Fed will respond with fresh easing.

All quotes are August contracts being reported.....

Crude oil closed up $0.85 a barrel at $84.45 today. Prices closed nearer the session high today and saw short covering in a bear market. The lower U.S. dollar index was also bullish for crude today. The crude bears still have the solid overall near term technical advantage.

Natural gas closed down 8.4 cents at $2.584 today. Prices closed nearer the session low today and saw a corrective pullback from recent solid gains. Prices did hit a fresh four week high early on today. Bulls have gained good upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are on a level near term technical playing field.

Gold futures closed down $3.10 an ounce at $1,623.90 today. Prices closed near mid range today and saw some profit taking pressure from recent gains and some position evening ahead of Wednesday's FOMC results. The key “outside markets” were bullish for gold today as the U.S. dollar index was sharply lower and crude oil prices were higher. Gold market bulls have the slight near term technical advantage.

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Just Like the Good Old Days....Crude Oil Down, Natural Gas Up

Crude oil closed down $1.05 a barrel at $83.00 today. Prices closed nearer the session low today and scored a bearish “outside day” down on the daily bar chart. The stronger U.S. dollar index weighed on crude oil prices today. The crude bears still have the solid overall near term technical advantage. There are still no early technical clues to suggest a market bottom is close at hand.

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Natural gas closed up 17.7 cents at $2.644 today. Prices closed near the session high again today and hit a fresh four week high. Short covering and bargain hunting were featured again today. Bulls have gained good upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are now on a level near term technical playing field.

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Gold futures closed down $0.70 an ounce at $1,627.30 today. Prices closed nearer the session high today on some chart consolidation following recent gains. The key “outside markets” were bearish for gold today as the U.S. dollar index was higher and crude oil prices were lower. Yet, gold managed to have only small losses, which does suggest safe haven demand for gold is present. Gold market bulls have the slight near term technical advantage.

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

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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.

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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.

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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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Gold Bulls Continue to Get Bad News, Now it's Lack of Physical Demand

Here is the simple truth about trends

Jon Nadler, senior analyst at Kitco.com, says the demand for physical gold has plummeted and smaller miners may need to alter their plans.



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Crude Oil and Gold Continue Strong Down Trend, Natural Gas Enjoys the Stronger Dollar

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Crude oil closed down $1.70 a barrel at $93.08 today. Prices closed near the session low today and hit a fresh 6 1/2 month low. The bears have the solid overall near term technical advantage and gained still more power today. A stronger U.S. dollar index today was bearish for the crude market. With a Trade Triangle Technology Score of -100, this market is in a strong downtrend. All traders should be in short positions in crude oil with appropriate money management stops.

Natural gas closed up 7.0 cents at $2.501 today benefiting from the U.S. Dollars solid upside and near term momentum and overall near term advantage over other currencies. Natural gas prices closed near the session high today and saw short covering. And while the nat gas bulls still have some upside "near term" technical momentum, the nat gas bears do still have the overall near term technical advantage, however.

Gold futures closed down $4.20 an ounce at $1,556.80 today. Prices closed near mid-range today and hit another fresh 4 1/2 month low. The key “outside markets” were again in a bearish posture for gold today, as the U.S. dollar index was higher and the crude oil market was lower. Serious near term chart damage has been inflicted recently. Gold bears have the solid near term technical advantage. With a Trade Triangle Technology Score of -90, the gold market is in a strong downtrend. All traders should still be in short positions in gold with appropriate money management stops.

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Bearish Pennant Pattern Forms on the Crude Oil Daily Bar Chart

Crude oil closed up $0.15 a barrel at $96.96 today. Prices closed near mid range today and saw tepid short covering in a bear market. The bears still have the overall near term technical advantage. A bearish pennant pattern has formed on the daily bar chart.

Natural gas closed up 1.6 cents at $2.481 today. Prices closed near mid range today and hit another fresh six week high. The bulls have gained some fresh upside near term technical momentum this week. The bears do still have the overall near term technical advantage, however.

Gold futures closed up $1.90 an ounce at $1,596.10 today. Prices closed near mid range and tried to stabilize and consolidate today. Prices Wednesday hit a 17 week low. Serious near term chart damage has been inflicted this week. Gold bears have the solid near term technical advantage. A nine week old downtrend is in place on the daily bar chart.

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Crude Oil Trends Appears to Change....Ball is in the Bulls Court

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Crude oil closed higher on Tuesday and above the reaction high crossing at 105.50 confirming that a short term trend change has taken place. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If June extends today's rally, the reaction high crossing at 109.13 is the next upside target. If June renews the decline off March's high, the 38% retracement level of the October-March rally crossing at 98.14 is the next downside target. First resistance is today's high crossing at 106.43. Second resistance is the reaction high crossing at 109.13. First support is April's low crossing at 101.22. Second support is the 38% retracement level of the October-March rally crossing at 98.14.

Natural gas closed higher on Tuesday as it extended the rally off April's low. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If June extends the rally off last week's low, the reaction high crossing at 2.607 is the next upside target. Closes below the 10 day moving average crossing at 2.134 would signal that a short term top has been posted. If June renews the multi year decline, monthly support crossing at 1.620 is the next downside target. First resistance is today's high crossing at 2.385. Second resistance is the reaction high crossing at 2.607. First support is the 10 day moving average crossing at 2.134. Second support is the reaction low crossing at 1.982.

Gold closed slightly higher on Tuesday and the mid-range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bullish signaling sideways to higher prices are possible near term. Closes above the reaction high crossing at 1699.60 are needed to confirm that a short term low has been posted. If June renews the decline off February's high, the 75% retracement level of the December-February rally crossing at 1595.00 is the next downside target. First resistance is the reaction high crossing at 1681.30. Second resistance is the reaction high crossing at 1699.60. First support is April's low crossing at 1613.00. Second support is the 75% retracement level of the December-February rally crossing at 1595.00.

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Gold Bears Still Have the Advantage Despite a Bullish Spike on Thursday

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June crude oil closed up $0.46 a barrel at $104.57 today. Prices closed nearer the session high again today. Bulls and bears are on a level near term technical playing field, but the bulls are having a good week.

June natural gas closed down 4.0 cents at $2.13 today. Prices closed near the session low but did hit a fresh three week high early on today. The bears still have the overall near term technical advantage. There are still no early clues to suggest a market low is close at hand.

June gold futures closed up $18.00 an ounce at $1,660.40 today. Prices closed nearer the session high today and hit a fresh two week high. Short covering and bargain hunting were featured today. The key “outside markets” were in a mildly bullish posture for gold today as the U.S. dollar index was weaker and crude oil prices were firmer.

Gold bears have the slight overall near term technical advantage. Prices still are in a two month old downtrend on the daily bar chart.

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Crude Oil Bulls and Bears Move into a Level Playing Field For Thusrday

June crude oil closed up $0.57 a barrel at $104.11 today. Prices closed nearer the session high today. Bulls and bears are on a level near term technical playing field amid choppy trading.

June natural gas closed up 12.5 cents at $2.188 today. Prices closed near the session high and hit a fresh two week high today. Short covering in a bear market was featured. The bears still have the overall near term technical advantage. There are still no early clues to suggest a market low is close at hand.

The June U.S. dollar index closed down 18 points at 79.14 today. Prices closed nearer the session low today and hit another fresh three week low. Bears have gained the slight near term technical advantage.

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Crude Oil Finishes Higher on Positive Market News

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Crude oil closed up $0.39 a barrel at $103.50 today. Prices closed near mid range again today. Bulls and bears are on a level near term technical playing field. The next near term upside price breakout objective for the crude oil bulls is producing a close above solid technical resistance at $106.00 a barrel.

Natural gas closed down 3.2 cents at $2.064 today. Prices closed near the session low today. Prices Friday hit a contract and 10 year low. The bears have the solid overall near term technical advantage. There are still no early clues to suggest a market low is close at hand.

Gold futures closed up $11.80 an ounce at $1,644.40 today. Prices closed near mid-range today and saw short covering and bargain hunting. The key “outside markets” were in a bullish posture for gold today as the U.S. dollar index was weaker and crude oil prices were firmer. Gold bears still have the overall near term technical advantage. Prices are still in a seven week old downtrend on the daily bar chart.

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