Crude oil bulls maintain a "weak" technical adavantage

September Nymex crude oil closed up $0.04 at $106.87 today. Prices closed nearer the session high today. Bulls have the overall near term technical advantage mostly due to supply disruptions in Libya and escalating violence in Egypt..

September natural gas closed up 5.7 cents at $3.342 today. Prices closed near mid range today on more short covering. Prices last week hit a 13 1/2 month low. The natural gas bears still have the solid near term technical advantage, but may now be exhausted following the recent selling pressure. Prices are in a steep three month old downtrend on the daily bar chart.

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December gold futures closed up $12.00 an ounce at $1,332.50 today. Prices closed nearer the session high and saw more short covering and bargain hunting. Gold bears still have the overall near term technical advantage.

The September U.S. dollar index closed down .060 at 81.775 today. Prices closed near mid range in quieter trading today. The bears still have the overall near term technical advantage. Prices are in a five week old downtrend on the daily bar chart.

Can't forget our favorite trade for 2013.....October sugar closed down 3 points at 17.22 cents today. Prices closed near mid range today and saw mild profit taking from recent gains as prices Tuesday hit a six week high. The sugar bears still have the overall near term technical advantage. However, prices are in a three week old uptrend on the daily bar chart.

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Phil Flynn: Can Turkeys Lay Eggs?

Well can turkeys lay eggs? We know that can't fly. Can they? Well even if they can't, there is plenty of egg laying going on whether you are focusing on the purchasing manger data in China and Europe and perhaps what may be a bit more disturbing is the subpar German bund auction.

China PMI readings fell to 48 from 51 in October, the biggest month over month drop in over 32, hitting the lowest level since march of 2009. Germany's 10 year auction was not well received to say the least with 35% of the bunds unsold. Still the yield in Germany at 1.98%. is much better than say a country like Spain which currently is around 7%, yet Germany is supposed to be the strong economy in Europe. The lack of interest in this auction shows that the market believes it will be up to Germany to take on the debt of its less than, shall we say, industrious neighbors. Or is it because German Chancellor Angela Merkel challenged the effectiveness of the common European bond.

Add to that a subpar reading on Eurozone manufacturing that surprisingly contracted coming it at a less than expected at 47.9, below a forecast of 50.1. But the country’s flash services PMI was up at 51.4 against an expected 46.6. What was more disturbing was that industrial new orders showed the largest decline since records began in 2005, coming in at a -6.4 and was only expected to fall -2.4.

After data like that it is no wonder that the US is calling for more stress tests on our banks to head off what might be a crisis in the Euro Zone that may be already impacting China and may threaten the economic data in the US that, as of late, has been over whelming positive. With all of this uncernatainty is it any wonder why OPEC is trying to hang onto their existing production quotas despite the fact that if Europe rolls over and China slows, there might be a slowdown in demand. Oh sure, in the short term despite the slowdown in manufacturing China demand will remain solid as the country is trying desperately to keep ahead of distillate demand ahead of winter. Yet perhaps the flattening of the crude curve may be signaling tougher demand times ahead.

OPEC Secretary General Abdalla Salem el-Badri told said, "Prices are comfortable" for both producers and consumers. What consumers he talked to I am not sure. They are probably not in China or Europe. Ali Naimi, the Oil Minister of Saudi Arabia, said he is "very happy" with oil prices. If Ali is happy then OPEC is happy. Don't you feel better?

Dow Jones says that in the first half of 2012, demand for OPEC crude is expected to fall by more than 1.3 million barrels a day, compared with the fourth quarter of 2011, to an average of 29.29 million barrels day, according to the group's latest report. That is lower than OPEC's current production of about 30 million barrels a day.

Now all of this bad economic news and uncertainty, while bearish, might have been wildly bearish if it were not for the worries surrounding Iran and Egypt. Sanctions and increased pressure on Iran, as well as the uncertainty surrounding Egypt, is raising the geopolitical risk premium. So instead of oil prices crashing we may see the market try to stabilize or rebound. That may be even more true because of the impending turkey day holiday as traders give thanks that they are not Europe. Besides, with the geo-political risk, being short over an extended holiday with global supply risk possibilities does not go well with cranberries or pumpkin pie. We should see some short covering before the end of the day.

Products have been getting support because of the renewed interest in Brent as well as strong global demand for distillate and a rebounding appetite for gas ahead of the holiday. Today we get both the Energy Information Agency petroleum stocks as well as the natural gas storage. The American Petroleum Institute reported that crude oil inventories tanked by a stunning 5.57 million barrels. Yet what we lost in crude we gained in gas, rising by 5.42 million barrels. That increase is the bonus from strong distillate production that led to a drop of 886,000 barrels.

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Phil Flynn: Arab Spring Sprung

Ah another sign of spring. No, not the weather but the Arab spring. While oil got slammed yesterday on European Sovereign debt woes and fears that France may get a downgrade, the focus today may be on a new round of sanctions on Iran and another revolution in Egypt.

Oh sure it helps too that the rating agencies reaffirmed the US credit ratings after the Super Committee seemed to lose its super powers. Reuters News said, "rating agencies Standard & Poor's and Moody's said there will no immediate downgrade of their credit ratings on the United States due to the failure of a congressional "super committee" to reach an agreement on debt reduction. But Fitch, the third leading ratings agency, which currently has the most positive rating of the three on U.S. debt, said it could cut the outlook on its triple-A" rating, with a downgrade an outside possibility."

Yet while gold and silver plummeted, oil prices fought back off the lows despite the pressure in the outside markets as pictures of violence in Egypt flashed across the TV screen. Word that protesters were demanding an end to the military rule that has been in place since Hosni Mubarak was deposed caused the country's interim cabinet to resign. Yet the masses in the second Egyptian revolution don't seem to be buying it and appear even more determined than some of the "Occupy Wall Street" folks......Read Phil's entire article.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Just When the Bears Think They are Home Free, Mr. Market Reminds Them Who is in Charge

While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. Mr. Market has had an appetite for S&P 500 bears for several months now. In each instance in which the bears think they are going to get away, Mr. Market draws up his high powered rifle and drops the bears just before they can comfortably return to their caves. Just when the bears think they have escaped and are home free, Mr. Market reminds them who is in charge.

However, Mr. Market’s appetite for oil bears has diminished tremendously over the past week as the U.S. Dollar and geopolitical news coming out of Egypt pushed oil prices lower. Mr. Market’s appetite is always changing it would seem, but right now he is enamored with S&P 500 bear meat and not really that interested in the oily bear meat. The question remains whether his tastes will change in the near term, or if he will continue to turn S&P 500 bears into fodder and steak.

S&P 500
With all metaphors and short stories aside, the price action in the S&P 500 for the past several months has been devastating for bears. Going back to November of 2010, every key resistance level ended up being taken out by the bulls and prices pushed higher and they push higher still. Last Friday’s close pushed prices to new recent highs and in time prices may challenge long term overhead resistance levels. The table below shows just how extended the equity market is:

As can be seen above, 82.73% of all stocks are currently trading above their 200 period moving average and over 68% of equities are above the 20 and 50 period moving averages. While this certainly does not mean that prices are going to rollover, it is hard to refute the conclusion that prices in the equity market are overbought.

A quick glance at the SPX daily chart reveals the recent price action.

It is obvious when looking at the SPX daily chart that prices are extended to the upside in this bull market run. However, as I pointed out in a recent article the distance between current price action and the 200 period moving average is significant. There is a total of 167.79 SPX points between Friday’s close at 1329.15 and the 200 period moving average at 1161.36. Based on Friday’s closing price a reversion to the mean (200 period moving average) would produce a decline of around 12.62%. The SPX weekly chart is shown below:

It is worthy of note that the May 2008 swing high of 1,440 coincides with the upper band of the rising channel that is obvious when looking at the weekly chart of SPX. While price action may or may not get to SPX 1,440 during this bullish run higher, it is likely not coincidental that both key trend lines coincide at the same price point. The intersection of the long term rising trend lines corresponding with the upper band of the current rising channel and the 1,440 swing high may be something of import, or it might turn out to be nothing. However, it certainly is an eery coincidence on the chart if you believe in coincidences.

I am still convinced that stocks need to pullback at some point if they are to continue higher. Consolidation or a 5-10% correction would likely be healthy for the market and might prove to be a launchpad for another thrust higher in price. From the underlying strength in the domestic market, a correction or pullback will likely be an opportunity to get long barring price breaking down through the lower level of the rising channel located on the weekly chart.

I am not sure that I am going to get involved in the short side if we see bearish price action in coming weeks, instead I will likely be looking for opportunities to get long equities at more attractive prices. Right now risk to the downside appears to be increasing as the S&P 500 continues to probe higher.

Light Sweet Crude Oil
Oil prices surged when Egyptian protests intensified and have sold off recently as President Mubarak has stepped down and demonstrations have turned into nationwide celebrations. In addition, the U.S. Dollar has strengthened considerably the past few days which has also put price pressure on oil. The daily chart of light sweet crude oil futures is illustrated below:

Oil price are hanging onto a key support level by a thread and price action in the coming week could see prices push lower through the support area and an eventual test of the 200 period moving average. I am not considering a short in oil, but I am looking at lower prices as a solid risk / reward long entry. I am going to be patient, but envision building a longer term trade using options to profit from a possible rally after putting in a clear bottom.

Right now, price could hold above current support levels and bounce higher, but I think the more likely scenario is a brief bounce early this week and then a flush out lower running stops and reaching panic level selling. As is customary for my trading methodology, I will be looking to buy into panic selling should that take place, however at this point I am not interested in getting involved just yet. I intend to remain cautious and will patiently wait for a low risk, high probability trading setup to emerge. Until then, I will be watching the price action from the sidelines letting others do the heavy lifting.

Conclusion
While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. The question continues to remain how long will Mr. Market punish the short traders in equities while rewarding them in the oil futures pits. Mr. Market may be losing his appetite for bear meat in equities and he might just decide to feast on some bears covered in oil. Time as usual will be the final arbiter, but for right now I’m sitting on the sidelines waiting for Mr. Market to tell me his next order.

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Is Gold Playing Out The "Buy The Rumor Sell The News" Trade?

Do any of us really believe our fearless leader at the Federal Reserve when he makes statements like "we are not seeing any inflation". We think most traders and even the average investor knows this is just not true. As countries like Egypt see food prices surging. Over the past couple years everyone has been talking about how inflation will soon start and that has been one of the main driving forces for higher precious metals prices.

As we all know the market does the opposite as to what the majority of investors are doing. And while everyone has been buying metals in anticipation of inflation, we find it amusing how inflation for the first time is clearly presented on TV (Egypt issues) and we see gold and silver trading lower than they were a month ago. Seems like the buy the rumor sell the news lives is playing out. But the question everyone is starting to ask is how far will the metals correct?

We do not think they will drop much further but we do think it’s going to take 6-8 months before we see new highs in both gold and silver. They have had a nice run but now it looks as though they may cool off for a while. We could see some strength in the dollar for a little while and that should keep some pressure on metals even though inflation is clearly starting to show up around the world. Then the metals should start to climb the wall or worry again.

Below you'll find our updated charts on gold, silver and the gold miners index. Not much has really changed from last week analysis other than both gold and gold miners are getting deeper into a resistance level forming a bear flag pattern.

Gold Daily Chart
Gold is working its way up into a key resistance level and forming a possible bear flag.

Silver Daily Chart
Silver has been testing its key resistance level for a few days. It is normal to see silver push the limits and make larger moves simply because it is thinly traded and much more volatile. It looks ripe for a pullback at this area.

Gold Miners Daily Chart Index
Gold stocks have put in a nice bounce from the strong selling in January. As it pushes up into a resistance level it’s starting to look more attractive as a short play also. I still think the market has a couple more days to upward/chop before metals see possibly another thrust down, but that also depends on what the dollar does this week. The dollar does look ready to rally this coming week and that will put pressure on metals.

Conclusion For Gold Trading This Week:
In short, we an still neutral to bearish on gold, silver and gold stocks. Last week’s report showed these same patterns and it takes time for patterns to mature. The market always tends to take longer than we think to start a move.

At the moment we are waiting for metals to form a low risk entry point which looks to me like we could take a short position for another downward thrust in the market unfolds as the charts are hinting to before we buy gold for another long term hold as inflation rises.

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Higher Food Prices Supports Gold....Can it do the Same for Crude Oil?

Crude oil is trading slightly higher as oil is trying to recover from Fridays beating on disappointing U.S. non-farm payrolls data, still below the psychological barrier of $90. But gold takes the center stage with commodity traders again as higher food prices gives gold bulls a reason to cheer. Higher food prices usually supports gold prices due to increased inflation and political unrest like we are seeing in Egypt. And traders are asking "Is OPEC member Algeria next?" as food prices there soar.

Crude oil stochastics and the RSI are turning bearish hinting that a short term top might be in or is near. Closes below the 10 day moving average crossing at 89.13 would temper the near term friendly outlook. If March renews the rally off January's low, January's high crossing at 93.46 is the next upside target. First resistance is last Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 10 day moving average crossing at 89.13. Second support is January's low crossing at 85.11. Crude oil pivot point for Monday morning is 89.72.

Natural gas gapped down and was lower overnight as it renewed the decline off January's high. Stochastics and the RSI are oversold but are bearish signaling that additional weakness is possible near term. If March renews the decline off January's high, the 75% retracement level of the October-January rally crossing at 4.097 is the next downside target. Closes above the 20 day moving average crossing at 4.453 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 4.372. Second resistance is the 20 day moving average crossing at 4.453. First support is the overnight low crossing at 4.187. Second support is the 75% retracement level of the October-January rally crossing at 4.097. Natural gas pivot point for Monday morning is 4.322.

Gold was lower overnight as it consolidates some of the rally off January's low. Stochastics and the RSI remain bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1353.20 are needed to confirm that a short term low has been posted. If February renews the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 20 day moving average crossing at 1353.20. Second resistance is the reaction high crossing at 1394.70. First support is January's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Monday morning is 1351.80.


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How Much Violence is to Much Violence For Crude Oil Prices?

World oil markets took prices higher overnight as pro Mubarak demonstrators took the streets of Egypt Thursday bringing a new level of violence and adding to the tension. But the added tension does not appear to get the attention of Suez Canal operators or customers as the canal maintains it's normal 50 ships a day average. 49 on Thursday and even 56 one day this week. Traders in the U.S. still seem to be more concerned with gasoline inventories being at an 18 year high in this country.

Maybe the news should be focused on the natural gas trade at this point. Record cold temps in my region, the desert southwestern U.S., have us experiencing natural gas shortages. A wake up call for those calling for wide spread use of natural gas as a vehicle fuel. We have a lot to do in the form of getting infrastructure in place before we can even begin to make that move. Is Washington listening? Gold may be the trade of the day as gold miner stocks continue to under perform. Gold stocks underperformed the price of gold this week and are also forming a bearish chart pattern. If this plays out then we can expect another sizable pullback in both gold stocks and the price of gold because this index typically leads the gold. And it looks like Fridays employment data will be front and center for gold and the markets today.

But we are ready and here is our numbers for the last day of trading this week......

Crude oil was slightly higher overnight as it extends this week's trading range. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term. If March renews the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 89.14 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 20 day moving average crossing at 90.20. Second support is the 10 day moving average crossing at 89.14. Crude oil pivot point for Friday morning is 90.86.

Natural gas was steady to slightly higher overnight as it consolidates below key resistance marked by the 20 day moving average crossing at 4.463. Stochastics and the RSI are oversold but are neutral hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 4.463 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. First resistance is the 20 day moving average crossing at 4.463. Second resistance is the reaction high crossing at 4.601. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Friday morning is 4.386.

Gold was lower overnight as it consolidates some of Thursday's rally. Stochastics and the RSI are bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1354.45 are needed to confirm that a short term low has been posted. If February renews the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 20 day moving average crossing at 1354.45. Second resistance is the reaction high crossing at 1394.70. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Friday morning is 1345.00.


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Crude Oil Cools Off While Gold Never Even Warmed up.....Is Gold Going Lower Yet?

It seems the announcement by Egyptian President Hosni Mubarak to step down by not running for office in September has given commodity traders some reason to take pressure off of oil prices. But where was gold in all of this? Why didn't gold rocket higher like it has during every other middle east crisis over the last 60 years? Despite all the turmoil in Egypt and the Arab world, gold has stubbornly refused to rally. This probably causes great concern amongst the gold bugs and the folks who are bullish on gold. As we have mentioned before many times on this blog, "perception is more powerful than fundamentals."

While the gold permabulls argue that the market is being manipulated, we are more realistic and respect what the market is actually doing. The big question on everyone's mind is....Why are food prices and other commodity markets soaring, while gold is plummeting into the $1,330 area? Our best estimation at this point in time is that we are going to see more sideways action and probably some recovery from current levels. However, we would like to see some concrete evidence that the market has actually put in a low and that we will see a recovery in this yellow metal in the future.

In todays short video, we explained what we mean and show you some concrete examples of our strategy and how to make money on this move lower in gold. And of course we have your pivot, support and resistance numbers for crude oil, natural gas and gold for Wednesdays trading......

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Crude oil was higher overnight as it consolidates some of Tuesday's decline. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If March extends the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 88.88 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 20 day moving average crossing at 90.20. Second support is the 10 day moving average crossing at 88.88. Crude oil pivot point for Wednesday morning is 91.18.

Natural gas was higher overnight as it consolidates some of the decline off January's high. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 10 day moving average crossing at 4.481 are needed to confirm that a short term low has been posted. If March extends the decline off January's high, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. First resistance is the 20 day moving average crossing at 4.469. Second resistance is the 10 day moving average crossing at 4.481. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Wednesday morning is 4.364.

Gold was lower overnight but continues to consolidate above the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Stochastics and the RSI are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1356.90 are needed to confirm that a short term low has been posted. If February extends the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 10 day moving average crossing at 1337.50. Second resistance is the 20 day moving average crossing at 1356.90. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Wednesday morning is 1336.80.

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