Nonfarm Payrolls This Friday Could Dampen Commodities

Overall this week has not been that exciting. Volume is below average as the big money traders slowly get back into action and wait for Fridays economic data to come out.

We have seen gold, silver and oil put in a nice rally this week but they are still not in the clear. If we get flat or better unemployment numbers we should see the US dollar rally. This seems to be exactly what the chart is telling us when using technical analysis. Here are the numbers for Friday.

Friday unemployment numbers come out for both the US & Canada.
7:00 AM ET – Canadian Unemployment Rate, Forecast 8.5%, Previous 8.5%
8:30 AM ET – USD Nonfarm Payrolls, Forecast 0%, Previous -11K
8:30 AM ET – USD Unemployment Rate, Forecast 10.1%, Previous 10%

Here is a table I created for understanding what economic data moves stocks, bonds, US$ and gold: http://www.thegoldandoilguy.com/Economic-Indicators.pdf

US Dollar Daily Trend
The current trend of the dollar is now up when looking at the daily chart (higher highs and lows). The strong price thrust in December has formed a nice flag pattern. This is a continuation pattern meaning the dollar should continue higher once this pause is complete.



Gold Futures Trading Trend – 60 Minute Candle Chart
As you can see from the chart below gold has made a short term bottom and is trading at a major resistance level. The question is, does gold reverse and head sharply lower or does it break through the resistance level?

Could this be the start of a new leg higher or a C wave lower (ABC retrace)?
I hope it is an ABC retrace which is a bullish price pattern and it flushes out the weak positions before heading higher.

These are questions no one knows for sure but understanding where the current price is trading and that volatility could pick up very quickly in the next couple days is crucial. When volatility is about to increase managing your open positions or adjusting any possible new trades is an important part of being a successful trader.

Rule #1 Keep overall risk per trade low
If volatility is about to increase I usually trade smaller positions unless I am in the zone and feeling the markets each and every move.

Rule #2 Never let a winning trade turn into a loser
I scale out of positions a little quicker during volatile times to lock in a small profit (20-30% of position) which minimizes my overall risk. This also alleviates some stress as you now have a small profit and you feel good mentally.



Crude Oil – Daily Trend Trading Chart
Many of us have had a great run with oil. Some of us traded the USO fund which is equivalent to buying oil at $71. Volatility was high during the time of the trade so we scaled out of the position at $75, $77.50 and $80. Some of you still have a small core position still in place which is fantastic to see!

Currently oil looks long in the teeth and ready for a pullback which could end up working perfect with Friday’s Economic news. Only time will tell so lets take it one candle at a time.



Commodity Trend Trading Conclusion:
In short, this is the first week of the year with light volume as traders get back in the groove and wait for 2010’s first big economic news to hit the wires. No many of us want to stick their necks out just yet.

I don’t know what will happen but my thoughts are the news will be positive, even if its not. Some very well educated individuals think the unemployment numbers are false giving everyone the impression things are getting better. I don’t really know what to think, but I did just see Mr. Moores most recent file on Tuesday and I think it is very possible the US is pulling a long con on Americans. All I can say is thank god I’m Canadian Eh! lol

Anyways if the numbers are positive we will see money move into the US dollar, gold and oil will reverse back down. Stocks I think are decoupling from the inverse relationship with the dollar and if that is the case stocks should do well.

Trading before big news can be deadly so I continue wait until Friday or next week before doing much.

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Where is Crude Oil Headed on Thursday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.




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Natural Gas Advances to One Year High on Cold Weather Forecast

Natural gas futures rose to their highest settlement price in a year, exceeding $6 per million British thermal units as cold weather across the U.S. lifted demand for heating fuel. Temperatures in St. Louis, Memphis and Dallas will be below normal for the next week, according to a forecast from MDA Federal Inc.’s EarthSat Energy Weather. Cold weather in recent weeks cut a stockpile surplus to 14 percent for the week ended Dec. 25 from 16 percent at the start of the month. “Storage is going from materially oversupplied to more manageable inventory levels,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “It looks like it’s going to continue to be pretty cold here.”

Natural gas for February delivery advanced 37.2 cents, or 6.6 percent, to settle at $6.009 per million Btu at 2:50 p.m. on the New York Mercantile Exchange. The price was the highest since Jan. 5, 2009. The Energy Department may say tomorrow that U.S. stockpiles dropped 155 billion cubic feet last week, based on the median of 21 analyst estimates compiled by Bloomberg. The “seasonal norm” withdrawal is 83 billion, Scott Speaker, JPMorgan Chase & Co.’s natural gas strategist in New York, said in a note to clients yesterday. “We see a net withdrawal of 144 billion cubic feet, a draw that would significantly tighten the current year over year surplus and the surplus compared to the past five year average,” he said.....Read the entire article.

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Crude Oil Bulls Take a Clear Near Term Advantage

Crude oil closed sharply higher on Wednesday and spiked above October's high crossing at 83.19. The high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If February extends this rally, the 38% retracement level of the 2008 decline crossing at 84.82 is the next upside target. Closes below the 10 day moving average crossing at 79.18 would signal that a short term top has been posted. First resistance is today's high crossing at 83.52. Second resistance is the 38% retracement level of the 2008 decline crossing at 84.82. First support is the 10 day moving average crossing at 79.18. Second support is the 20 day moving average crossing at 76.22.

Natural gas closed sharply higher on Wednesday and the high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are turning neutral to bullish with today's rally signaling that sideways to higher prices are possible near term. If February resumes the rally off December's low, the 87% retracement level of this fall's decline crossing at 6.077 is the next upside target. Closes below the 20 day moving average crossing at 5.626 are needed to confirm that a short term top has been posted. First resistance is last Tuesday's high crossing at 6.038. Second resistance is the 87% retracement level of this fall's decline crossing at 6.077. First support is the 10 day moving average crossing at 5.798. Second support is the 20 day moving average crossing at 5.626.

The U.S. Dollar closed lower on Wednesday and below the 20 day moving average crossing at 77.68. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term. Closes below Tuesday's low crossing at 77.39 are needed confirm that a short-term top has been posted. If March renews the rally off November's low, the 38% retracement level of the 2008-2009 decline crossing at 79.72 is the next upside target. First resistance is the reaction high crossing at 78.77. Second resistance is the 38% retracement level of the 2008-2009 decline crossing at 79.72. First support is today's low crossing at 77.59. Second support is Tuesday's low crossing at 77.39.

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Phil Flynn: Baby You Can Park my Car

Baby you can park my car. Yes it might even start, baby you can park my car and baby it is still cold outside. America hibernates and parks their cars as gas consumption hits a 13 month low. The drop in demand led to big surge in gasoline inventories according to two widely followed industry reports.

The first hint that America seemed to stay home for the holidays came from the MasterCard Spending pulse report that showed that gasoline purchases fell to 8.93 million barrels a day which was down 3.5% from the week before and the lowest level of gasoline demand since September 2009. That drop in demand probably explains why in another report by the American Petroleum Institute that showed gasoline inventories surged by 5.58 million barrels.

These reports suggest the obvious, bad weather and the holidays had an adverse impact on gasoline demand. Yet it may also show that demand may still be a bit price sensitive. Retail gas prices also surged last week as the national average pump price rose 4 cents last week to $2.62 a gallon. That according to Bloomberg is 63% higher than it was a year ago at this time.

Of course the increase in price should help inspire a bit more refinery activity. The February gasoline crack spread that indicates the profitability for a refiner to turn crude into gas, improved to $7.48 cents up 65 cents from the beginning of the week. For heating oil the crack spread tightened a bit but is trading at $10.49 cents. Improving margins hopefully will get refiners back in the game producing more product to meet what we hope will be an improving demand picture.....Read the entire article.

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Oil Falls From 14 Month High on Unexpected U.S. Supply Gain

Crude oil fell from a 14 month high after a U.S. Energy Department report showed that supplies unexpectedly increased as refineries reduced operating rates and imports gained. Stockpiles climbed 1.33 million barrels to 327.3 million in the week ended Jan. 1. Supplies at Cushing, Oklahoma, where New York traded West Texas Intermediate oil is stored, surged to the highest level since tracking began in 2004. Imports rose to the highest amount since November as refinery utilization rates dropped to the lowest total since that month.

“This report shows that there is plenty of crude oil on hand,” said Michael Fitzpatrick, vice president of energy with MF Global in New York. “There are also enough shut refinery units to meet any increase in fuel demand.” Crude oil for February delivery dropped 50 cents, or 0.6 percent, to $81.27 a barrel at 10:47 a.m. on the New York Mercantile Exchange. Oil traded at $82.47, the highest since Oct. 14, 2008, before the release of the report at 10:30 a.m. in Washington. Prices are up 67 percent from a year ago. Stockpiles of crude oil were forecast to decline 1 million barrels, according to the median estimate of 15 analysts surveyed by Bloomberg News.....Read the entire article.

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Crude Oil Stockpiles Unexpectingly Climb by 1.3 Million Barrels

Crude inventories and gasoline supplies rose last week, the government said Wednesday. Crude inventories rose by 1.3 million barrels, or 0.4 percent, to 327.3 million barrels, which is half a percent above year ago levels, the Energy Department's Energy Information Administration said in its weekly report. Analysts had expected a drop of 1.6 million barrels for the week ended Jan. 1, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline inventories increased by 3.7 million barrels, or 1.7 percent, to 219.7 million barrels. That was above analyst expectations and 2.9 percent above year ago levels. Demand for gasoline over the four weeks ended Jan. 1 was 0.3 percent higher than a year earlier, averaging nearly 9 million barrels a day. At the same time, U.S. refineries ran at 79.9 percent of total capacity on average, a drop of 0.4 percentage point from the prior week. Analysts expected capacity to build to 81.05 percent.

Inventories of distillate fuel, which include diesel and heating oil, fell by 300,000 barrels to 159 million barrels for the week ended Jan. 1. Analysts expected distillate stocks to drop by 1.8 million barrels. Crude prices fell 72 cents to $81.05 per barrel on the New York Mercantile Exchange.....Read the entire article.

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Crude Oil Trades Lower on Overnight Profit Taking

Crude oil was slightly lower due to light profit taking overnight as it consolidates some of the rally off December's low. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term.

If February extends this rally, the reaction high crossing at 82.28 is the next upside target. Closes below the 20 day moving average crossing at 76.14 are needed to confirm that a short term top has been posted.

Wednesday's pivot point, our line in the sand is 81.57

First resistance is Tuesday's high crossing at 82.00
Second resistance is the reaction high crossing at 82.28

First support is the 10 day moving average crossing at 79.02
Second support is the 20 day moving average crossing at 76.14

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Natural gas was higher due to short covering overnight but remains below broken support marked by the 10 day moving average, which crosses at 5.772. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term.

Closes below the 20 day moving average crossing at 5.613 are needed to confirm that a short term top has been posted. If February resumes December's rally, the 87% retracement level of the October-December decline crossing at 6.077 is the next upside target.

Natural gas pivot point for Wednesday is 5.703

First resistance is last Tuesday's high crossing at 6.038
Second resistance is the 87% retracement level of the October-December decline crossing at 6.077

First support is the 20 day moving average crossing at 5.613
Second support is last Thursday's low crossing at 5.505

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The U.S. Dollar was higher due to short covering overnight but remains below initial support marked by the 10 day moving average crossing at 78.13. Stochastics and the RSI are bearish hinting that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 77.69 are needed to confirm that a short term top has been posted. If March renews last month's rally, the 38% retracement level of the 2008-2009 decline crossing at 79.72 is the next upside target.

First resistance is the 10 day moving average crossing at 78.13
Second resistance is the reaction high crossing at 78.77

First support is the 20 day moving average crossing at 77.69
Second support is Tuesday's low crossing at 77.39

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Crude Oil and Natural Gas Technical Outlook For Wednesday Morning

Nymex Crude Oil (CL)

Crude oil is still bounded in tight range below 82.0 resistance for the moment and with 4 hours MACD crossed below signal line, intraday bias is turned neutral for the moment. Some more consolidations could be seen and a deeper retreat cannot be ruled out. But downside should be contained by 77.83 support and bring rally resumption. Firm break of 82.0 will will confirm that whole medium term rise from 33.2 has resumed and should target next key resistance level at 90. However, considering mild bearish divergence condition 4 hours MACD, break of 77.83 will indicate that rise from 68.59 has possibly completed and will turn bias back to the downside and bring deeper fall.

In the bigger picture, the strong rally from 68.59 and sustained trading above 55 days EMA argues that whole medium term rise from 2009 low of 33.2 is still in progress for another high above 82.0. Above this 82.0 will target next key cluster resistance level at 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. Nevertheless, we'll continue to look for reversal signal as rise from 33.2, which is treated as correction to whole fall from 147.27, is expected to conclude inside 76.77/90.24 fibo resistance zone. On the downside, though, break of 68.59 is needed to revive the case that crude oil has topped out in medium term. Otherwise, outlook will be neutral at worst even in case of deep pull back.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

Nymex Natural Gas (NG)

Intraday bias in natural gas is still neutral as consolidation from 6.035 continues. Some more sideway trading could be seen but after all, we'd expect 5.29 resistance turned supprot, which is close to 38.2% retracement of 4.157 to 6.035 at 5.319, to hold and bring rally resumption. Break of 6.035 will target 38.2% retracement of 13.694 to 2.409 at 6.72 next.

In the bigger picture, medium term fall from 13.69 is treated as part of the long term consolidation pattern that started at 15.78 back in 2005 and might have completed at 2.409 already. Rise from 2.409 is still in progress and should target 38.2% retracement of 13.694 to 2.409 at 6.72 and beyond. On the downside, break of 4.157 support is needed to indicate that medium term rise from 2.409 has completed. Otherwise, outlook is neutral at worst even in case of deep pullback..... Nymex Natural Gas Continuous Contract 4 Hours Chart.

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Gasoline Extends Rally Off December's Low

Unleaded gas closed higher on Tuesday as it extends the rally off December's low. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term.

If February extends this rally, October's high crossing at 213.53 is the next upside target. Closes below the 20 day moving average crossing at 195.81 are needed to confirm that a short term top has been posted.

First resistance is today's high crossing at 212.70
Second resistance is October's high crossing at 213.53

First support is the 10 day moving average crossing at 202.09
Second support is the 20 day moving average crossing at 195.81

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