How to Trade Crude Oil and other Commodity ETF’s

Whether you are trading stocks, ETFs or futures, technical analysis is the preferred choice for short term traders. Technical analysis in short is the study of price and volume movements on charts. It can be used for studying charts in any time frame whether you are a 1 minute chartist or a long term investor using monthly charts.

Using technical analysis in my opinion really opens the door for a trader to lower his/her overall risk when investing money. I always like to know if the investments I am watching are trading near a critical price level (support or resistance). During these times you can take positions that have very clear entry and exit points for trading. Also it puts the odds in your favor when a position is entered in the same direction of the underlying trend.

Price action is how we make money in the market, so I strictly follow price and volume when trading as they are the least lagging indicator on what the market it doing.

I have put together a few charts using commodity ETFs to show you what I am seeing in the market and what we should expect to see in the coming days.

USO Crude Oil Fund – Daily Trend Chart
Oil has slid lower the past 5 sessions and is now nearing a support level. This has me looking for an oversold bounce with the potential to rally much higher. I am keeping an eye on this for any possible low risk setup.



UNG Natural Gas Fund – Daily Trading Chart
While UNG is not a great intermediate and long term fund to invest in, I do find it trades very nicely for intraday and short swing trades. I am neutral on natural gas for the time being. It could go either way from here and I’m not willing to take on a 50/50 probability trade. Let’s wait for something exciting to form.



Commodity Trading Conclusion
In short, gold and silver have been underperforming the market recently which is not what we want to see. They have led the market higher all year but are now taking a breather.

The way I see gold, silver, oil and natural gas is that they are trading below their recent highs and still have more room to fall before landing on a solid support level.

The stock market is now over extended and looks ready for a sharp correction. If this happens we will see commodities drop and test lower prices also.

There is not much we can do right now other than protect our current long positions by tightening our stops. Depending on the strength of the breakdown, there could be a great opportunity for short term traders (60 minute chart traders) to make some quick money. I expect a sell off which will last 3-5 days at the least.

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Chris Vermeulen "The Gold and Oil Guy"



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Crude Oil Daily Technical Outlook For Monday

Crude oil dips further to 70.07 earlier today and recovers. Nevertheless, intrady bias remains on the downside and the correction from 83.95 could still extend further towards 61.8% retracement of 68.59 to 83.95 at 74.46. But downside should be contained there and bring rally resumption. On the upside, above 80.69 minor resistance will flip intraday bias back to the upside for retesting 83.95 resistance first. Further break of 83.95 high will target upper trend line resistance at 87/88 level again. However, note that sustained trading below 74.46 fibo support will argue that rise from 68.59 has completed and will turn focus back to this key support level.

In the bigger picture, whole medium term rise from 33.2 is still in progress but after all, there is no change in the view that it's merely a correction to fall from 147.27. Therefore, we'd continue to look for reversal signal in case of another rise and as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. On the downside, however, considering continuous bearish divergence condition in daily MACD, a break of 68.59 support will confirm that a medium term top is in place and will turn outlook bearish for a retest on 33.2 low as correction from 147.27 resumes.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

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Crude Oil Falls for a Sixth Day on Speculation Fuel Supplies Are Adequate

Crude oil fell for a sixth day on speculation production capacity is more than sufficient to meet increased demand as the global economy recovers from recession.
World markets are well supplied and there is no need for the Organization of Petroleum Exporting Countries to alter its output quotas, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said yesterday. Temperatures in the U.S. northeast will probably be above average through Jan. 27, the national weather service said yesterday.

“It looks like a little bit of a swing in sentiment,” said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “The market’s been held up by some sentiment issues and some less solid fundamental factors such as some of the economic data and some of the weather forecasts. The hard supply and demand numbers behind it all really don’t hold up all that strongly.” Crude oil for February delivery fell as much as 46 cents, or 0.6 percent, to $77.54 a barrel in after hours electronic trading on the New York Mercantile Exchange. It was at $77.55 at 8:37 a.m. in Singapore.

The contract, which expires this week, dropped $1.39 to $78 on Jan. 15, the lowest settlement since Dec. 23 and a 5.7 percent loss for the week. Oil posted its first weekly decline since Dec. 11 as U.S. stockpiles rose, temperatures climbed and gains by the dollar reduced the investment appeal of commodities. The dollar rose for a third day, trading at $1.4366 against the euro today from $1.4387 late in New York last week.....

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Cooling in China Raised Worries about Demand Recovery

Acceleration in China's tightening and fiscal problem in Greece caught the market's focus last week. While the former indicates slowdown in the pace commodity demand growth, the latter unveiled the risk of defaults in sovereign loans. Investors suspected recent rallies in commodities were excessive and therefore corrections were seen. The Reuters/Jefferies CRB Commodity Index slid -3.2% to 281.4.



Crude oil price ended last week with 5 straight days' of drops. The February contract slid -5.7% to close at 78 for the week. Selling pressures were heavy amid concerns on abundant inventory, slowdown in growth momentum in China as well as strength in USD.

Early last week, China released preliminary imports data for December. The readings were strong in most commodities. According the Customs, crude oil imports surged +24% to 21.26M metric tons during the month. On annual basis, the nation imported 203.8M metric tons in 2009, compared with 178.9M metric tons a year ago. The market was thrilled by the news and WTI crude oil price rallied to as high as 83.95, the highest level since October 13, 2008. In fact, emerging market, especially China, has been viewed as the demand growth driver for commodities. Anticipation for robust Chinese consumption has contributed for the 78% rally in crude price in 2009.

A Chinese proverb says 'while water can float a boat, it can also overturn a boat'. In order to stimulate investment and spending, the Chinese government implemented a RMB 4 trillion stimulus program, including government subsidies and tax breaks for home appliances and cars, last year. This has helped restored strong economic expansion in the world's third-largest economy. However, the record amounts of lending has also increased risks of asset bubbles and over heating in the economy. Therefore, the government began cooling since January 2010.....Read the entire article.

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Where is Oil Headed Next Week?

CNBC's Brian Shactman discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed next week.




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Crude Oil Finishes Week Below 20 Day Moving Average, Lower Prices Likely

Crude oil closed lower on Friday and below the 20 day moving average crossing at 78.99 as it extends this week's decline. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term.

If February extends this week's decline, the 50% retracement level of the 2008 decline crossing at 77.41 is the next downside target. Closes above the 10 day moving average crossing at 81.21 would confirm that a short term low has been posted.

First resistance is the 20 day moving average crossing at 78.99
Second resistance is the 10 day moving average crossing at 81.21

First support is today's low crossing at 77.70
Second support is the 50% retracement level of the 2008 decline crossing at 77.41

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Natural gas closed higher due to short covering on Friday and the high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are turning bullish hinting that additional short covering is possible near term.

Closes above Thursday's high crossing at 5.804 would temper the near term bearish outlook in the market. If February extends this week's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target.

First resistance is Thursday's high crossing at 5.804
Second resistance is last week's high crossing at 6.108

First support is Tuesday's low crossing at 5.354
Second support is the 50% retracement level of the December-January rally crossing at 5.314

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The U.S. Dollar closed higher due to short covering on Friday as it consolidated some of this week's decline. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are oversold and are turning neutral hinting that a short term low might be in or is near.

Closes above the 20 day moving average crossing at 77.85 are needed to confirm that a short term low has been posted. If March extends this week's decline, the 50% retracement level of the November-December rally crossing at 76.66 is the next downside target.

First resistance is the 10 day moving average crossing at 77.47
Second resistance is the 20 day moving average crossing at 77.85

First support is Wednesday's low crossing at 76.74
Second support is the 50% retracement level of the November-December rally crossing at 76.66

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Will China Supersede Saudi Arabia as the Key to U.S. Oil Prices?

BY KEITH FITZ-GERALD, Chief Investment Strategist, Money Morning

I bought a Toyota Prius last Saturday.

The signs are everywhere that oil is headed for stratospheric highs, $200, $250 or even $300 a barrel. Some of these signs are just plain obvious. But even the subtle indicators are telling us that some very expensive energy costs headed our way.

Let me tell you about one such indicator that I came across over the New Year holiday. A tiny news item said that Saudi Arabian oil concern Aramco is abandoning a lease on Caribbean oil storage, and further reported that PetroChina Co. Ltd. (NYSE ADR: PTR) is moving in to take Aramco's place.

Most investors here in the West - if they even read the item - would've dismissed it as just another minor business transaction, one among the thousands that take place each day. But this particular deal was much more than that. It's another indication of China's continued global emergence. And it also underscores this country's relegation to the growing legion of "former" world powers that have been eviscerated by the financial crisis that they created.

In case you missed the story, let me share the details, and then explain what I believe those details actually mean.

On the last day of the year, the state-owned Saudi Aramco walked away from a 5 million barrel storage capacity lease at the Statia Terminals Group NV facility on St. Eustatius Island in the Caribbean. Ordinarily that wouldn't be significant. After all, oil leases come and go - change is a normal part of doing business.

But two facts make this transaction different:

First, Aramco had renewed this lease - which accounts for 38% of the total storage capacity on the island - since 1995 as a means of staging oil near its primary market: The United States.

And, second, with Aramco's departure, PetroChina, China's state-run oil company, has opted to move in.

From a strict numbers standpoint, I grant you that a 5-million-barrel facility doesn't appear significant. That much oil will meet U.S. energy needs for all of about five hours. And it equates to less than 1% of the U.S. Strategic Petroleum Reserve, which holds about 726.6 million barrels of oil. So it's not like China will suddenly have a lock on the U.S. oil market.....Read the entire article.



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Crude Oil Falls for a Fifth Day on Dollar Strength, Rising U.S. Supplies

Crude oil fell for a fifth day, its longest losing streak in a month, as the dollar gained against the euro, curbing demand for commodities as a currency hedge. Oil is heading for its first weekly decline in five weeks after a U.S. government report showed crude stockpiles rose for a second straight week. The International Energy Agency kept its forecast for 2010 global crude demand unchanged at 86.3 million barrels a day in a monthly report today. “The second build in crude stocks has made the oil market more sensitive,” said Joern Quitzau, a Hamburg based economist at Berenberg Bank.

“The mood has changed for the oil market this week.” Crude oil for February delivery fell as much as 82 cents, or 1 percent, to $78.57 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $78.80 at 1:46 p.m. London time. A close at that level would mean a drop of 4.8 percent this week. The dollar gained the most in almost a month against the euro as Greece’s struggles with its budget deficit dented confidence in the region. The dollar traded as high as $1.4359 against the euro.

“If the economy is improving there is an expectation oil stocks will start to fall, but it’s not happening,” said Frank Schallenberger, head of commodities research at Landesbank Baden-Wuerttemberg. “The dollar is an extra point for today”.....Read the entire article.

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EIA: No Salvation For Natural Gas Investors In 2010

It appears the overall economic outlook for 2010 is going to be better than 2009, but what does that mean for natural gas prices? Here are some of the expert outlooks:

The Energy Information Administration's short term outlook for 2010 is for consumption to remain flat:

EIA expects the annual average natural gas Henry Hub spot price for 2010 to be $5.36 per thousand cubic feet (Mcf), a $1.30-per-Mcf increase over the 2009 average of $4.06 per Mcf. The price will continue to increase in 2011, averaging $6.12 per Mcf for the year.

Deutche Bank's outlook:
We are maintaining our 2010 calendar year forecast at USD6/mmBtu, which incorporates a USD5.50 entry price in the current quarter and a modest recovery throughout the year. For 2011 and 2012, we are forecasting USD6 and USD6.25/mmBtu. With ample supplies available from the shale plays and imported LNG, we are no longer expect a return to a long-term 8-10 to 1 oil/gas price ratio. We believe that USD6-7/mmBtu prices are sufficient to generate supply under normal market conditions over the next few years.....Read the entire article.

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Crude Oil and Natural Gas Technical Outlook For Friday Morning

Nymex Crude Oil (CL)

Crude oil's correction from 83.95 could still extend further as long as 80.69 minor resistance holds. Fall from 83.95 might still extend further to 38.2% retracement of 68.59 to 83.95 at 78.08 and below. But downside should be contained by 61.8% retracement at 74.46 and bring rally resumption. Above 80.69 will flip intraday bias back to the upside. Further break of 83.95 will target upper trend line resistance at 87/88 level again.

In the bigger picture, the break of 82.0 resistance confirms that whole medium term rise from 33.2 has resumed. Nevertheless, there is no change in the view that it's a correction to fall from 147.27. Hence, we'd continue to look for reversal signal as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. However, break of 68.59 support is still needed to confirm that rise from 33.2 has completed. 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 remains neutral for the moment as it's sitll bounded in range of 5.354 and 5.85. Another fall cannot be ruled out and break of 5.343 will extend the correction from 0.6108 towards 61.8% retracement of 4.157 to 6.108 at 4.902. On the upside, break of 5.850 minor resistance will indicate that pull back from 6.108 has completed and will flip intraday bias back to the upside for a retest on 6.108 resistance.

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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