Crude Oil Closes Higher on Short Covering, Signals Remain Bearish

Crude oil closed higher due to short covering on Monday as it consolidates some of last week'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 bearish signal that sideways to lower prices are possible near term.

If March extends last week's decline, December's low crossing at 72.45 is the next downside target. Closes above the 20 day moving average crossing at 79.89 would confirm that a short term low has been posted.

Monday evening's daily pivot point is 74.89, weekly pivot is 76.01

First resistance is the 10 day moving average crossing at 78.53
Second resistance is the 20 day moving average crossing at 79.89

First support is last Friday's low crossing at 74.01
Second support is December's low crossing at 72.45

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Are Commodities and the Dow Index Dead?

It was a heart pounding week on Wall Street as traders and investors locked in profits during 2010’s first round of earnings season. While it is normal to see selling of shares after good news hits the market, last weeks melt down was over exaggerated and for good reasons.

In short, we expected good earnings and that is why the markets have been crawling higher the past couple months (buy on rumor, sell on news). But what made last weeks sell off so strong was the fact the market was way overbought on the short term time frame and looking ready for a correction already. So we saw twice the selling pressure crammed into one week.

Looking back at a 12 year chart of the Dow Jones Industrial Average we can see the market is now trading at a major resistance level. There are two scenarios the market will likely follow in the coming 12 months. And it could take a year for each of these scenarios to unfold.

Scenario #1 – The market could top then start heading lower to test the 2009 March low. I don’t want this but it could still happen. Topping is a process. Unlike most bottoms which happen very quickly, tops tend to drag out much longer. In this case I figure we are looking at 4-12 month time frame for the market to truly roll over and confirm that we are in a major bear market again.

Scenario #2 – If the market holds up relatively well and forms a bull flag then we can expect to see higher prices in the future. If this happens it will take 4-12 months to unfold also.

Both scenarios have characteristics associated with them, so as the market progresses I will update on the market internals which will help tell us if the underlying market is holding up well or deteriorating. Only time will tell and we will play it one candle at a time.



Gold Stocks – Rockets or Rocks?

The gold stock index closed below its support trend line which held up for over a year. This is not a good sign for gold or gold stocks but there is light at the end of the tunnel.

Simple technical analysis is telling us to be cautious at these price levels. If we zoom way out on the charts the current price level and chart patterns on these charts scare me. The gold stock/Gold ratio chart is trading under resistance and the HUI (gold stock index) is trading near the 2008 high. What I do not like is the technical breakdown on the HUI monthly chart. You can see the trend line break on the chart with my small zoomed in picture.

The good news is that everything looks to be extremely over sold on the 60 minute charts so I am expecting a bounce across the entire market for a 1-5 day dead cat bounce. Friday we did see gold stocks move up strong off their lows out performing the price of gold. This is positive for gold and stocks. Depending on how that unfolds we could take a short term momentum play to profit from a possible leg lower.



Precious Metals ETF Daily Charts – Gold & Silver
Gold and silver lost some shine last week as they plunged towards their next support level. A bounce is expected but then I feel we are heading lower and this will likely shake out the majority of traders before starting another rally higher.



Energy Fund Trading – USO & UNG



Commodity and Stock Market Index Trading Conclusion:
This month looks and feels like last Jan – March, but reversed. The market is now getting choppy as the bulls and bears fight for direction making is difficult to swing trade. Times like these are best for intraday traders, not swing traders. Trading tops is actually much more difficult than trading a bottoming market in my opinion so I will be picky with trade setups. My number one goal is to preserve capital and avoid choppy market conditions as part of managing risk.

Final trading thoughts, I look for the broad market to get a possible bounce this week, but I feel lower prices are still to come. The USO oil fund looks prime for the picking and that could be our next trade.

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Crude Oil Pares Losses in New York as Equities Recover, Dollar Weakens

Crude oil traded little changed in New York as the declining dollar tempered selling driven by concerns that China will raise interest rates. Oil recovered from a near one month low as equity markets rose and the weaker U.S. currency heightened the appeal of dollar priced assets for hedging inflation. OPEC nations must improve their compliance with the group’s output quotas to prevent further pressure on oil prices, Shokri Ghanem, chairman of Libya’s National Oil Corp., said yesterday.

“With OPEC ready to act if there’s further weakening, I think prices may be nearing a bottom,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “Weakness in the stock markets and the prospects of monetary tightening in China helped trigger the exit of some speculative money.” Crude for March delivery was at $74.82 a barrel, up 28 cents, in after-hours electronic trading on the New York Mercantile Exchange at 11:35 a.m. in London. Earlier the contract fell as much as 43 cents to $74.11. Futures dropped 2 percent to $74.54 on Jan. 22, the lowest settlement since Dec. 22.

Brent oil for March settlement climbed as much as 67 cents, or 0.9 percent, to $73.50 a barrel on the London based ICE Futures Europe exchange. It was at $73.36 a barrel, up 53 cents, at 11:35 a.m., having fallen 2.4 percent to $72.83 on Jan. 22. U.S. stock index futures gained on signs Ben S. Bernanke will be confirmed as Federal Reserve chairman for a second term. The dollar declined 0.2 percent to $1.4189 per euro as of 11:07 a.m. in London.

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Crude Oil Pivot, Support and Resistance Numbers For Monday Morning

Crude oil was slightly higher overnight due to short covering as it consolidated some of last week's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

If March extends last week's decline, December's low crossing at 72.45 is the next downside target. Closes above the 10 day moving average crossing at 78.49 are needed to confirm that a short term low has been posted.

Monday's pivot point for crude oil is 75.02

First resistance is the 10 day moving average crossing at 78.49
Second resistance is the 20 day moving average crossing at 79.87

First support is last Friday's low crossing at 74.01
Second support is December's low crossing at 72.45

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Natural gas was lower overnight as it consolidated some of last Friday's rally. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term.

If March extends last Friday's rally, the January's high crossing at 6.027 is the next upside target. Closes below the 10 day moving average crossing at 5.594 would temper the near term friendly outlook in the market.

Natural gas pivot point for Monday is 5.779

First resistance is last Friday's high crossing at 5.804
Second resistance is December's high crossing at 6.027

First support is the 10 day moving average crossing at 5.594
Second support is the reaction low crossing at 5.327

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The U.S. Dollar was lower due to profit taking overnight as it consolidates some of last week's rally. Stochastics and the RSI are diverging but remain neutral to bullish signaling that sideways to higher prices are possible near term.

If March extends last week's rally, the 38% retracement level of the 2009 decline crossing at 79.71 is the next upside target. Closes below the 10 day moving average crossing at 77.71 would confirm that a short term top has been posted.

First resistance is last Thursday's high crossing at 79.00
Second resistance is the 38% retracement level of the 2009 decline crossing at 79.71

First support is the 20 day moving average crossing at 77.80
Second support is the 10 day moving average crossing at 77.71

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New Video: Where Should YOU be in the S&P 500?

Does this week's negative action in the markets spell a fantastic buying opportunity? Is it time to short this market or just wait quietly on the sidelines? What exactly does our Fibonacci levels tell us?

In today’s short video we take a fresh look the S&P 500 and what we think it is going to do in 2010. We will also be looking at an important “Trade Triangle” that has just flashed an important signal for this index.

So Just Click Here to watch the new video and as always our educational videos are free to watch, and there’s no need to register. Enjoy the video and please feel free to leave a comment.

Good trading,
Ray C. Parrish
President/CEO
The Crude Oil Trader

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Trend TV Video - Applications of Candlestick Charting

Are you incorporating candlestick charting into your trading plans? Find out why this tool has become so popular.

In this complimentary video, “Advanced Applications of Candlestick Charting,” authors, software programmers, and co-founders of the International Pacific Trading Company, Gary Wagner & Brad Matheny will walk you through:

-History of candlestick charting
-How to interpret candlesticks
-How to merge techniques of Eastern & Western technical analysis together
-How to merge candlestick techniques with your current trading plan
-And more…

You’ll watch and listen as Wagner explains the importance of using this strategy. He says, in part, “Candlestick patterns are a mathematical formula which illustrate the psychological market sentiment. In other words, as a market reverses, or a market is moving in an up trend, there are certain traits that can be distilled in terms of mathematical formulas that will reveal some very important information.”

This 100 minute complimentary video can be found on Trend TV. You don’t have to worry about watching the whole video at once. After you have a password, you can revisit anytime to watch the rest of a video, review a video, or watch other videos on Trend TV.

Just click here to watch "Applications of Candlestick Charting".

Good Trading,
Ray C. Parrish
President/CEO The Crude Oil Trader

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Crude Oil Prices Fall Victim to China Syndrome

New measures by Chinese authorities to curb bank lending reversed a rally in energy prices early in the week, bringing West Texas Intermediate futures down more than 4% in the second half of the week to below $75 a barrel by Friday.

China continued its efforts to slow down its economy and prevent overheating, and told some banks to stop making certain kinds of loans. The Chinese move on Wednesday hit all commodities across the board, from gold to lead, with the prospect of slower economic growth in the country.

Not even the news that China’s oil imports in December exceeded 5 million barrels of oil a day for the first time could stop the decline.

U.S. data, meanwhile, showed that demand for oil had slipped 1.8% in the four weeks leading to Jan. 15 from the like period a year ago, when the U.S. economy was in the grip of a recession. Crude inventories declined in the week, against expectations, but gasoline inventories rose. Continued milder weather in the Northeast further dampened heating oil prices.

News that utilization of U.S. refinery capacity fell to its lowest levels since the 1980s drove home the point that demand for distillates was lagging. Refinery utilization in the previous week dropped 2.9 percentage points to 78.4% of the 17.6 million barrels per day total capacity, the lowest level in two decades except for periods when hurricanes shut down refinery operations.

The U.S. and China are the world’s top two oil-consuming countries, so the signs of weakening demand in both were bearish for energy prices.

As if all that wasn’t enough, the announcement by the White House on Thursday of tough new measures to limit banks’ proprietary trading threw a double whammy in energy markets. There were concerns that Wall Street banks, among the biggest energy traders, would have to cut back their activities. Plus, the news sent equities into a tailspin, and dragged down commodities prices.

The uncertainty about U.S. bank restructuring reversed the dollar’s climb against the euro, which had also weighed on crude oil prices. After dropping below $1.41, the euro bounced back up above that level at the end of the week.

But continuing concerns about Greece’s debt and new uncertainty about whether Ben Bernanke will be confirmed for a second term as Federal Reserve chairman supported the dollar and were likely to dampen any strong rise for the euro, analysts said.

By Darrell Delamaide for Oil Price.Com

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ExxonMobil Sees Alaska as Major Natural Gas Supplier

With large North Slope resources, Alaska has the opportunity to be a major supplier of natural gas to North America, Rich Kruger, president of ExxonMobil Production Company, said today in a keynote address at the 2010 Meet Alaska Conference in Anchorage.

The development of natural gas at Point Thomson stands out as a great example of the opportunity. Kruger said, "It is currently one of Alaska's largest active North Slope projects in execution phase, providing new jobs and investment in the state. ExxonMobil wants to see Point Thomson developed. We believe it underpins the success of the Alaska Pipeline Project. The owners' commitment to achieving progress at Point Thomson is demonstrated by investments which have now topped $1 billion."

Kruger also emphasized ExxonMobil's readiness to work with the state to resolve the Point Thomson Unit dispute and put in place predictable and durable fiscal terms necessary to underpin the pipeline.....Read the entire article.

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Crude Oil Ends The Week Lower, What's The Next Downside Target?

Crude oil closed lower on Friday as it extends last week's decline. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI remain bearish signal that sideways to lower prices are possible near term. If March extends this week's decline, the 87% retracement level of the December-January rally crossing at 73.95 is the next downside target. Closes above the 20 day moving average crossing at 79.98 would confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 79.33. Second resistance is the 20 day moving average crossing at 79.98. First support is today's low crossing at 74.33. Second support is the 87% retracement level of the December-January rally crossing at 73.95.

Natural gas closed higher on Friday and above last Thursday's high crossing at 5.804 tempering the bearish outlook in the market. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term. If February renews last week's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target. First resistance is today's high crossing at 5.869. Second resistance is the reaction high crossing at 6.108. First support is last Tuesday's low crossing at 5.354. Second support is the 50% retracement level of the December-January rally crossing at 5.314.

The U.S. Dollar closed lower due to profit taking on Friday as it consolidated some of this week's rally. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If March extends this week's rally, the 38% retracement level of the 2009-2010 decline crossing at 79.71 is the next upside target. Closes below the 10 day moving average crossing at 77.59 would confirm that a short term top has been posted. First resistance is Thursday's high crossing at 79.00. Second resistance is the 38% retracement level of the 2009-2010 decline crossing at 79.71. First support is the 20 day moving average crossing at 77.79. Second support is Tuesday's low crossing at 77.59.

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The Weak End Trading Report

It’s been a crazy week for stock and futures traders as the market moved up and down like a yo-yo, finally closing down sharply on the week.

Earlier this week I posted a report showing the Volatility Index (VIX) and how it was then trading at an extreme low level which triggered the sharp market corrections. Since that post the VIX has now risen over 30% as traders start selling positions to lock in gains.

Take a quick looks at the Volatility Index chart:



Chart of S&P500 Daily Price Action
Since the low in the volatility index a few days ago we have seen the S&P500 drop over 3.4%. This sharp sell off in equities and ES futures has happened in a very short period of time making the overall market oversold when looking at short time frame of the daily chart. With the market oversold and also trading near a support level I expect we could get a weak bounce lasting 1-5 days before rolling over for another wave of selling.

There are several reasons I feel this will happen:
1. Experience from seeing setups/patterns like this across many different indexes and investment vehicles leads me to believe distribution of shares are now starting to flood the market.
2. The market sentiment surveys are still extremely bullish. What does this mean? Well if almost everyone is bullish, then who is left to buy?
3. As the good old saying goes “Buy the Rumor, Sell the News”. With earning season starting I cannot help but think everyone (smart money) will be selling into the good earnings news as dumb money buys into stocks as they meet or beat earnings. This inflow of dumb money is exactly what the big guys need to unload massive amounts of shares at a premium. Also I would like to point out that earning estimates have been very low that past year which I think has been on purpose for the institutions. This makes it very easy for companies to beat estimates each quarter giving the warm cozy feeling to retail investors (us, the small guys)
4. Also Chares Biderman on Bloomberg pointed out the other day that the market looks to be manipulated by the feds as virtually all the gains have been produced after hours in the futures market.



Chares Biderman Video
The United States in my opinion is much more corrupt than most people think and I don’t really want to get into this rather large and interesting debate at the moment. But Charles Biderman has some very interesting points which fall in line with my thinking about how much of what is happening is really natural and what is completely manipulated in the past 10 months of rising market prices.

Must Watch 5 Minute Video



Quick Technical Chart Update on Gold
I thought this chart may be of interest to some of you as it shows two perfect textbook plays on the 4hr gold futures trading chart.

As you can see the first pattern is a reverse head & shoulders pattern. This is bullish and a breakout above the neckline would signal a buy point. Now if we use basic technical analysis with this pattern we can measure the potential move up by looking reverse head and shoulders pattern. You take the low of the upside down head $1075, and go straight up to the neckline at $1117. That is a total of $42. So if we add that $42 to the breakout point above the neckline then we can have a price target of $1117 + $42 = $1159.

As we can see the price of gold over the next couple days rallied to the $1160 level. Trading is not that easy but that is how it works in general. The hard part is knowing how to manage your trade and I scale out of positions as the price matures reaching short term resistance levels and by adjusting my stops accordingly to lock in maximum gains while minimizing downside risk.

A couple days later the same chart formed a regular Head & Shoulders and has since moved its potential measured move. I m not expecting a weak bounce in gold as with the overall stock market, but I am still not sure that the selling is over.



The “Weak’end Trading Conclusion:
In short, the market was turned upside down this week. Those who follow me should be in cash or mostly in cash as this drop was anticipated a few days ago.

Trading during fast moving markets is much tougher for swing traders as pivot points for indexes and commodities tend to happen during the intraday or during futures trading at night. High volatility like this is fantastic for active traders who focus on shorter time frames like the 4hr and 60minute charts, as opposed to trading just the daily chart and entering and exiting positions at the open and close each day.

I continue to watch the market and plan on providing some of these short term setups on the 4 hour chart using both the GLD etf gold fund and the YG Gold futures mini contract.

If you are interested in Trading Gold Futures and other contracts please just click here to receive my Free Futures Trading Newsletter.

Chris Vermeulen "The Gold and Oil Guy"



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