Technical View of What’s Next for Precious Metals, Stocks & the Dollar

From guest analyst Chris Vermeulen.....

Last weeks price action unfolded just as we expected. Money poured into stocks with the focus being on small cap, banks and technology stocks. The fact that these sectors are showing strength while utilities, health care and consumer staples lag is a good sign that investors are once again taking risks in the market.

Because investors and traders are bullish on the stock market again the money flow into the safe havens like Gold and Silver decrease. I believe this is the reason stocks moved up last week while precious metals drifted lower.

Below are three charts (Dollar, Gold and Silver) showing what I think is most likely to happen in the coming week or two.

US Dollar Index – Daily Chart
The US Dollar has put in a very nice bounce/rally since the low in November 2009. Last month the dollar finally reached a key resistance level of 81. I have been talking about this major resistance level since January as the Dollar would find it difficult to break above this level.

Take a look at the daily chart below. You can see a head & shoulders pattern and a neckline which appears to have broken late Friday afternoon. There is a strong chance we could see 78 reached which is the measured move down. If we get follow through selling this week then I would expect 78 to be touched within 5-10 days.

GLD & SLV ETF Trading Charts
Precious metals have been moving very well for us recently. From looking at the charts using technical analysis we were able to catch the Feb. 5th low and also the Feb. 25th low on a several ETF’s.

As you can see from the GLD and SLV charts, both metals are not in an uptrend showing bullish chart patterns and trading at support. If we see the US Dollar break down next week then be ready to go long gold, silver and stocks.



Precious Metals, Stocks and the Dollar Trading Conclusion:
As a technical analyst the above charts are pointing to higher prices in the coming day’s which is exciting for us all. BUT when things are this perfect looking we must be very cautious as the market has way to suck people into setups like this and spit them out a couple days later for a nasty loss.

Understanding how the market moves is crucial for avoiding and/or minimizing losses when trades go against us. That is why I continue to wait for my signature low risk setup before putting any money to work.

My focus is to take the least amount of trades possible each year, only focusing on the best of the best setups. My low risk setups require downside risk to be under 3% for the investment of choice when the broad market shows signs of strength, as well. I use several different types of analysis to confirm if a setup has a high probability of winning and those which do are the trades I take along with my subscribers.

It is very important to wait for the market to confirm a move higher before taking a position with this type of setup. The market could go either way quickly and jumping the gun is not a safe bet.

Just click here to get Chris Vermeulen's Precious Metals and Index ETF Trading Alerts.


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Phil Flynn: Absolutely Astonishing

Oil prices are on the rise again as the International Energy Agency is the latest forecaster to increase their expectations for China oil demand. Yet the IEA went far beyond just increasing demand expectations for China they said that the demand growth that we have seen so far is astonishing. The IEA beat all the other forecasters by predicting that world demand will increase by 70,000 barrels a day to 86.6 million barrels or close to 1.6 million barrels more than a year ago.

Yet what have captured the imagination of the marketplace were their comments that Chinese demand surged by an “astonishing,” 28 percent year on year in January. That led to the IEA astonishing forecast for a growth in China demand to increase by 130,000 barrels a day to 9 million barrels a day, representing an increase of 6.2 percent from 2009.

Of course at the same despite all of these rising demand expectations are China on an unsustainable path? First it was the Department of Energy, then it was the OPEC cartel and now it is the International Energy Agency. Yet this demand growth is not without risks both political and economic and the White House may be raising the stakes and the pressure on the Chinese to let some air out of this risky China bubble and adding to tensions.

China’s economy is leading to a global recovery but also is adding to tension between China and the Obama administration. Yesterday the Obama administration promised a mini cabinet to focus on imports. He also called on the Chinese to embrace a "market oriented" exchange rate policy .President Obama also said he would start to enforce existing trade deals but what made the Chinese mad was that was the currency comment.

Long story short, the Chinese bubble may the biggest threat to the global economic recovery.

Analyst Phil Flynn can be reached at pflynn@pfgbest.com



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Crude Oil Weekly Technical Outlook

Crude oil edged higher to 83.16 last week but upside was again limited by loss of momentum. Nevertheless, there is no confirmation of topping yet with 80.16 minor support intact and current rally from 69.50 could still continue to retest 83.95 high. On the downside, however, note that break of 80.16 will indicate that a short term top is already in place and deeper fall should then be seen to 38.2% retracement of 69.50 to 83.16 at 77.94 next.

In the bigger picture, crude oil is still trading well inside medium term rising channel and the rise from 33.2 might still be in progress. Nevertheless, as such rise from 33.2 is treated as a correction to whole decline from 147.27 only, even in case of another high above 83.95, we'd continue to expect strong resistance near to 50% retracement of 147.27 to 33.2 at 90.24 to bring reversal. On the downside, though, break of 69.50 support will now indicate that crude oil has topped out in medium term already and turn outlook bearish.

In the long term picture, there is no change in the view that fall from 147.27 is part of the correction to the five wave sequence from 98 low of 10.65. While the rebound from 33.2 is strong and might continue, there is no solid evidence that suggest fall 147.27 is completed and we're still preferring the case that rebound from 33.2 is merely a corrective rise only. Having said that, strong resistance should be seen between 76.77/90.24 fibo resistance zone and bring reversal for another low below 33.2 before completing the whole correction from 147.27.....
Nymex Crude Oil Continuous Contract 4 Hours Chart.


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Crude Oil Market Commentary For Friday Evening

Crude oil closed lower due to profit taking on Friday as it consolidated some of this rally off February's low. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are overbought, diverging and are turning neutral to bearish hinting that a short term top might be in place. Closes below the 20 day moving average crossing at 80.18 would confirm that a short term top has been posted. If May extends the rally off February's low, January's high crossing at 85.43 is the next upside target. First resistance is today's high crossing at 83.47. Second resistance is January's high crossing at 85.43. First support is the 10 day moving average crossing at 81.35. Second support is the 20 day moving average crossing at 80.18.

Natural gas closed lower on Friday as it extends some of this winter's decline. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If May extends this winter's decline, weekly support crossing at 4.157 is the next downside target. Closes above the 20 day moving average crossing at 4.875 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 4.640. Second resistance is the 20 day moving average crossing at 4.875. First support is today's low crossing at 4.443. Second support is weekly support crossing at 4.157.

The U.S. Dollar closed lower on Friday and is challenging the lower boundary of the trading range of the past five weeks. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI remain neutral to bearish signaling that sideways to lower prices are possible near term. Closes below the reaction low crossing at 79.92 are needed to confirm a downside breakout of the aforementioned trading range and would open the door for a larger degree decline into spring. If June renews this winter's rally, weekly resistance crossing at 81.97 is the next upside target. First resistance is the reaction high crossing at 81.70. Second resistance is weekly resistance crossing at 81.97. First support is today's low crossing at 79.95. Second support is the reaction low crossing at 79.92.


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Oil Falls the Most in Two Weeks After Consumer Sentiment Drops

Crude oil declined the most in two weeks after a report showed that confidence among U.S. consumers unexpectedly dropped this month. Oil fell as much as 1.7 percent as the Reuters/University of Michigan preliminary consumer sentiment index dropped to 72.5 from February’s reading of 73.6. A gain to 74 was forecast, according to the median of 68 estimates in a Bloomberg News survey. Prearranged orders to sell oil at specific prices, known as stops, may have been triggered when oil breached today’s low.

“The selling started after the consumer confidence numbers were released,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The market has been tenuous and once we started working lower the move gathered strength. We’ve taken out some stops and are looking to test more.” Crude oil for April delivery fell $1.16, or 1.4 percent, to $80.95 a barrel at 12:27 p.m. on the New York Mercantile Exchange. Prices touched $83.16, the highest level since Jan. 11. Futures are little changed this week and are 72 percent higher than a year ago.

Brent crude oil for April delivery declined $1.24 cents, or 1.5 percent, to $79.04 a barrel on the London based ICE Futures Europe exchange. Prices climbed earlier as retail sales gained. The Commerce Department reported that purchases gained 0.3 percent last month. A 0.2 percent decline was projected, according economists surveyed by Bloomberg News. “There’s a rush to interpret every new piece of economic data,” said Michael Fitzpatrick, vice president of energy at MF Global in New York. “We did reach $83.16, a new high, but otherwise today is a sleeper.”

Reporter Mark Shenk can be reached at mshenk1@bloomberg.net


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Crude Oil Daily Technical Outlook For Friday

While upside momentum is diminishing in crude oil, further rise is still in favor with 80.16 minor support index. Current rally from 69.50 could extend further to retest 83.95 high. Nevertheless, break of 80.16 will indicate that a short term top is already in place and deeper pull back should be seen to 38.2% retracement of 69.50 to 83.03 at 77.86 and below.

In the bigger picture, crude oil was supported above mentioned 68.59 key support and thus, there was no confirmation of medium term reversal. The strong rebound from 69.50 dampened our bearish view and argue that medium term rise from 33.2 might not be over yet. Nevertheless, as such rise from 33.2 is treated as a correction to whole decline from 147.27 only, even in case of another high above 83.95, we'd continue to expect strong resistance near to 50% retracement of 147.27 to 33.2 at 90.24 to bring reversal. On the downside, though, break of 69.50 support will now indicate that crude oil has topped out in medium term already and turn outlook bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.


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Crude Oil Market Commentary For Thursday Evening

Crude oil closed unchanged on Thursday as it consolidates above the 75% retracement level of the January-February decline crossing at 81.63. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are overbought, diverging but remain neutral to bullish signaling that sideways to higher prices are possible near term. If May extends the rally off February's low, the 87% retracement level of the January-February decline crossing at 83.53 is the next upside target. Closes below the 20 day moving average crossing at 79.93 would confirm that a short term top has been posted. First resistance is Tuesday's high crossing at 83.36. Second resistance is the 87% retracement level of the January-February decline crossing at 83.53. First support is the 10 day moving average crossing at 81.20. Second support is the 20 day moving average crossing at 79.93.

Natural gas closed lower on Thursday as it extends some of this winter's decline. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If May extends this winter's decline, weekly support crossing at 4.157 is the next downside target. Closes above the 20 day moving average crossing at 4.924 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 4.682. Second resistance is the 20 day moving average crossing at 4.924. First support is today's low crossing at 4.487. Second support is weekly support crossing at 4.157.

The U.S. Dollar closed lower on Thursday as it extends the trading range of the past five weeks. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain neutral to bearish signaling that sideways to lower prices are possible near term. Closes below the reaction low crossing at 79.92 are needed to confirm a downside breakout of the aforementioned trading range and would open the door for a larger degree decline into spring. If June renews this winter's rally, weekly resistance crossing at 81.97 is the next upside target. First resistance is the reaction high crossing at 81.70. Second resistance is weekly resistance crossing at 81.97. First support is last Wednesday's low crossing at 80.14. Second support is the reaction low crossing at 79.92.


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Crude Oil Is Steady as U.S. Trade Deficit, Jobless Claims Drop

Crude oil was little changed along with the dollar after U.S. government reports showed that the country’s trade deficit narrowed, indicating a slowing economic recovery, and jobless claims decreased. Oil fluctuated as the U.S. currency changed direction against the euro on the conflicting economic news. The strength of the dollar has guided commodity prices over the past three years as investors look at raw materials as a store for value. U.S. equities were little changed.

“We aren’t doing much because the dollar is consolidating and equities have been covering the same ground for the last three days,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “There’s a consensus that the economy is growing, but also a great deal of uncertainty about the strength of the recovery.” Crude oil for April delivery increased 2 cents to $82.11 a barrel on the New York Mercantile Exchange, the highest settlement price since Jan. 11. Futures are up 94 percent from a year earlier.

The dollar traded at $1.3677 against the euro, down 0.2 percent from $1.3657 yesterday. The Standard & Poor’s 500 Index gained 4.63, or 0.4 percent, to 1,150.24. The S&P 500 dropped as much as 0.6 percent earlier today. The index has risen 1 percent so far this week. “We don’t trade on oil-market news anymore, instead we look at what’s happening with the stock market and dollar,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.....Read the entire article.


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Phil Flynn: HOT! HOT! HOT!

HOT! HOT! HOT! Inflation in China may be getting too hot to handle! Don't touch or you could get burned. Could emerging China bubbles turn the commodities bull market into rubble? China’s inflation rate for consumer prices came out at a much hotter than expected 2.7 percent. That was sizzling compared to Januarys 1.5 percent rise and it was also a 16 month high. This sharp increase will make Chinese officials worry about potential trouble spots and may make them more aggressive trying to battle those inflationary demons.

So far it is obvious that steps by the Chinese government to let some air out of their rapidly expanding bubble have been a failure. Despite the aggressive move to raise reserve requirements on banks and step back from standing behind regional banks, it's obvious China is going to have to take away more of the punch bowel to help extinguish these inflationary flames. Heck they may need to pour the contents of the entire punch bowel over the flames to put it out. Of course the problem is that once you put out one fire another one seems to creep up.

Take for example this wonderful piece in today’s Financial Times titled, “Fears grow over China property bubble despite efforts at cooling." The FT says that, “Chinese real estate prices accelerated last month, rising by their fastest pace in two years despite government efforts to cool the market amid fears of a looming property. Prices of commercial and residential property in China's 70 largest cities rose 10.7 per cent in February from the same period a year earlier, up from the 9.5 per cent year-on-year gain in January, according to China's statistics bureau.

Since the start of the year, Beijing has introduced a series of policies aimed at cooling soaring property prices and a procession of senior officials has warned of overly fast price rises and bubbles in some markets. The figures released yesterday include subsidized and rent-controlled housing, where low price increases drag down the overall increase, as well as commercial real estate, where prices have been subdued or falling. Analysts say housing price increases are significantly higher - and this is what mostly concerns the government because they have a direct impact on people's lives and their satisfaction with Communist party rule.” A must read in today’s FT.

Of course at the same time China’s exports surged rising a whopping 45.7 percent from last year. Those strong numbers are going to increase pressure on China to allow their currency to increase in value as it is obvious that the dollar peg at this point is hurting other exporters. What is clear is that if the Chinese government fails to reign in these inconsistencies then the Chinese economy is on an unsuitable trek destined to crash. Oh sure I have heard that this time it is different, China is bubble proof! We hear it every time there is a bubble.

Day trading ranges are awesome! Did you get our latest trades? If you did not what are you waiting for! You can reach Phil by email at pflynn@pfgbest.com

And make sure to catch him every day on the Fox Business Network!


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Gold, Silver, Oil and Natural Gas Mid-Week Trading Charts

From guest analyst Chris Vermeulen....

So far this week has been pretty slow. Large cap stocks continue to lag the market which can be observed by looking at the Dow Jones Industrial Average which still has room to move higher before breaking the January high.

One important thing to note is that volume has picked up this week considerably, particularly on the SP500 and OEX. It’s difficult to say if this volume is a good sign or not.

A lot of stocks and sectors are trading near their January high and this gives traders a reason to unload shares. On the flip side, the several sectors and indexes have broken their January high and this triggers a surge in volume as breakout traders try to take advantage of the new high and momentum. So you can see how the surge of volume is not a useful indicator right now.

Here are some charts of what I think we could see in the coming weeks.

US Dollar Index – Daily Trading Chart
I follow the US dollar index very closely simply because it affects the prices of stocks and commodities. I used a line chart below in order to take out the daily candle stick noise which made it very difficult for our eyes to pick up this pattern.

The chart shows a possible head & shoulders pattern and if that is the case then we should see the dollar start to slide lower. In turn, this would boost stocks and commodities. This is the fuel that I think could really move the market sharply higher in the coming weeks.



GLD Gold ETF – Daily Trading Chart
The price of gold looks to be setup for a nice bounce off support and the timing could just work out if the US Dollar starts to drop over the next few days. There could be a low risk setup just around the corner.



SLV Silver ETF – Daily Trading Chart
Silver has held up well but today’s reversal candle to the downside scares me a little. The odds are that silver will carry this strong momentum selling down for another 1-2 days. Again, with any luck, it will test support and the US Dollar will start to slide lower.



Crude Oil – Daily Trading Chart
Oil has had a great run the past month but as you can see it’s currently trading at the top of a large trading range. I would like to see a sideways move before it takes another run at the $84 level, but the 7 day bull flag that formed two weeks ago may have been enough to maintain the upward momentum. Again, if the Dollar drops we will see oil rally.



Natural Gas – Daily Trading Chart
This chart is actually very attractive looking. Even if you do not understand how to read charts I think it’s safe to say this one is a no brainer.

I will be closely watching for a potential low risk setup in the coming days.


Mid-Week Trading Conclusion:
In short, stocks and indexes are trading at resistance levels with many of them making new highs and that is great to see.

A lot of things are trading in limbo waiting to see what the US Dollar is going to do. Several months ago I posted some charts showing that 81 would be a key resistance level for the dollar. If it broke above that then 84 would be the next key level to watch. So we just have to wait and see… the hardest part of trading is the waiting.

Gold, silver, oil and natural gas all look like they could continue higher in the next few days if things unfold that quickly. But the market always finds a way to drag out moves so we could still be a 2-3 weeks away.

I hope this report helps give you an idea of where things are at in the market.

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