CNBC's Matt Nesto discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.
Thursday, June 10, 2010
Crude Oil, Natural Gas, Gold and Dollar Commentary For Thursday Evening
Natural gas closed higher on Thursday ending a two day correction off Tuesday's low. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are overbought and are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 4.428 would confirm that a short term top has been posted. If July extends this week's rally, the 50% retracement level of the November-May decline crossing at 5.151 is the next upside target. First resistance is Tuesday's high crossing at 4.995. Second resistance is the 50% retracement level of the November-May decline crossing at 5.151. First support is the 10 day moving average crossing at 4.588. Second support is the 20 day moving average crossing at 4.428.
The U.S. Dollar closed lower on Thursday due to profit taking and below the 10 day moving average crossing at 87.44 signaling that a short term top has likely been posted. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are overbought and turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 86.94 are needed to confirm that a short term top has been posted. If June extends this year's rally into uncharted territory, upside targets will now be hard to project. First resistance is Monday's high crossing at 88.80. Second resistance is weekly resistance crossing at 89.71. First support is today's low crossing at 87.02. Second support is the 20 day moving average crossing at 86.94.
Gold closed lower on Thursday and below the 10 day moving average crossing at 1224.30 signaling that a short term top has likely been posted. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are turning neutral to bearish signaling that sideways to lower prices are possible near term. Closes below last Friday's low crossing at 1198.10 would confirm that a short term top has been posted. If August extends this spring's rally into uncharted territory, upside targets will now be hard to project. First resistance is Tuesday's high crossing at 1254.50. First support is the 20 day moving average crossing at 1216.20. Second support is last Friday's low crossing at 1198.10.
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Phil Flynn: BP Means Bad Policy
BP stock got hammered again in part because the Obama administration wants to make BP cover all the damages from the Gulf oil spill even the millions of dollars in salaries of the laid off oil industry workers let go because of their Federal moratorium on deepwater drilling. This is a concept that has no basis in our rule of law and is trying to change the law after the fact. In other words, they want BP to pay for their own bad policy. At the same time members of Congress are trying to retroactively lift the 75 million dollar liability cap on punitive damages and possibly have no cap at all.
Yet revenge and emotion always makes bad policy. The truth is that eliminating or raising the liability cap for oil companies will cost us thousands of jobs in the oil industry. Small oil companies and drillers will go out of business and insurance rates for companies will skyrocket faster than health care costs. US domestic oil and gas production would fall, maybe dramatically. It would add dollars to the cost of a gallon of gasoline and higher costs would prolong the recession. Higher energy costs would hurt small businesses across the country and would.....Read the entire article.
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SPX, Gold & Oil on the VERGE of Something BIG
Market volatility continues to shake things up making it profitable for traders who are quick to spotting key reversal points, manage risk and taking profits before it evaporates. On Tuesday we saw the market go up and down more than I have seen in a long time… It moved over 5% as it trended up then down in 1% increments as shown in the chart below. Members of FuturesTradingSignals were able to capture a 1-2% gain which may not sound like much but when trading the leveraged ETFs, Futures or CFD’s we are making 4-200% profit within a few hours. That being said this type of price action is proof that the market just does not know which way to go and why trades must be very quick to enter and exit positions.
The SP500 daily etf chart shows my simple volume analysis during market corrections. During the early stages of a trend, pullbacks are quick and simple. But as a trend matures we start to see corrections become much more complex. We first saw the simple 1 wave corrections in 2009, then we saw a much deeper 3 wave correction which was enough to shake most retail (average Joe’s) out of the market before heading higher, and now it looks as though we are headed into a complex 5 wave correction which should be enough to shake out the majority again.
It’s important to note that the longer a trend lasts the larger the corrections/shake outs must be in order to get everyone out. From what I am reading and seeing everywhere online are doom and gloom scenarios. In my opinion this is good. One more leg down should be enough to shake everyone before we see a nice 10-20% rally. Once we see that bounce/rally then we can reanalyze the market to see if we are headed back up to test the 2010 highs or if its just a bear market rally. In the end it does not matter as we play both the long and short side of the market.
Gold ETF continues to unfold as planned. We caught a good chunk of the recent rally and are now in cash waiting for another low risk entry point in the coming days or weeks.
Crude oil Fund (USO) has been struggling to stay up the past 2 months. As you can see the chart below it’s trading at a key resistance level and at this point it could go either way… I don’t like to get involved in trades when they look to be a 50/50 probability of going each direction. If anything I would think oil will head back down as the US dollar continues its strong rally.
Mid-Week ETF Trading Conclusion
In short, the broad market is in a down trend and selling volume continues to rise. Investors around the world continue to accumulate gold and the US dollar as they seem to be the safe havens for the time being. Oil is also in a down trend and trading at resistance which means we should see lower prices for oil and oil companies and this will weigh heavily on the equities market.
Cash is king and during times of uncertainty that’s for sure… It is very comforting to know we are in cash most of the time and only get involved with the market when there is a low risk, high probability setup on the charts.
If you would like to get Chris Vermeulen's trading analysis and trading alerts check out The Gold And Oil Guy .Com
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The SP500 daily etf chart shows my simple volume analysis during market corrections. During the early stages of a trend, pullbacks are quick and simple. But as a trend matures we start to see corrections become much more complex. We first saw the simple 1 wave corrections in 2009, then we saw a much deeper 3 wave correction which was enough to shake most retail (average Joe’s) out of the market before heading higher, and now it looks as though we are headed into a complex 5 wave correction which should be enough to shake out the majority again.
It’s important to note that the longer a trend lasts the larger the corrections/shake outs must be in order to get everyone out. From what I am reading and seeing everywhere online are doom and gloom scenarios. In my opinion this is good. One more leg down should be enough to shake everyone before we see a nice 10-20% rally. Once we see that bounce/rally then we can reanalyze the market to see if we are headed back up to test the 2010 highs or if its just a bear market rally. In the end it does not matter as we play both the long and short side of the market.
Gold ETF continues to unfold as planned. We caught a good chunk of the recent rally and are now in cash waiting for another low risk entry point in the coming days or weeks.
Crude oil Fund (USO) has been struggling to stay up the past 2 months. As you can see the chart below it’s trading at a key resistance level and at this point it could go either way… I don’t like to get involved in trades when they look to be a 50/50 probability of going each direction. If anything I would think oil will head back down as the US dollar continues its strong rally.
Mid-Week ETF Trading Conclusion
In short, the broad market is in a down trend and selling volume continues to rise. Investors around the world continue to accumulate gold and the US dollar as they seem to be the safe havens for the time being. Oil is also in a down trend and trading at resistance which means we should see lower prices for oil and oil companies and this will weigh heavily on the equities market.
Cash is king and during times of uncertainty that’s for sure… It is very comforting to know we are in cash most of the time and only get involved with the market when there is a low risk, high probability setup on the charts.
If you would like to get Chris Vermeulen's trading analysis and trading alerts check out The Gold And Oil Guy .Com
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Crude Oil Daily Technical Outlook For Thursday Morning
In the bigger picture, prior break of 68.59/69.50 support zone affirms our view that whole medium term rebound from 33.2 has completed at 87.15 already, just ahead of 50% retracement of 147.27 to 33.2 at 90.24. Further decline should be seen to 50% retracement of 33.2 to 87.15 at 60.18 at least. Also, as rebound from 33.2 is viewed as as a correction to the whole correction that started at 2008 at 147.27, we'd anticipate a break of 33.2 low in the longer term. On the upside, break of resistance at 78 level is needed to be indicate that fall from 87.15 is completed. Otherwise, we'll stay bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
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Wednesday, June 9, 2010
Where is Crude Oil and Gold Headed on Thursday?
CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil and gas are headed.
Crude Oil, Natural Gas and U.S Dollar Commentary For Wednesday Evening
Natural gas closed lower due to profit taking on Wednesday as it consolidates some of the rally off May's low. The low range close sets the stage for a steady to lower 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 July extends this week's rally, the 50% retracement level of the November-May decline crossing at 5.151 is the next upside target. Closes below the 20 day moving average crossing at 4.413 would confirm that a short term top has been posted. First resistance is Tuesday's high crossing at 4.995. Second resistance is the 50% retracement level of the November-May decline crossing at 5.151. First support is the 10 day moving average crossing at 4.539. Second support is the 20 day moving average crossing at 4.413.
The U.S. Dollar closed lower due to profit taking on Wednesday as it consolidates some of this month's rally. The mid range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are overbought and turning neutral hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 86.85 are needed to confirm that a short term top has been posted. If June extends this year's rally into uncharted territory, upside targets will now be hard to project. First resistance is Monday's high crossing at 88.80. Second resistance is weekly resistance crossing at 89.71. First support is the 10 day moving average crossing at 87.35. Second support is the 20 day moving average crossing at 86.85.
Gold closed lower due to profit taking on Wednesday hinting that a double top with May's high could have been posted today. The mid range close sets the stage for a steady opening on Thursday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If August extends this week's rally into uncharted territory, upside targets will now be hard to project. Closes below last Friday's low crossing at 1198.10 would confirm that a short term top has been posted. First resistance is Tuesday's high crossing at 1254.50. First support is the 20 day moving average crossing at 1217.60. Second support is last Friday's low crossing at 1198.10.
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Crude Oil, Contango and Roll Yield for Commodity Trading
We have already discussed how roll yield can negatively affect the overall return of a commodity holding The impact of contango or backwardation can be relatively large compared to the overall return. Petroleum has unfortunately been in the news lately. Nevertheless, Crude Oil performance last year gave us a good illustration of the impact that contango/backwardation can have.
CRUDE OIL – 2009
Crude Oil’s had a fantastic year in 2009. The spot price bottomed around 35 and topped 80 to finish on a near +100% performance. Many would assume that quick and easy way to double their money was to invest in Crude Oil in 2009 (assuming you could time the top and bottom perfectly). This is without counting the strong effect of contango that would have eaten into the return.
This can be illustrated by the fact that the USO ETF – supposed to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil – did not manage to emulate the levels of performance seen in the Crude Oil spot price in 2009. A mere +34% performance over 2009 pales in comparison with spot price performance. This is, of course, because the ETF managers invest in Crude Oil futures and are subject to the same contango, which eats into their returns.
Here is the charts of examples for Crude Oil in 2009....
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The “Secret” – and More Profitable – Sector of Natural Gas Stocks: Why NOW Is The Time to Buy Them
This is what I call the “shopping season” for natural gas stocks. And even though I’m a longer term bear on natural gas, there is one part of the natural gas market that is not well known, I think mis-understood, and potentially mis-priced. As a result, I think it could make me money this year, and I think now is the time for me to be buying this little subset.
The reason for these purchases NOW is that every year, summer is the weakest time of the year for natural gas and sets up an annual trade for natural gas stocks, buy in June-August, sell in December-January when North American heating demand should have natural gas trading at its year highs.
Last year gas stocks languished badly through the summer, forcing fire sales on assets and it took every bit of goodwill the bankers and producers (in Canada) had for each other for some of these companies not to go bankrupt. But September 2009 saw a large seasonal jump in natural gas prices, they roughly doubled from $2.50/mmcf to $5 in January 2010, despite fundamentals remaining poor. And there was a great 4 month trading rally.
However, natural gas prices in the US and Canada actually turned up last week, enough to get the market excited. I see that the market wants this trade to work so desperately. I am not bullish intermediate or even long term on natural gas, so I expect that if there is a rally in gas, it will just be a traders rally. But like I said, last year gave investors a fantastic seasonal rally in natural gas stocks, as long as you sold in January, the seasonal high.
As a trader, natural gas does have some positive things going for it besides seasonality:
1. Technically, it had a minor breakout this week. The 28 week moving average for natural gas this week was $4.52. This is just my sense but as the price neared that level, more speculative fever came into the market that it would break through this level, and when it did, natural gas got a pop. And the Canadian market followed suit in sympathy.
2. The market is clearly willing to bid natural gas up on weekly injections that are only a bit smaller than last year.
3. It’s possible that at some point in the coming weeks the cumulative amount of gas going into storage will slip below last year, and the market could take that as a bullish point to move up the gas price. US gas is only about 2% above last year’s storage levels at this time. (See chart below).
4. And US gas prices will certainly get an emotional boost whenever the first hurricane is named.
5. Coal prices are trending higher, making natural gas more competitive in some areas.
6. US gas demand is up year over year and crude inventories are declining.
7. The blowout of a US gas rig in Marcellus shale could bring in new drilling regulations increasing the cost and time to get wells into production.
So I’m going to establish some small starter positions in producers in one particular subsector of the natural gas market – that is potentially mispriced by the market. All boe (barrels of oil equivalent) are not created equal.
Now, as usual with the stocks in my portfolio, these companies also have large undeveloped land packages, and are low cost producers. I’m not making any big bets yet, but subscribers will see where I’m going and can decide their own comfort level and timing.
In my next article, I’m going to tell you what this little known sector is, and why these particular natural gas companies are so much more profitable than their peers.
Read all of Keith Schaefer post at the "Oil and Gas Investments Bulletin"
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OPEC: No Need to Increase Supply
OPEC cut 2010 demand estimates for its crude by 70,000 barrels a day and now sees a year on year decline of 175,000 barrels a day. "This would leave no room for additional crude oil supplies in the market," it said. OPEC's next meeting is not due until October. The organization, which members currently produce over a third of the oil consumed worldwide, is loosing market share to non members, which include Russia and the U.S.
It boosted non OPEC oil supply estimates by 110,000 barrels a day for 2010, making it an increase of 640,000 barrels a day. The largest upgrade came from U.S. supply, despite OPEC warning production there could be affected by an extension of a Gulf of Mexico drilling moratorium and a hurricane season expected to be worse than usual. The moratorium, which follows an explosion and a huge spill at BP's Macondo well on Apr. 20, is affecting 35 wells "which will have a heavy influence on production in 2010 and 2011," OPEC said.
The group also warned "an expected moderation in the pace of the economic recovery is likely to impact demand growth forecasts for the second half." It cut its global oil demand forecast for the year by about 10,000 barrels a day to 85.37 million barrels a day, but kept consumption growth unchanged at about 950,000 barrels. Despite the challenges they face in finding buyers for every new barrel they produce, OPEC members have been steadily increasing their output in the past twelve months.
In May, quota bound members increased production by 19,600 barrels a day to 26.83 million barrels a day, despite agreeing to 4.2 million barrels a day in cuts late 2008. Iraq, the only OPEC not subject to quotas, experienced the largest rise in the month, with 121,300 barrels a day.....Read the entire article.
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