Price Headley: Last Week's Action May be the Start of a Small Correction

The Crude Oil Trader would like to welcome our newest contributor Price Headley at BigTrends.com. Here is Price's weekly market report for Monday October 4th....

The four week win streak came to an end last week last week, though barely. Still, all pullbacks start with a small step, and last week's action may well be the beginning of at least a small correction. The dip came despite the much-improved economic news. Nearly all the data not only rolled in better than expected, but showed sustained improvements…. income, spending, sentiment (except for the Conference Board's consumer confidence), GDP, and most of the other data nuggets were pointed higher.

So why the pullback? It's all a matter of timeframes. In the long run, the good economic news should indeed translate into more bullishness for stocks. In the near-term (which is our primary focus from one week to the next), fear, greed, momentum, and excess movement drive the market for option trading. That's what we'll dissect below, after a closer look at the economy.

Economic Outlook
It was a plenty busy week last week on the economic front, with a rough start, but a strong finish. Though still improving, the rate of increase in home values, according the Case-Shiller index – slowed to a pace of 3.18% last month, versus the prior increase of 4.21%. Also on Tuesday, the Conference Board said consumer confidence slumped from 53.2 to 48.5 last month.

From Thursday on, however, it was nothing but good news.

Q2's GDP was revised upward, to 1.7%. Initial claims sank to near-multi-year-lows of 453K, while ongoing claims fell to 4457K… also approaching new multi year lows. The lines in the sand for each are 440K and 4430K, respectively. On Friday, the news got even more compelling. Incomes as well as spending were both up, and better than anticipated (by 0.5% and 0.4%, respectively). And, the prior week's problematic University of Michigan Sentiment number was revised upward, from 66.6 to 68.2.

How does the continued uptrend in incomes as well as spending last while both confidence measures sink? As we've said before, the confidence opinion polls are 'supposed to be' assessments about the next six months. In reality, they are assessments of the prior month. Moreover, in many ways they can be interpreted as contrarian indicators....meaning be bullish when they're most bearish, and vice versa.

Indeed, Friday's latter data confirmed that consumers aren't nearly as mired as they claim to be. Construction spending was up a tad, against the backdrop of an expected 1.4% contraction. And, though the final numbers aren't in yet, auto sales have remained strong this year – and in September – despite worries that things are going to get worse before they get better. It's all below.

Let's take a look at the charts for this coming week.....Price Headley's view for this week.

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Bloomberg Analysis: Crude Oil to Hit Resistance Level at $86.70 This Week

Crude oil may fail to breach the $86.70 a barrel level this week based on statistical analysis used by traders to gauge prices, the Schork Group Inc. said. Crude’s resistance at that level corresponds to the upper limit of the confidence interval, a statistical range with a specified probability that a given parameter lies within the boundaries. Oil is most likely to trade this week between $76.76 a barrel and $86.70, according to the Schork Group.

Oil prices have jumped 4.7 percent since Sept. 29 to $81.53 today as signs of positive economic growth in the U.S. and China improve the outlook for fuel demand. Crude’s gains may sputter to a halt as prices climb to highs reached earlier this year in April and May. “Prices will hit serious resistance in any attempt to cross the $86.70 barrier,” said Schork Group President Stephen Schork. Oil climbed to this year’s highest close at $86.84 on April 6 and reached $86.19 on May 3, followed by sell offs below $70, he said.

The November contract was at $81.52 a barrel, down 6 cents, in electronic trading on the New York Mercantile Exchange at 11:54 a.m. Singapore time after reaching $81.87. It surged $1.61 to settle at $81.58 on Oct. 1, the highest close since Aug. 5, capping the biggest weekly gain since February. “The bulls should have enough momentum to hold prices close to either side of the $80 barrier, thus we expect prices to trade safely inside our confidence interval,” the Schork Group said.

Reporter Christian Schmollinger can be contacted at christian.s@bloomberg.net.

Courtesy Bloomberg News


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Crude Oil Technical Outlook For Monday Morning Oct. 4th

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

If November extends the rally off last week's low, the 87% retracement level of August's decline crossing at 82.41 is the next upside target. Closes below the 20 day moving average crossing at 76.99 would confirm that a short term top has been posted.

First resistance is the overnight high crossing at 81.87
Second resistance is the 87% retracement level of August's decline crossing at 82.41

Crude oil pivot point for Monday morning is 81.01

First support is the 20 day moving average crossing at 76.99
Second support is the reaction low crossing at 73.58



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3 Surprising ETF Ideas for a Possible Oil Rush

 From Gary Gordon at Seeking Alpha.Com

When is the last time that crude oil closed as high as $81.64 per barrel? You’d have to look back to 2008. At that time, crude was on its way down. This time, commodities like oil are trending higher! There are plenty of exchange traded investments for rising crude oil prices. Perhaps the most popular is United States Oil (USO), an ETF that endeavors to capture the the spot price of West Texas Intermediate Light Sweet Crude.

It should be noted, however, that USO has struggled immensely at tracking its intended index due to contango and backwardation. And the iPath Crude Oil ETN (OIL) hasn’t fared a whole heck of a lot better. Other folks hope to benefit from the corporations that explore for, produce and sell the commodity. Yet share prices of big energy companies have been hit from everything from oil drilling moratoriums to taxation and regulatory uncertainty.

ETFs like SPDR Select Energy (XLE) and Oil Services HOLDRs (OIH) have been under-performers regardless of reasonable share price valuation. So what’s an oil investor to do? Can you march to the beat of the oil drum....and actually achieve over sized returns? Yes you can. However, you might want to look in a slightly different direction.....Read the entire article.


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Crude Oil Trades Near Eight Week High as U.S. Consumer Spending Increases

Crude oil traded near an eight week high after economic data from the U.S. and China bolstered optimism that demand is growing in the world’s two largest energy consuming countries. Futures advanced 2 percent on Oct. 1 after U.S. consumer spending increased more than forecast in August as incomes climbed, a Commerce Department report showed. Prices also rose as China’s purchasing managers’ index gained in September at the fastest pace in four months.

“The broad sentiment is that a double dip in the U.S. is looking more and more unlikely,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “Combine that with the strong growth in China, and you’ve got the world’s two biggest oil consumers both looking like they’re in a recovery period.”

The November contract was at $81.63 a barrel, up 5 cents, in electronic trading on the New York Mercantile Exchange at 11:07 a.m. Singapore time after reaching $81.87. It surged $1.61 to settle at $81.58 on Oct. 1, the highest close since Aug. 5, capping the biggest weekly gain since February. Consumer purchases in the U.S. climbed for a second month, rising 0.4 percent and exceeding the 0.3 percent gain projected by the median forecast of economists surveyed by Bloomberg News. Incomes were up 0.5 percent, the biggest advance this year.....Read the entire article.


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Gold Stocks, SP500 & the U.S. Dollar – What’s Next?

From Chris Vermeulen, The Gold and Oil Guy......

Investors around the globe are concerned with the economic outlook, not only with the United States but with virtually every country. This has caused not only investors but banks and countries to start buying gold & silver in order to be protected incase of a currency melt down in the coming years.

While the majority is concerned about the eroding economy, we have seen the opposite in the financial market. Gold and equities have risen… That being said the volume in the market remains light simply because the average investor is no longer putting money into the market for long term growth. Instead individuals are now focusing on saving and paying down debt.

That being said we all know light volume market conditions allow Wall Street powerhouses to bid the market up. Not to mention with quantitative easing taking place I’m sure that has also helped the market of late. While we don’t know for sure that QE is taking place as we speak, the sharp drop in the dollar and strong move up in gold are pricing this into the market.

Let’s take a look at some charts....

HUI – Gold Stock Index
This long term monthly chart of the HUI index provides valuable trading signals for both gold stocks and gold bullion. As you can see below this index is trading at a key resistance level after forming a bullish 3 year Cup & Handle pattern. The next 1-2 months for the precious metals sector will be interesting as it tries to break above key resistance. I would really like to see the HUI:GLD ratio break to the upside to confirm if the breakout occurs.

SPY – Daily Long Term Trend
The broad market looks to be forming a short term topping wedge. If this is to occurI expect it to take several weeks to play out. Looking at the chart if we use Fibonacci retracements along with trend line support we can get a feel for where this pullback should correct to.

That being said the broad market breadth and internals seem to be holding up indicating higher prices over the long run. While the short term price action is overbought and I expect a pullback to form, my analysis is pointing to higher prices as we go into year end.

UUP – US Dollar Daily Price Action
Although the majority of investors have a bearish outlook on the economy, we have seen a large price appreciation in equities and precious metals. This is largely due to the fact that the US dollar is quickly getting devalued. Simply put, as the dollar drops, it helps boost commodities and stock prices.

While a rising stock market is great to see, at some point the dollar will become so cheap that it will start to have a very negative affect on the US economy, commodities and stocks. Being from Canada it has always been more expensive to take holidays in the United States, and I remember paying $1.50-$1.70 for every $1 green back. But now the dollar is almost at par making holidays very affordable. The big question/concern is when will they ease off on the printing? At the rate which they are printing the greenback will be at par with peso… well not that extreme but you get the point Eh!

Weekend Market Conclusion:
As we all know the market has a way of making sure the majority of traders miss major turning points. The saying is, “If the market doesn’t shake you out, it will wear you out” and it seems we are getting the later…

The never ending grind higher in precious metals has not had any big shakeouts, rather its wearing out any short positions before rolling over to take a breather. As for the stock market, we are getting much of the same thing as the market grinds higher day after wearing out the shorts before rolling over.

That being said, there is more at work here than just regular market movements. With the light volume in the market we know there is price manipulation and QE (quantitative Easing) which is helping to boost prices and exaggerate market movements.

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Let the volatility and volume return!
Chris Vermeulen



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Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization

An internationally renowned energy expert has written a book essential for every American, a galvanizing account of how the rising price and diminishing availability of oil are going to radically change our lives. Why Your World Is About to Get a Whole Lot Smaller is a powerful and provocative book that explores what the new global economy will look like and what it will mean for all of us.

In a compelling and accessible style, Jeff Rubin reveals that despite the recent recessionary dip, oil prices will skyrocket again once the economy recovers. The fact is, worldwide oil reserves are disappearing for good. Consequently, the amount of food and other goods we get from abroad will be curtailed; long-distance driving will become a luxury and international travel rare. Globalization as we know it will reverse. The near future will be a time that, in its physical limits, may resemble the distant past.

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Jeff Rubin is the chief economist and chief strategist at CIBC World Markets. He was one of the first economists to accurately predict soaring oil prices back in 2000 and is now one of the world’s most sought after energy experts. He lives in Toronto.


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Natural Gas Weekly Technical Outlook For Sunday Oct. 3rd

Natural gas continued to stay in sideway consolidations in familiar range last week and outlook remains unchanged. While another rise cannot be ruled out, we'd expect upside to be limited by 4.288 support turned resistance and bring resumption of the whole fall from 5.196. Below 3.732 minor support will suggest that such consolidation is completed and will flip intraday bias back to the downside for 3.61 support. Break will target 3.0 psychological level next. However, decisive break of 4.288 will indicate that a short term bottom is at least formed and will bring stronger rise to 5.007 resistance instead.

In the bigger picture, whole decline from 6.108 is still in progress and further fall should be seen to 100% projection of 6.108 to 3.81 from 5.194 at 2.896 next. More importantly, recent development revived the case that medium term rebound from 2.409 is completed at 6.108 already. Also, fall from 6.108 might indeed be resuming the long term down trend for a new low below 2.409. We'll pay attention to the structure of the current decline for more hints. On the upside, break of 4.288 resistance will be the first signal of reversal. Further break of 5.007/194 resistance zone will in turn argue that fall from 6.108 has finished.

In the longer term picture, while the bounce from 2.409 was strong, it's been limited below 55 months EMA (now at 5.814) and reversed. The failure to sustain above 55 weeks EMA (now at 4.498) also argue that 2.409 might not be the bottom yet. We'll stay bearish as long as this year's high of 6.108 holds and favor a new low below 2.409 going forward.

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Charts



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Hey Sharon....Where is Crude Oil and Gold Headed Next Week?

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



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