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Crude oil was higher overnight as it extended Monday's rally above the 20 day moving average. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term.
Closes above last Monday's high crossing at 83.28 are needed to confirm that a short term low has been posted. If December renews last month's decline, trendline support drawn off the August-September lows crossing near 79.00 is the next downside target.
First resistance is Monday's high crossing at 83.86
Second resistance is the reaction high crossing at 84.80
Crude oil pivot point for Tuesday morning is 82.71
First support is the reaction low crossing at 79.90
Second support is the uptrend line drawn off the August-September lows crossing near 79.00
In this report we are going to teach you how to read market sentiment so you can day trade and swing trade consistently to earn 3-5% per month trading ETFs. I remember always hearing the pro’s say “if you want to make money, you need to trade against the herd (masses)”. This sounds easy but just how do we go about doing that? I am about to show you…
In short, you must start looking at the market completely backwards. I focus on buying into heavy volume sell offs (panic) and selling position into heavy volume breakouts (greed). This was a very tough transition for me to make and its best to paper trade it for while until you are comfortable with buying into fear and selling into greed. It will feel completely wrong at the beginning but the profits speak for themselves!
The Four Charts I Follow Closely
The 4 main tools need to make money from trading against the herd. While this is only one of my trading strategies it is my favorite. I trade the ES futures contract and some sometimes the SDS and SSO exchange traded funds. This may seem basic at first glance but when you combine them you end up with a highly effective trading strategy.
SP500 - 5 Minute Chart
Here is a 5 minute chart of the SP500 showing where I went short. It is important to know that over the past 2 years the SP500 has provided a 1.25% profit on average each time one of these extreme sentiment readings occur on the charts.
The red indicator on the chart is a simple volume based indicator which measures fear and greed in the market and is very powerful for picking market tops and bottoms. It’s calculated by taking the NYSE up volume and dividing it by the down volume. In short, when you see this indicator start to rise it tells us the majority of traders (the herd) are buying and we should start to look at taking a short position.
Let me show you how to find the trade using the market sentiment....
The NYSE advance/ decline line
Is the most easy to understand. How I use this is simple, when there are 1500+ stocks trading up on the day then the market is getting overbought meaning too many stocks have moved up in a short period of time and traders will most likely start taking profits or exit their positions. I also look at the intraday chart for topping patterns or resistance levels then wait for the other two indicators to confirm Selling Volume on the chart above and the put/call ratio before going short the market.
The last indicator I follow is the put/call ratio
This indicator can be a little tougher to use at times because when the market is trending down the ratio tends to fluctuate near the top or bottom of its range during up or down trends. In a down trend is stays near the top which the chart below shows.
When the broad market bounces and we see the put/call ratio drop into the lower band it’s telling me the majority of traders have finally become bullish. This tends to happen once a previous high is broken as it triggers short covering and breakout traders start to buy.
Trading Market Sentiment Conclusion:
All you need to use these indicators, focus on the 15 minute charts, trade only with trend, and take profits at 1%, 2% and keep a small position open for much larger gains.
It is critical that once you take partial profits once you reach a 1% gain then you must start moving your protective stop into the money to lock in a profit for the balance of the position. All three indicators need to reach the extreme levels at the same time for a trade to be triggered. I have seen the market trend in the extreme levels for several weeks continuing to move up day after day and you will get stuck in that situation if you jump the gun entering a trade before each indicator signals an extreme level.
Final thoughts, his strategy works just as well in a bull market but there are some minor changes required on each of the indicators. Also I use inter market analysis following the US Dollar, Gold, Bonds and the Volatility Index for other trading strategies which I incorporate using the market sentiment.
If you would like to get Chris Vermeulen's ETF Trade Alerts for Low Risk Setups checkout his service at The Gold And Oil Guy.com
Crude oil rallied to a 2 week high yesterday as PMI in China, India and the UK and US all recorded strong gains in October. Moreover, comment from Saudi Arabia's oil minister that consumers are happy with oil between 70 and 90 drove price higher. The front month contract for WTI crude oil surged to as high as 83.86 before closing at 82.95, up +1.87%. Gold plummeted after rising to a 2 week high of 1366.4. Better than expected ISM boosted the dollar and sent gold lower to 1350.6 at close. The benchmark contract settled at -0.52%.
ISM Manufacturing Index surprisingly improved to 56.9 in October from 54.4 in the prior month. The market had expected a dip to 54. The growth was driven by 'new orders', 'employment' and 'production' indices but was partly offset by 'inventories' and 'supplier deliveries'. Meanwhile, personal income contracted -0.1% m/m in September after rising +0.4% in August. Personal spending grew +0.2% m/m, easing from +0.5% in August. Inflation remained subdued with the core PCE deflation staying flat from a month ago. Economic data were mixed but should not change the Fed's decision to implement additional easing measures in November.
At the Singapore Energy Summit, Saudi Oil Minister Ali al-Naimi said oil prices are likely to stay in a 'very comfortable zone' for longer time then most people think'. Oil market is 'very well supplied. A little bit oversupplied but it doesn't seem to be depressing the price'. Moreover, Ali al-Naimi said that consuming countries are happy with prices between 70 and 90, a range wider than what he described (70-80/bbl) as 'ideal'.
Commodities strengthened in Asian session today as the RBA unexpectedly raised the cash rate to 4.75%. Oil rose to 83.45 and gold climbed to 1357.2 after the news. The first rate hike in 6 months was to combat inflation which may accelerate in the medium term. The decisions caught the market by surprise as the Australia's CPI was disappointing in 3Q10. The interest rate differential between AUD and USD widened, sending AUD closer to parity with USD.
The Fed will begin the 2 day FOMC meeting today. More and more economists forecast policymakers will announce to buy Treasury securities of 500B first. The Congressional election is another focus. Opinion polls show that Republicans may take over House bur Democrats will remain control in the Senate. As we discussed yesterday, the outcome should not affect gold's uptrend in the long term.
Crude oil rose for a second day to trade near a two week high on speculation the Federal Reserve will take steps to stimulate the U.S. economy and on accelerating growth in China, the world’s largest energy consumer. Crude climbed above $83 a barrel before a Fed meeting where policy makers may announce a plan to buy at least $500 billion of long term securities, according to economists surveyed by Bloomberg News. Manufacturing in China and the U.S. increased in October, data yesterday showed. Consuming countries are happy with oil between $70 and $90 a barrel, said Ali al-Naimi, Saudi Arabia’s oil minister.
“Market participants want to see the result of the Fed meeting,” said Ken Hasegawa, a commodity derivative sales manager at brokers Newedge in Tokyo. “For the rest of the year, the market should be sustained around this level. Like the Saudi minister said, that’s a pretty happy price for everyone.” Crude for December delivery rose as much as 50 cents, or 0.6 percent, to $83.45 a barrel in electronic trading on the New York Mercantile Exchange. It was at $83.37 at 12:05 p.m. Singapore time. Yesterday, the contract rallied $1.52, or 1.9 percent, to $82.95, the highest settlement since Oct. 18. Futures have gained 5.1 percent in 2010.
The Fed, meeting in Washington today and tomorrow, is expected to restart a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed by Bloomberg News......Read the entire article.
December crude oil settled 1.9% higher Monday on positive manufacturing news from China and the U.S. Front month oil rose $1.52 to end the day at $82.95 after the China Federation of Logistics and Purchasing (CFLP) announced the country's Purchasing Managers Index (PMI) for October was 54.7 percent. The latest figure is 0.9 percentage point higher than September's PMI. The indicator gauges China's manufacturing sector, and a figure above 50 percent signifies economic growth.
In the U.S., the Institute for Supply Management (ISM) reported that its own manufacturing indicator for October also called the "PMI" increased from 54.4 percent in September to 56.9 percent in October. ISM attributed the 2 1/2 percentage point gain to growth in new orders, production, and employment. Despite these improvements, however, ISM reported that supplier deliveries are slowing down and inventories are growing. Also, the 56.9 percent figure for October is still nearly 6 percent lower than the high for the past 12 months: 60.4 percent in April.
December crude oil traded within a range from $81.32 to $83.86 Monday. Natural gas futures, meanwhile, ended the day lower for the first time since last Wednesday. December natural gas fell 21 cents to settle at $3.83 per thousand cubic feet given abundant inventories and underwhelming demand. Also, warmer temperatures are expected to return to the Central and Eastern U.S. next week and thus further stave off increased demand for heating fuels.
The front month natural gas price fluctuated from $3.825 to $4.19 Monday. The December contract price for a gallon of gasoline rose three cents Monday to settle at $2.09 after trading from $2.06 to $2.13. The expired November contract ended the day Friday at $2.10.
The U.S. stock indexes closed mixed today on some profit taking. The indexes are still at or near for the move highs. The stock index bulls have the solid overall near term technical advantage as price uptrends are in place on the daily bar charts. Traders are anxiously awaiting Wednesday afternoon's FOMC announcement. Friday also will see the important U.S. employment report issued, so trading action in the stock indexes could become more volatile as the week progresses.
Crude oil closed up $1.32 at $82.75 a barrel today. Prices closed near mid range today. Trading has been choppy recently. Bulls and bears are still on a level near term technical playing field.
Natural gas closed down 20.2 cents at $3.836 today. Prices closed near the session low today after hitting a fresh three week high early on. The bears still have the solid overall near term technical advantage. However, technical odds are increasing that a market low is in place.
Gold futures closed down $5.10 at $1,352.50 today. Prices closed nearer the session low today after hitting a fresh two week high early on. Profit taking was featured. Bulls do still have some upside technical momentum after producing a bullish weekly high close on Friday. Bulls also still have the overall near term and longer term technical advantage.
The U.S. dollar index closed up 3 points at 77.49 today. Prices closed nearer the session high today. Trading has been choppy at lower price levels. Dollar index bears still have the firm overall near term technical advantage.
Crude oil increased to a two week high after Chinese manufacturing expanded at the quickest pace in six months and on expectations the Federal Reserve will announce measures this week to stimulate the U.S. economy. Oil rose 1.9 percent as China’s Federation of Logistics and Purchasing said the country’s purchasing managers’ index climbed to 54.7 in October. The Fed may make more asset purchases, known as quantitative easing, after its meeting Nov. 2 to Nov. 3. An industry report showed that U.S. factory output expanded more than forecast last month.
“The combination of the strong Chinese data and expectations for quantitative easing this week, is giving traders good reasons to be long,” said Phil Flynn, vice president of research at PFGBest in Chicago. Crude oil for December delivery rose $1.52 to $82.95 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 18. Prices are up 7.7 percent from a year ago. Brent crude oil for December settlement increased $1.92, or 2.3 percent, to $85.07 a barrel on the London based ICE Futures Europe exchange.
The Standard & Poor’s 500 Index advanced 0.2 percent to 1,185.70 at 2:31 p.m. in New York, and the Dow Jones Industrial Average increased 0.2 percent to 11,142.82. The reading in the logistics federation’s PMI in China compared with 53.8 for both the previous month and the median forecast of 13 economists surveyed by Bloomberg News. The country overtook the U.S. last year as the biggest energy user......Read the entire article.
What was striking in the Friday reports about the attempted mail bomb terror attack was the market's indifference. The market has already priced in a certain amount of terror possibilities and in a way we are paying for it every day. We are paying for it in the cost of insurance and freight and we are paying for it in terms of even higher commodity prices. It's sad that we have come to expect this type of evil in the world. Today oil is getting a boost out of strong data from China and India.
The Chinese official purchasing manager's index rose to a six-month high in October to 54.7 from 53.8 in September. The market was only looking for a 52.9 reading. The strong number brought back the risk appetite and rallied the oil and broke the dollar. The HSBC version came in at only 54.8 but did have one of the biggest month to month increases in history. With readings like these it is no wonder that China is trying to slow its economy down. The main driver for the market this week will be the Fed. Now everyone knows that the Fed and the size of its massive QE2 program and how it is implemented will be the main factor in the pricing of oil and all other commodities.
People are finally getting the fact that it has been the Fed and the different phases of this economic crisis that has driven the cost of oil, NOT SPECULATORS! US product exports should be strong again in this week’s reports. Oil Inventories are still at the highest level since the 1930s! Look for crude to be down 2.0 million barrels, gas down 2.0 million, distillates down 2.5 and runs up 0.5.
Watch Phil on the Fox Business Network every day. And get his trades by calling him at 800-935-6487 or email him at pflynn@pfgbest.com.
This week we have a major wild card (Election) happening on Tuesday. Most of you know I don’t get involved with political discussion for several reasons… one of them being that I am Canadian “an outsider” looking in.
That being said, it looks and feels as though the market has been propped up and oil has been held down from an invisible force. Lots of theories going around saying higher stock and lower/stable oil prices will give voters the warm fuzzies to keep the current leaders elected… I prefer trading the charts and not getting caught in the Wall St. hype.
Let’s take a quick look at some charts
SPY – SP500 ETF Trading Vehicle
The broad market has been finding buyers as the beginning of each month and it looks as though it’s ready for another bounce. I do want to note that Tuesday or Wednesday we could see a very sharp move in the market as investors around the world digest the outcome. It is very important to keep positions small and or use protective stops incase of a flash crash or flash rally for those of you trying to pick a top.
Gold Price – Futures Contract
The price of gold looks to be setting up for another wave down in my opinion. More often than not we see a sharp pullback, sideways chop then a pop above recent highs. It’s that pop above recent highs which tends to suck in long positions only to roll over and make new lows quickly after. As noted in previous reports, gold has support around $1300 area and that’s what I am looking for. Again this week’s election will trump recent price action so we really just need to sit tight until the smoke settles.
Crude Oil Futures:
Crude oil has been trading sideways for a solid month while the US dollar has been dropping at tremendous rate. Many oil traders believe the price is being manipulated to stay down until the election is finished because of the strong negative affect rising oil prices have on the economy/end user/voters.
In short, this is a going to be a wild week in the market. Keeping position sizes small and using protective stops is crucial during times like these. We have taken profits on both of our positions from last week and have moved our stops to breakeven for the balance just incase of a crash.
Overall, I am neutral on the market for a couple days until we see what type of blip we get on the charts.
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