Why 2011 May Be the Year of the Oil Comeback

From David Sterman at Street Authority.....

Like every investor, I try to read voraciously to get an edge. I'm always on the lookout for investment angles that haven't gotten much press but could eventually turn into a market moving event. So my ears perked up last week when I saw that hedge fund traders have recently been aggressively buying energy futures, betting that we'll soon see oil move up to $100 a barrel. In subsequent days, it's become easier to see the signs of $100 oil popping up on people's radars.

For example, on Monday, Saudi oil minister Ali Naimi suggested that oil prices could move up to $90 without hurting global economic growth, up from a previous perceived ceiling of $80. That's led some to speculate that OPEC will try to maintain production at current levels, even as signs are emerging that oil demand has begun to pick up.

Economic growth in emerging markets like Brazil and China remains robust, which led to a 1.4 million barrel jump in the third quarter, according to the International Energy Agency (IEA) and a 980,000 barrel uptick in Western Europe and the United States. Any further uptick in global demand could push oil demand back up to, or above, supply levels.

Analysts at Merrill Lynch see $100 oil by early 2011 for a more prosaic reason: They believe that the U.S. Federal Reserve's plan for quantitative easing (QE2) will weaken the dollar and raise the price of commodities, particularly gold, silver and oil. [Read: "How The Fed Will Affect Your Portfolio This Week"] The recent move in the dollar is a possible harbinger of things to come, according to Merrill: "We believe that oil is only starting to reflect a weak U.S. dollar against G10, leaving room for oil price rises as emerging market currencies strengthen against the U.S. dollar."

Read the entire article > "Why 2011 May Be the Year of the Oil Comeback"



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Phil Flynn: Inflation Is Good For You

As expected the Fed pumped more money into the economy and seemed to do just enough to exceed market expectations. The Fed said that they would maintain its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer term Treasury securities by the end of the second quarter of 2011. They will do this to the tune of about $75 billion per month. While the estimates of what the Fed would do were all over the board, the average was for the Fed to do $500 billion. The Federal Reserve was very aware of market expectations and aware that the market had priced that 500 billion with the massive move that we saw in commodities and to a lesser extent stocks.

It was clear that the Fed wanted to exceed the expectations so we would not sell the fact and take away some of the inflationary expectations they had built into this market. That's right. Inflation is not the worst thing in the world. At least that's what Ben Bernanke says and he is making it clear that worries about his policies creating inflation are over blown. He says that QE1 did not spark inflation and he does not expect that QE2 will either. In an op-ed with the Washington Post he tries to explain why he did what he did.

He says that, “The Federal Reserve's objectives, its dual mandate set by Congress, are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense......Read the entire article.


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The Market Continues The FOMC March Upward

With the election over and congress divided, it may be difficult for the president to get much done. None of this will take affect until the near year but traders are asking the big question… Will the government work together as a team or will it be a stalemate?

Today’s whipsaw action after the FOMC statement shook things up as it always does. We saw gold, silver, the dollar, SP500 and bond prices go haywire. It took about 30 minutes for the market to digest this news in that time a lot of people lost money because of the wide price swings. Trading around news, I find, is a net losing trade over the long run and I advise never to do it. Rather wait for a trend to form and trade any low risk setups that come your way.

I truly believe that the market has already priced in most news and events which unfold, and that news tends to agree with the overall trend of the market. Of course there will be short term blips on the charts from the news, but they tend to be minor setbacks in the underlying market trend. That being said, the trend is our friend, and while so many are trying to pick a top in the equities market it makes me cringe because they are fighting the trend and the Fed.

Successful trading is done by trading the trend, and during choppy times you may get roughed up a bit and need to alter your strategy for shorter term momentum play, but overall you gotta’ stick with the trend until proven wrong. Once the trend reverses and confirms, only then can you start shorting the market.

Last week we took another long position near the lows on the SP500 as it dipped down to key support with the market internals confirming our entry. This low risk setup gets us into a market at an extreme, meaning we are in the money usually within hours of entry and the market tends to keep well above our entry point until its ready for another surge higher or a break down.

I agree with those of you who think the market is WAY over bought and due for a strong pullback, and I find myself squirming in my chair when I take another long position way up here in the lofty SP500 prices. But over the years I have found that if it’s hard to pull the trigger, then it should be a good trade if all the trading rules have been met, and if it’s a clear chart setup (meaning an easy looking trade) you better watch out!

This chart shows two charts, one of the 10 minute intraday chart covering 6 trading sessions.




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Crude Oil Daily Technical Outlook For Thursday Morning Nov. 4th

Crude oil was higher overnight and trading above October's high thereby renewing the rally off August's low. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

If December extends this week's rally, the reaction high crossing at 86.52 is the next upside target. Closes below the 20 day moving average crossing at 82.72 are needed to confirm that a short term top has been posted.

First resistance is the overnight high crossing at 86.05
Second resistance is the reaction high crossing at 86.52

Crude oil pivot point for Thursday morning is 84.54

First support is the 10 day moving average crossing at 82.96
Second support is the 20 day moving average crossing at 82.72


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Crude Oil Rises a Fourth Day After Fed Move Weakens Dollar

Crude oil climbed for a fourth day in New York, the longest rising streak since September, as the dollar traded near a nine month low against the euro after the Federal Reserve said it will expand stimulus to spur the economy. Crude rose above $85 a barrel to trade near the highest in six months amid speculation of a recovery in the U.S., the world’s largest oil consuming nation. The Fed yesterday said it will buy an additional $600 billion of Treasuries through June. U.S. gasoline stockpiles fell last week to the lowest in almost a year, according to an Energy Department report.

“The Fed is pumping money into the economy and the money doesn’t have that many places to go, interest rates are almost zero,” said John Vautrain, senior vice president at U.S. energy consultants Purvin & Gertz Inc. in Singapore. “That’s pumping up the value of commodities.” Crude for December delivery rose as much as 60 cents, or 0.7 percent, to $85.29 a barrel in electronic trading on the New York Mercantile Exchange. It was at $85.28 at 10:46 a.m. Singapore time. Yesterday, the contract reached $85.36, the highest intraday price since May 4. Prices are in the longest rally since a four day run through Sept. 27. Futures have gained 7.5 percent this year.

The dollar yesterday touched $1.4179 against the 16 nation euro, the lowest since Jan. 26, and was at $1.4132 today. A decline in the U.S. currency bolsters the investment appeal of commodities as a hedge against inflation......Read the entire article.


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Commodity Corner: Crude Oil Passes $85 Mark

December crude oil surged past $85.00 Wednesday, thanks in part to an expected move by the Federal Reserve that should have a bullish effect on oil. Oil settled 79 cents higher to end the day at $84.69 a barrel after peaking at $85.36 and bottoming out at $83.57. The Fed on Wednesday afternoon announced a decision to buy $600 billion in government debt by mid-2011.

The central bank's action, commonly called "QE2" to reflect the Fed's second attempt to stimulate the economy by printing more money through a policy of "quantitative easing," is meant to induce businesses and consumers to borrow more from lenders. Because more money will be in circulation, it should also devalue the dollar. Consequently, oil and other commodities priced in dollars are expected to become a better buy for those holding other currencies.

Also supporting oil was a weekly U.S. Department of Energy report observing that the country's gasoline stocks fell again last week. December gasoline futures consequently rose three cents to settle at $2.14 a gallon. According to the Energy Information Administration, U.S. gasoline inventories remain relatively high; however, they have declined sharply and continuously for five of the past six weeks.

EIA attributes the decline to reduced imports from Europe and Canada as well as higher than average domestic refinery outages in September and October. Gasoline traded from $2.11 to $2.15 Wednesday. Natural gas for December delivery slipped three cents to end the day at $3.84 per thousand cubic feet. During Wednesday's trading, natural gas traded within a range from $3.79 to $3.90.


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Matt Nesto: Where is Crude Oil and Gold Headed on Thursday?

CNBC's Matt Nesto discusses the day's activity in the commodities markets, and looks at where oil and gold are likely headed tomorrow.



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Traders View QE News as Neutral to Bullish for Stocks

The U.S. stock indexes closed higher again today. Stock traders viewed the QE news as neutral to bullish for stocks, and mostly had the news factored into prices. The indexes are at or near for the move and multi month 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 now anxiously awaiting Friday morning's U.S. jobs report. Trading action in the stock indexes could become more volatile late this week.

Crude oil closed up $1.16 at $85.06 a barrel today. Prices closed nearer the session high today and hit a fresh six month high today. Prices also produced a bullish upside "breakout" from the recent sideways trading range. The bulls have gained fresh upside momentum.

Natural gas closed down 3.0 cents at $3.84 today. Prices closed near mid range today. 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 $16.90 at $1,340.00 today. Profit taking pressure and position evening ahead of the FOMC "QE" statement Wednesday afternoon was featured. The gold market did recover half of its losses in after hours trading following the QE announcement, which had a package that was at the high end of what the market expected. A weaker U.S. dollar index after the QE announcement also helped to lift gold up from lower price levels.

The U.S. dollar index closed down 38 points at 76.51 today. Prices closed near mid range today and did not a fresh contract and multi month low. The QE package announced by the Fed today was a bit larger than expected, which was dollar bearish. However, prices did close well off the daily low. Dollar index bears have the firm overall near term technical advantage and gained some fresh downside momentum today.


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The Gold and SP 500 Bull Markets Continue to Leave Investors Behind

From David A. Banister at Market Trend Forecast.Com.....

In my recent forecast updates for my subscribers and also in my free articles online, I have expounded on the virtues of Elliott Wave Theory, which I use as my linchpin for my short and long term views. To wit, back in August 2009 I made it clear that we would enter a five year period of a massive move up in both Gold and Gold Stocks. Gold was $900 an ounce at the time, and is now at $1360 an ounce. I made that forecast based on human behavioral patterns that go back centuries.

Crowds love to all act like a swarm of bees flying together. Everyone hates stocks or sectors when they are down, and the crowd loves them when they are up or going up. Investors like to chase stocks and sectors when they are up high and running near parabolic, but they don’t like to buy large dips or consolidations ahead of moves. Once you learn that Elliott Wave patterns and a few other indicators sprinkled in can give you a heads up on when the crowd is about to jump in, you can basically front run the crowds.

I digress and go back to the Gold Bull Market. The reason I knew in August of 2009 that from $900 Gold we would enter a five year “massive” Bull Run is due to crowd patterns. To refresh, I see Gold as being in a Fibonacci 13 year cycle up that started in 2001. The first five years not too many investors participate in the Bull Run because the prior 20 did nothing. By the time everyone realized in 2006 that Gold mutual funds had compounded 30% a year for five years, it was too late to jump in.

Of course, that is when everyone started buying Gold mutual funds and stocks. The problem is the first move was over, and we had 3 Fibonacci years of chop with no net gains. The crowd gives up around the summer of 2009, and that is when I forecasted a huge five year move to come. So far Gold is up over 50% in 13 months and Gold Stocks are up well north of that. The junior stocks started expanding in volume and price months ago, and that should have been yet another wake up call to investors.

Near term in Gold I’m looking for this current power Elliott wave to land around $1485-$1492 before a strong correction, and the recent pivot at $1312 was yet another short term bottom which will be followed by the last leg up since the $1155 lows this summer. Investors are now waking up and buying Gold and Gold stocks, and this is part of the recognition period during the last 5 years of the 13 year cycle when more and more participants get involved. This is why this Gold Bull is just warming up and by the time it peaks out, it will be like 1999 in Tech stocks. The demand overseas for gold and obviously in China is likely to continue for many years to come, don’t be fooled by the various wave dips in sentiment.

The SP 500 on the other hand is very similar since the March 2009 lows. The Bears have continued to focus on Jobs reports and other ephemeral data and not the big picture. My opinion is the great bear cycle ended in March 2009 at 666 on the SP 500, at least for a several year cycle up. When we hit 666 it was an exact 61.8% Fibonacci re-tracement of the 1974 SP 500 lows to the 2000 SP 500 highs. It took about 8-9 years to correct that 26 year move, and the pattern fits with a “wave 2” pessimistic Elliott Wave bottom. That is why the move since 666 has been stunning, because nobody sees it coming. The correction we had this summer I forecast in mid-April and ended on July 1st at 1010 on the SP 500.

At the level of 1010, we had a 38% Fibonacci re-tracement of the March 09 to April 2010 13 Fibonacci month rally, and a 38% re-tracement of the 2007 highs to 2009 lows. Those types of patterns are not random and in fact are big clues to get long the market. The problem is those patterns are hidden amongst the noise of the markets, CNBC, and all of that useless data. Currently we are in a 3rd Elliott wave up which began at the 1040 SP 500 pivot, and my forecast since has been for 1205-1220 before a corrective 4th wave down. Before it’s all over, the SP 500 may well test the 2007 highs on this new cycle up from March 2009.

Subscribers to David Banister's website get weekly updates and regular intra-week commentary as needed, please consider subscribing.

Today he is offering a 2 day only 12 months for the price of 6 months special in celebration of the US mid-term elections today. Enter “1246month” in the coupon field upon joining. You can also sign up for our free reports at Market Trend Forecast.Com


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Phil Flynn: Crude Oil After QE 2

People are finally starting to get it. And that is that the Federal Reserve policy moves markets and that quantitative easing drives up the price of oil. Most had never heard the term "quantitative easing" when the Fed made their move to print money the first time in March, 2009. The Fed made this move to try to save the economy from what they thought was leading us to a deflationary depression. For those of you who still need enlightening, quantitative easing is basically the monetary policy of last resort. When even zero percent interest rates fail to generate economic activity, the central banks flood the banks with excess cash reserves by buying back paper debt the banks hold with freshly printed money.

The hope is therefore, that these banks will in turn lend that freshly printed money to businesses and you and I, who in turn will expand and spend, thereby, hopefully, hire people and create more jobs. It also hopes to take away that deflationary mood by devaluing the U.S. dollar making commodities more expensive. Quantitative easing by the Fed is the greatest economic story of modern times. Back in 2009 when I tried to explain this concept, many looked at me as if I was from outer space. QE was a mystery to them and all they could figure was it was those evil oil and commodity speculators that were driving up prices. Prominent oil bulls went as far as saying the value of the dollar had nothing to do with the value of crude.

They seemed to believe that the sudden surge oil was due to the world hitting its peak ability to get oil that was running out. Others railed against speculators saying they caused the run up in prices yet failed to mention the dollar or the financial crisis when they spewed their diatribe to anyone who would listen, even Congress. Now of course the world is more familiar with the inflationary impact of quantitative easing. In fact if they were not, well they got a crash course after the last Fed meeting......Read the entire article.


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