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Crude oil hit a two year high as US product and oil exports soar, but perhaps the eventual fate of oil and its price level really will be determined by the action or the inaction from the G-20 nations. Imports and exports will be on their mind as China and the US are at a standoff as to whose policies are a bigger threat the global economic recovery.The Chinese really love QE2 because it really takes the focus off of them for being the only currency manipulator.
Of course the Chinese policy of restraining their currency may help them in the short run but it could also be the seeds of their economic problems in the fore. The Chinese may feel that they have to cheat the world to be successful by controlling their currency, but the truth is if they want to maintain their meteoric economic growth over the long run, they would be better served by allowing the market not the government to moderate their economy.
The truth is that the Chinese current manipulation is creating a bubble in their own economy that will burst at some point in the future. And eventually cause major pain for them in the future. Right now of course that may be hard to imagine as everyone on the globe seems to be so bullish on China that they cannot see the major flaw in this story that is staring us right in the face.
The risk of their bubble bursting is increasing everyday yet they refuse to allow their currency to float. You seein a way the Chinese currency manipulation was just as much a factor in the global economic meltdown as was the Fed and the US government’s ill fated Fannie and Freddie excesses......Read the entire article.
It has been a roller coaster week thus far as stocks and precious metals plunged on heavy selling volume on the back of a rising dollar, only to make a strong rebound Wednesday. While there has been significant intraday price movement, it was no surprise to us as we have been anticipating this pullback since discussing it in my Sunday Gold Newsletter. Let’s take a quick look at the charts....
US Dollar Daily Trading Chart
The past couple weeks the dollar has traded in a choppy fashion, and last week I mentioned to subscribers to keep any new positions small. The dollar looked ready to make a bounce and if it reverses we will see stocks and commodities correct rather sharply.
Last week we trimmed some profits on our gold and SP500 trading positions in anticipation of a rising dollar/lower equity and metals prices. The dollar is currently in a down trend so we are still trading with the trend, but the next couple sessions could potentially change that.
As you can see on the chart a similar pattern to what we saw during the May/June top earlier this year has now formed in reverse this month. It’s a simple pattern I call a drop-n-wash. It is like dropping a knife – you panic, then take action (move foot, then wash the kife). That is typically how the market reacts to this type of price pattern after an extended trend has taking place for a long period of time.
The dollar made an obvious breakdown which the entire world witnessed, causing traders who recently went long to panic and sell their positions. Those who like to short the dollar would have taken a short position, only to see the market reverse and head straight back up again. This pattern has yet to confirm, but through the use of the shorter time frame charts (5 Min, 10 Min, 30 Min), I have a feeling the dollar may continue to rise. However, until the dollar shows considerable strength I am still playing the long equities / long gold side of the equation.
SPY – SP500 ETF Trading Fund
The SP500 made a nice move up last week and we trimmed our position back to lock in more gains as I anticipated this pullback and possible gap fill. As you can see on the chart the moving averages are all heading up and that’s the direction we are still focusing on playing (buying dips).
The morning dip on Wednesday the market sentiment started to shift to become extremely bearish on the short term time frame (10 minute charts). If the market drops down to fill the rest of that gap, I have a feeling the majority of traders will panic out of their position giving us an extreme sentiment buy signal. Also a gap fill will bring the price down to the key moving averages which will act as a support level. I will notify members to add more to my SP500 long position if that happens.
GLD – Gold ETF Trading Fund
Gold has much of the same story as the SP500 but with a couple twists. Gold has huge global demand from banks, investors and traders adding more buying power to this investment than stocks right now. We could see gold hold up above its gap that formed last week. That being said, a pullback to the key moving averages would not only act as a major support level but also fill the gap. We currently have our long positions, but trimmed some profits near the highs and are sitting tight letting the market work it’s self out.
Mid-Week ETF Trading Conclusion:
In short, the focus should be kept on trading with the underlying trends until a trend change has been confirmed. So that means short the dollar, long equities, metals and oil.
That being said, because things are starting to look unstable it is crucial to trade smaller position sizes during times of uncertainty like this. Anticipating major market tops is very difficult and generally costly play, just ask everyone who has been trying to pick a top for the past 2 months… Anticipate trend changes, but don’t trade them until the price/volume action confirms the new trend.
Crude oil was higher overnight as it extends the rally off August's low. Stochastics and the RSI are overbought but are neutral to bullish signaling that sideways to higher prices are still possible.
If December extends the aforementioned rally, the 87% retracement level of May's decline crossing at 90.82 is the next upside target. Closes below the 20 day moving average crossing at 83.80 are needed to confirm that a short term top has been posted.
First resistance is the overnight high crossing at 88.63
Second resistance is the 87% retracement level of May's decline crossing at 90.82
Crude oil pivot point for Thursday morning is 87.37
First support is the 10 day moving average crossing at 85.62
Second support is the 20 day moving average crossing at 83.80
We have been trading the ETF FXE for some time now in MarketClub’s Perfect “R” Portfolio and today we exited our long position at $136.64, which produced a profit of $8.14 a share. This market has performed very well for us and we have only had two major trend changes for the year so far. The FXE is an ETF that mimics the Euro versus the US Dollar, so there’s always plenty movement which equals opportunity in the market. That is one of the principal reasons why we chose to include this ETF in the Perfect “R” Portfolio. Right now our score is a -60, meaning one should be on the sidelines until a more defined trend takes place. This is one of the beauties of this portfolio; you are not in the market all the time.
Crude oil for December delivery surged to $88.21 a barrel Wednesday before settling at $87.81. The day's peak oil futures price, a two year high, followed a U.S. Department of Energy report showing that commercial crude inventories fell by 0.9 percent last week. According to the department's Energy Information Administration, oil stocks had declined to 364.9 million barrels as of last Friday 3.3 million barrels lower than the previous week's figure. The most recent number represents the first decline in crude stocks that EIA has reported in the past four weeks. December crude oil bottomed out at $86.10.
Natural gas futures, meanwhile, fell 3.8 percent after the EIA reported that U.S. natural gas inventories rose to record territory last week. December natural gas settled at $4.05 per thousand cubic feet, a 16 cent drop from Tuesday, after trading within a range from $4.06 to $4.25. According to EIA, the amount of natural gas in storage hit 3,840 billion cubic feet (Bcf) as of November 5. The 19 Bcf net injection week-on-week propelled the inventory statistic to a new all time record. In addition, the figure is approximately 10 percent higher than the five year (2005-2009) average. The December gasoline futures price ended the day at $2.24 a gallon, slightly more than a nickel higher than Tuesday's settlement. Gasoline traded from $2.18 to $2.25.
The S&P 500 index closed higher on Wednesday and the high range close sets the stage for a steady to higher opening on Thursday. 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 1189.18 are needed to confirm that a short term top has been posted. If December extends the rally off August's low, the 62% retracement level of the 2007-2009 decline crossing at 1234.75 is the next upside target. First resistance is Tuesday's high crossing at 1224.50. Second resistance is the 62% retracement level of the 2007-2009 decline crossing at 1234.75. First support is the 10 day moving average crossing at 1201.80. Second support is the 20 day moving average crossing at 1189.18.
Crude oil closed higher on Wednesday as it extends the rally off August's low. The high range close sets the stage for a steady to higher 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 December extends the aforementioned rally, the 87% retracement level of May's decline crossing at 90.82 is the next upside target. Closes below the 20 day moving average crossing at 83.55 would confirm that a short term top has been posted. First resistance is today's high crossing at 88.10. Second resistance is the 87% retracement level of May's decline crossing at 90.82. First support is the 10 day moving average crossing at 85.00. Second support is the 20 day moving average crossing at 83.55.
Natural gas closed lower due to profit taking on Wednesday as it consolidates some of the rally off October's low. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If December extends the rally off October's low, the 38% retracement level of the June-October decline crossing at 4.362 is the next upside target. Closes below last Thursday's low crossing at 3.743 would confirm that a short term top has been posted. First resistance is today's high crossing at 4.249. Second resistance is the 38% retracement level of the June-October decline crossing at 4.362. First support is last Thursday's low crossing at 3.743. Second support is the reaction low crossing at 3.500.
Gold lower due to profit taking on Wednesday as it consolidated some of its recent gains. The high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices is possible near term. If December extends this year's rally into uncharted territory, upside targets will now be hard to project. Closes below the reaction low crossing at 1315.60 would confirm that an important top has been posted. First resistance is Tuesday's high crossing at 1424.30. First support is the 20 day moving average crossing at 1359.70. Second support is the reaction low crossing at 1315.60.
The U.S. Dollar closed higher on Wednesday as it extended yesterday's rally above the 20 day moving average crossing at 77.36. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 78.61 are needed to confirm that a short term low has been posted. If December renews the decline off August's high, the November 2009 low on the weekly continuation chart crossing at 74.21 is the next downside target. First resistance is the reaction high crossing at 78.51. Second resistance is the reaction high crossing at 78.61. First support is last Wednesday's low crossing at 75.24. Second support is the November 2009 low on the weekly continuation chart crossing at 74.21.
Nearly a year ago, Exxon Mobil made a multibillion dollar bet on its vision that natural gas will become a dominant fuel during the next few decades. Tuesday, Chevron made a similar, albeit smaller, wager on a domestic natural gas producer. As Chevron starts to sell its Atlas deal to shareholders, Exxon continues to have trouble convincing its investors it made the right move.
Still, Exxon isn't veering from its long-term strategy of bulking up on U.S. natural gas. In December, the oil company announced plans to buy XTO Energy Inc. of Fort Worth, Texas, making Exxon the largest gas producer in the U.S. This summer, it bought gas producer Ellora Energy Inc. of Boulder, Colo., for $695 million, and opened a terminal along the Gulf Coast to import natural gas from the Middle East.
All the while, the price of natural gas has been falling, and is off 21% since Exxon announced the $25 billion XTO deal. On Tuesday, natural gas futures contract for December settled up 12.2 cents at $4.210 a million British thermal units on the New York Mercantile Exchange. The commodity is trading at low prices after newly developed drilling techniques exploited tight shale gas rock formations during the past decade, creating a glut.
The XTO acquisition lifted Exxon's energy output by nearly 14%, but brought in only about $150 million in net earnings in the third quarter, the first in which Exxon reported financial data that included XTO. That is about 3% of what the company earned from the sale of oil and natural gas during that period......Read the entire article.
On your mark... get set.... speculate! Since commodities have little to do with actual supply and demand in the physical market (as the world swims in oil, and the U.S. in natural gas), and everything to do with the supply of fiat currencies chasing physical assets, let us see if Bernanke can cause natural gas to take off. This has been the one huge laggard of the year, as nat gas is difficult to transport and hence reflects the domestic economic situation more than most other commodities. The commodity has spiked the past 2 days and the ETF (UNG) now sits at $6, just below the 50 day moving average. With oil peaking it head over its yearly highs Tuesday, speculators are in desperate search to find the next hot thing, as driving cotton and sugar limit up every day for 3 months in a row has gotten boring. The performance of natural gas has not just been bad, but indeed horrid when you consider it is priced in dollars just like every other commodity!
For economic reasons, energy is the most important commodity to watch, because while not everyone is going to take a hit if silver jumps $2 a day... we're all going to enjoy the fruits of Bernanke's labor if nat gas starts surging (for no fundamental reason) and oil can go on an early 2008-like rampage.
If this does happen, let us prepare for the April 2011 Congressional hearings where we drag the "Big Oil" CEOs up to Capital Hill and watch the politicos berate them publicly for "causing" prices to jump (while meeting with them privately to accept campaign donations) despite the "fantastical economic recovery"....
Meanwhile Bernanke will be skipping in his office a few buildings over sporting the Family Circus "Not Me" T-shirt.
Trader Mark will be launching a mutual fund October November 2010. He is a self taught private investor who operates the website Fund My Mutual Fund a daily mix of market, economic, and stock specific commentary.
The Fed may be trying to save the economy with the printing of more money but the poor battered US consumers are so far bearing the brunt of this economic policy and let’s face it, it is a SIN. At the last Fed meeting the Fed famously said that it was, “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time”. What they didn’t want to tell you was that time was now. It was President Gerald Ford that wore Famous “Win” button which stood for “Whip Inflation Now”. The Fed now should wear a “SIN” button which stands for “Start Inflation Now” and the way the commodities markets have responded, it’s probably time that the Fed start doing penance and a few Hail Mary’s. Because let’s face it, this QE2 is basically a Hail Mary pass.
You see if the Fed policy does not shock and awe the economy out of its stupor, then we may have printed 2.1 trillion dollars for nothing and the only thing that we may have to show for it is higher prices of commodities. With an economy that is still struggling, those higher prices that may kill the consumer. You see it seems that not only is gold and silver rising but those esoteric inflation items that like to be swept under the rug and ignored by some economists are rising as well, like food and energy. Not to mention the proverbial and actual shirt off your back. Have you checked out cotton prices lately? Cotton prices are up 100 percent this year, gold up 29%, soybeans up 27%. QE2 hopes to create economic activity but the consumers may have to pull back as their wallets get squeezed. Take a look for example at the stats on gasoline. Gas prices soared, rising from a national average.......Read the entire article.
