Holiday Squeeze on the Dollar, Gold & Stocks

The past week and a half has been as choppy as it gets for the stocks market. Thankfully the herd mentality (fear & greed) stays the same. Understanding what others think and feel when involved in the market is one of the keys to making money consistently from the market. The crazy looking chart below I will admit is a little tough on the eyes, and I should have used red and green for holiday colors but green just was not going to work today so bear with me.

Market Internal Indicators – 10 minute, 7 day chart
This is a simple chart to read if you understand how to trade these market internal indicators (NYSE volume ratio, NYSE Advance/Decline line, and Total Put/Call ratio).

It shows and explains how I get a read on the overbought/sold conditions in the market. There are several other criteria needed to pull this trade off but it is these charts which tell me to start getting ready to take partial profits, buy or take short positions.

The top section shows the NYSE volume ratio line. When the green line spikes is means there are more sellers than buyers by a large amount and I call this fear. On the other hand when he red line spikes it shows everyone is chasing the price higher because they can’t stand the thought of missing another rally. I call this greed or panic buying. You buy into fear, sell/short into greed.

Important point to note though… We are getting another sell/short signal here (Wednesday) but knowing Friday will be light volume and knowing that light volume means higher prices, I think we should get a better opportunity to short this new down trend next week at possibly a higher level. The market may have a short squeeze in the next 2-3 days. Just so you know, a short squeeze is when the market breaks to the upside on light volume forcing the short positions to cover. This creates a pop in price, only for it to drop quickly after. But, if we get a pop with solid volume behind it, then we could just see the up trend start again and we would then look to play the long side. Only time will tell…

Rising Dollar & Gold – I Don’t Get It?
That is the question everyone seems to be asking this week. I think what we are seeing is straight forward. Traders/investors are selling Euros because of the issues overseas and are buying the dollar along with gold and silver.

Generally when the dollar raises gold drops, but they are both moving up in sync, and really I don’t see the problem with this as it has happened many times in the past. Currently I am neutral on gold and silver because of this situation though. I feel something is about to happen in a week or so that will change things in a big way.

Mid-Week Gold, Dollar & Stock Trading Conclusion:
In short, the equities market is now in a down trend and overbought here. It’s prime for a short position but with the holiday, light volume Friday, and most likely a follow through buying session on Monday I think its best to sit in cash without the stress of wondering what will happen on Monday. Just enjoy the holiday.

Recently members had a great short play locking in 2.2% gain on one of our positions this week as we shorted the market using the SDS inverse SP500 ETF. We also continue to hold two other positions with a 22 and 24% gain thus far and I think going into year end things are really going to heat up.

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Commodity Corner: Crude Oil Up 3.2%

Positive economic data and a lower than expected build in U.S. crude oil inventories resulted in a pre holiday boost for January oil futures.

The front month futures price settled at $83.86 a barrel Wednesday, a $2.61 gain from the previous day, after trading within a range from $80.97 to $83.75. Supporting oil were statistics released Wednesday indicating some glimmers of hope for the U.S. economy. According to the U.S. Department of Commerce, personal income increased 0.5 percent in October above private sector expectations. In addition, the agency stated that real consumer spending rose by 0.3 percent during the same period.

Also benefiting oil was an economic indicator in the Thomson Reuters/University of Michigan Surveys of Consumers, a monthly publication that was released Wednesday. The latest findings observe a 5.8% increase in consumer sentiment, from 67.7 in October to 71.6 in November. Nevertheless, the survey's authors caution that the significant increase does not necessarily mark a "turning point" in consumers' personal financial prospects. Indeed, they note that many consumers continue to report worsening personal finances.

"While consumers clearly believe that the recovery has gained some traction, most still think that the economic gains will be too small to improve their own job and income position anytime soon," stated Richard Curtin, Surveys of Consumers Chief Economist.

In its weekly report on the country's crude oil stocks, the U.S. Department of Energy's Energy Information Administration (EIA) reported that inventories rose to 358.6 million barrels as of November 19, 2010. Last week's 1 million barrel gain reverses a sharp decline reported for the week of November 12, but the gain was lower than analysts had anticipated.

Natural gas for December delivery showed very little movement Wednesday, ending the day a penny higher at $4.27 per thousand cubic feet. Expectations of milder weather in the Northeast, along with very high storage volumes, prevented gas from increasing further. Front month natural gas peaked at $4.38 and bottomed out at $4.18.

December gasoline settled at $2.21 a gallon Wednesday, representing an eight cent gain from the previous session. Gasoline traded from $2.13 to $2.21.

Posted courtesy of Rigzone.Com


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SP 500, Crude Oil, Natural Gas, Gold and U.S. Dollar Commentary For Wednesday Evening Nov. 24th

The S&P 500 index closed higher due to short covering on Wednesday as it consolidated some of Tuesday's decline. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are neutral to bullish signaling that a short term low might be in or is near. Closes above Monday's high crossing at 1206.00 would temper the near term bearish outlook. If December renews the decline off this month's high, the 25% retracement level of the July-November rally crossing at 1169.37 is the next downside target. First resistance is Monday's high crossing at 1206.00. Second resistance is this month's high crossing at 1224.50. First support is last Tuesday's low crossing at 1175.20. Second support is the 25% retracement level of the July-November rally crossing at 1169.37.

Crude oil closed sharply higher on Wednesday as it rebounds off the 50% retracement level of the August-November rally crossing at 81.14. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are oversold and turning neutral to bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 84.53 are needed to confirm that a short term low has been posted. If January extends this month's decline, the 62% retracement level of the August-November rally crossing at 79.24 is the next downside target. First resistance is today's high crossing at 83.95 Second resistance is the 20 day moving average crossing at 84.53. First support is Tuesday's low crossing at 80.28. Second support is the 62% retracement level of the August-November rally crossing at 79.24.

Natural gas closed lower due to profit taking on Wednesday as it consolidates some of the rally off last week's low. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If January extends the rally off October's low, the 38% retracement level of the June-October decline crossing at 4.654 is the next upside target. Closes below the 20 day moving average crossing at 4.196 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 4.515. Second resistance is the 38% retracement level of the June-October decline crossing at 4.654. First support is the 20 day moving average crossing at 4.196. Second support is this month's low crossing at 3.853.

Gold closed lower due to profit taking on Wednesday as it consolidates some of the rally off last week's low. The mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. If December extends the rally off last week's low, the reaction high crossing at 1388.10 is the next upside target. If December renews this month's decline, the reaction low crossing at 1315.60 is the next downside target. First resistance is Tuesday's high crossing at 1382.90. Second resistance is the reaction high crossing at 1388.10. First support is last Tuesday's low crossing at 1329.00. Second support is the reaction low crossing at 1315.60.

The U.S. Dollar closed higher on Wednesday as it extends this month's rally. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are overbought, diverging but are bullish again signaling that sideways to higher prices are possible near term. If December extends this month's rally, the 38% retracement level of this year's decline crossing at 80.54 is the next upside target. Closes below the 20 day moving average crossing at 78.03 would confirm that a short term top has been posted. First resistance is today's high crossing at 80.09. Second resistance is the 38% retracement level of this year's decline crossing at 80.54. First support is the 20 day moving average crossing at 78.03. Second support is this month's low crossing at 75.24.


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Crude Oil Rallies Above 83 Despite Inventory Gains

Total crude oil and petroleum products stocks declined for the 4th week, by -0.26 mmb to 1106.15 mmb in the week ended November 19. Crude oil inventory unexpectedly gained +1.03 mmb, compared with consensus of a -1.03 mmb drop, to 358.63 mmb with stock rising in 3 out 5 PADDs. Cushing stock also rose +0.56 mmb to 33.63 mmb. Utilization rate climbed +1.5% to 85.5%.

Gasoline inventory increased +1.91 mmb to 209.59 mmb while that for distillate dipped -0.54 mmb to 158.25 mmb. Gasoline demand slipped -1.37% to 8.83M bpd. Imports and production rose +39.50% and +0.12% respectively. Distillate demand claimed +0.63% to 3.80M bpd. Both imports and production soared, by 49.43% and +1.46% respectively.

WTI crude oil jumped to as high as 83.05 after the report, despite stock builds in crude oil and gasoline. A Strong rebound in the stock markets was probably the main reason driving oil prices higher.

Here is a Comparison Between API and EIA Reports


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What's Surprising Me Most about Canadian Natural Gas

From guest analyst Keith Schaefer......

Western Canadian gas exports to the United States could be completely displaced into Northern California by....

1. Abundant, low cost US natural gas production,
2. And by several new gas pipelines in the US,

Says a new market study by Bentek, a US energy analysis company. Overall, Canadian gas exports to the US will drop 2 bcf/d over the next few years, almost 30%, and this impending loss of the northern California market builds upon the loss that western Canadian gas has in lower exports to the US northeast. Increased Canadian demand and declining Canadian supply will pick up some of the slack, but it won’t be enough to offset a significant loss of exports to the US market in the near term, they add.

Bentek’s report, titled “The Big Squeeze”, is a report that also outlines how fast growing production from the Marcellus shale in Pennsylvania is displacing Canadian gas to the lucrative Northeast US market, and how new pipeline capacity carrying low cost gas out of the Rocky Mountains is now set to displace much of Canadian gas to the US Midwest and lucrative California markets.

“What we outlined in our study was complete displacement of Canadian gas into Northern California by the summer of 2014,” says Jack Weixel, Director of Energy Analysis for Bentek.
Last summer I wrote about how the new $6 billion Rockies Express pipeline, or REX, going from Colorado to Ohio, was displacing western Canadian gas production by almost 10%. Lately, US natural gas production from the Marcellus shale has also been displacing Canadian gas to the US Northeast. Canadian suppliers have been able to send more natural gas into the Midwest and Western US to help make up for that drop.

But Bentek says even that market is at risk, and Canadians could see this market get curtailed within the next two weeks, in early December 2010. That’s when low cost Rockies gas supply will start flowing east on the newly installedBison Pipeline. This will give Rockies producers an additional 0.5 Bcf/d (billion cubic feet per day) of capacity out of the Powder River basin in Wyoming. The Bison connects into the Northern Border Pipeline, which moves mostly western Canadian supply.

Weixel expects the Bison Pipeline to create stiff competition for Canadian gas. He says Canadian gas has to get cheaper to stay competitive. “They (Canadian gas producers) need to drop 14 cents (an mcf). Let’s say Rockies gas is $3.50/mcf - that means that AECO (the Canadian natural gas benchmark price out of Edmonton) needs to be priced $3.36 to be competitive in northern California,” says Weixel, adding that the breakeven price for certain Rockies gas producers in the Pinedale and Jonah tight sands plays is “well below $3 per mcf.”

Weixel expects net Canadian exports to drop 2 bcf/d through 2015, out of a total of 6.9 bcf/d now. But it’s not all gloomy for producers – and their shareholde“At the same time exports are declining, you’ve got Canadian demand growing, primarily from oilsands in the west and coal retirements in the east,” he says. “You’ve also got production slipping from conventional gas plays in Alberta. So there is a tightening supply demand balance.

“Traditionally that would lend itself to gas prices getting stronger. But we believe that due to the drop in exports, that there will be just as much gas on hand in Canada as there is now. So if production drops 1.5 bcf/d but exports drop 2 bcf/d, they’re up half a “b” a day.
Canadian gas production is actually going up because of the unconventional plays in BC (read: MONTNEY), but Weixel says the gas rig count in Alberta dropped off a cliff this September, and is about half the number it was last year and about one quarter what it was in 2008.

What’s surprising to me is how little both the industry and investors appear to be concerned about this issue. The Calgary Herald ran a small story on this, and The Daily Oil Bulletin, which is ready by the industry only, ran a story (masthead, or lead story). There are thousands of high paying jobs at stake – mostly in Alberta but also in northern B.C.


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Bloomberg: Contango on Mideast Oil Disappears on China Diesel Squeeze

The 1 month old contango in Dubai oil, the benchmark grade of crude for Asia, has disappeared as a shortage of diesel in China puts a premium on the quickest deliveries of fuel. The December contract was 15 cents a barrel more expensive than January’s today, reversing a discount that’s been in place since July 2009, according to data from PVM Oil Associates, a London based broker.

A shortage of diesel in China is pushing up the premium for the fastest deliveries of oil as the nation curbs power use under a plan by Premier Wen Jiabao to cut electricity consumption per unit of gross domestic product by 20 percent in the five years through 2010. Stockpiles in the country, the world’s biggest energy user, fell for a seventh month in October, according to data from China Oil, Gas & Petrochemicals, a publication of the state owned Xinhua News Agency.

“China’s got to be short” of crude oil, said Alex Yap, an analyst at FACTS Global Energy in Singapore. “If they want to do any restocking from November to December, they’ll have to be importing a lot for the next couple of months.”

Oil imports dropped 30 percent to a 17 month low of 16.4 million metric tons in October, or about 3.9 million barrels a day, the General Administration of Customs said Nov. 22. Diesel inventories declined 11 percent to about 6.2 million tons in October, data from Xinhua News showed on Nov. 22. They were 11.5 million tons in February......Read the entire article.


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6 Natural Gas Stocks for 2011

Dan Dicker argues why he thinks 2011 will be the year for natural gas and reveals his top stock picks.



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Toby Shute: 3 Oil Deals Shaking the Market

This week, I've spotted at least three billion dollar oil deals that should be of interest to investors (all this as of Tuesday!). Combined with other activity in recent weeks, this suggests that there's plenty more M&A mayhem to come as we approach the end of the year.

A big splash in the Gulf
First off, Energy XXI (Nasdaq: EXXI) agreed to pick up a bunch of ExxonMobil's (XOM) shallow water Gulf of Mexico properties for $1 billion. This follows similar moves by Apache (APA), which grabbed Devon Energy's (DVN) shallow Gulf assets for an identical sum, and McMoRan Exploration (NYSE: MMR), which picked up the pieces from Gulf dropout Plains Exploration & Production (PXP).

Energy XXI is picking up 66 million barrels of oil equivalent (Boe) of proved and probable reserves, and 20,000 Boe per day of production. The cash flow multiple paid is 3.2. Apache got more reserves with its purchase (83 million boe), slightly less production (19,000 boe/d), and paid 3.7 times estimated cash flow. In both cases, oil and natural gas production is split roughly 50/50, so I assume the lower Energy XXI cash flow multiple is largely a reflection of higher oil prices. Any way you slice it, the purchase price looks reasonable.

With this purchase, Energy XXI becomes the third largest oil producer on the Gulf of Mexico shelf, leapfrogging W&T Offshore (WTI) in terms of reserves, and both McMoRan and Stone Energy (SGY) in terms of production. The assets acquired have the potential to deliver around 720 million Boe at a development cost of around $15 per barrel.

That would be a really compelling figure, if a large component of that total resource potential was oil. The potential oil mix, surprisingly, is only around 10%, however, alongside 3.9 trillion cubic feet of gas. So the big upside appears to be in deep and ultradeep gas prospects, such as the ones Energy XXI is exploring in partnership with McMoRan elsewhere on the Gulf of Mexico shelf.

Incidentally, Exxon walked away from one of these ultradeep drilling projects a few years ago. This week's sale confirms that the company lacks an appetite for this activity. Given the likely difficulties in securing future permits to drill these extremely high-pressure wells, I can't really blame it. I'm a decided fan of wildcat drilling in the Gulf, but my preference is for companies sizing their bets more conservatively.

Yet another Bakken buy
Last week we saw Williams (WMB) make a $925 million purchase in prime Bakken territory up in North Dakota. This week, Hess (HES) edges it out with a $1.05 billion buy of privately held TRZ Energy. This follows closely on the heels of the company's acquisition of American Oil & Gas (AEZ) earlier this year.

The 167,000 acres acquired in this latest deal bring 4,400 barrels of daily production to the table. That's a pretty massive $238,600 per flowing barrel purchase price. At under $6,300 per acre, though, this purchase comes at a discount to those executed by Williams and Enerplus Resources Fund (NYSE: ERF). From what I can piece together, TRZ is active in Dunn and Williams County. You may recall that Dunn County is the location of Kodiak Oil & Gas' (AMEX: KOG) core development area. This should be very prospective acreage, suggesting that Hess may have gotten a great deal here.

Another Asian oil sands suitor
Over the past year or two, one of the most active players in the Canadian oil sands has been China. PetroChina (PTR) took a big stake in a pair of Athabasca Oil Sands' projects last September. More recently, Sinopec (SHI) snapped up ConocoPhillips' (COP) 9% stake in Syncrude, and a Chinese sovereign wealth fund snapped up a stake in some Penn West Energy Trust (NYSE: PWE) properties.

Showing that China isn't the only one salivating over the security of long term oil sands supply, Thai energy company PTTEP has also stepped forward. The company is picking up 40% of Statoil's (STO) Kai Kos Dehseh oil sands project for $2.3 billion. The entry looks low-risk, as first production is slated for early 2011.

Thanks to heady oil prices, the oil sands have made a roaring comeback since the dark days of 2008. As long as you believe that the world economy will continue to support $70 plus oil prices, the oil sands are indeed an interesting place for your money. Cenovus Energy (CVE) continues to be my favorite operator in that realm.


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Phil Flynn: Happy Thanksgiving!

Well I guess we have one thing to be thankful for this Thanksgiving, oil prices are coming back down. All right it’s something and it was hard to find that silver lining especially after the week that we have had. It seems the world has gone crazy and there are new risks around every corner and these risks have conspired to bring oil prices back down.

Now can you enjoy your turkey? It was only weeks ago that oil bulls were basking in the intoxication of the Fed’s Quantitative Easing the sequel. The oil market topped $88.00 a barrel, it was a suckers rally as the market felt confident that all was well as the Fed had the markets' back. What was there to worry about? Tell after the Fed minutes we find out there is plenty to be worried about. The Fed’s grim economic outlook and a sense that perhaps some members of the Fed are questioning fed policy, have helped reduce some oil trader’s optimism about QE2 inspired oil demand.

The Fed lowered its forecast for 2010 GDP down to 2.4 to 2.5% from their previous estimate of 3 to 3.5%. For 2011 they expect GDP between 3% and 3.6%, down from 3.5% to 4.2% previously. As far as 2012 when the market expects rates will finally increse GDP projection is little changed while the new 2013 projection is put at 3.5-to-4.6%. The Fed also downgraded expectations for the unemployment rate which were raised for 2011 to a rate, 8.9% to 9.1% is expected. In 2013, the jobless rate is still seen between 6.9% and 7.4%.

What’s even more of a concern is the members of the Fed may not be on board with all of the printing of money. The Fed Minutes said that participants......Read the entire article.


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Crude Oil Technical Outlook For Wednesday Morning Nov. 24th

Crude oil was higher due to short covering overnight as it consolidates above the 50% retracement level of the August-November rally crossing at 81.14. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

If January extends the aforementioned decline, the 62% retracement level of the August-November rally crossing at 79.24 is the next downside target. Closes above the 20 day moving average crossing at 84.41 would confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 83.16
Second resistance is the 20 day moving average crossing at 84.41

Crude oil pivot point for Wednesday morning is 81.21

First support is Tuesday's low crossing at 80.28
Second support is the 62% retracement level of the August-November rally crossing at 78.56


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