Who Will Win The Battle, The U.S. Dollar or Crude Oil?

It's true, oil demand has improved slightly. But crude oil has still over shot it's real value going into this Santa Claus rally and something has to give. History tells us that the dollar and the currency exchanges will win out. We are still bearish the U.S. Dollar for the long term as Washington shows no sign of easing the printing presses. But the near term weakness in the Euro gives dollar bulls the upper hand against commodities, especially oil.

So despite the TV talking heads wild dreams of $100 oil in the near future we just don't see that until summer of 2011....if even then! But we don't trade this market as if we were pshyic, we trade the numbers given us each and every day. And here are those numbers for Wednesday morning......

Crude oil was higher overnight while extending this month's trading range. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. If February renews the rally off November's low, May's high crossing at 93.87 is the next upside target. Closes below the 20 day moving average crossing at 88.17 are needed to confirm that a short term top has been posted. First resistance is the reaction high crossing at 91.17. Second resistance is May's high crossing at 93.87. First support is the 20 day moving average crossing at 88.17. Second support is last Wednesday's low crossing at 87.43. Crude oil pivot point for Wednesday morning is 89.66.

Natural gas was lower overnight as it extends Tuesday's decline. Stochastics and the RSI are oversold and are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 4.290 are needed to confirm that a short term low has been posted. If January extends this month's decline, November's low crossing at 3.853 is the next downside target. First resistance is the 20 day moving average crossing at 4.290. Second resistance is this month's high crossing at 4.637. First support is last Friday's low crossing at 3.951. Second support is November's low crossing at 3.853. Natural gas pivot point for Wednesday morning is 4.120.

Gold was slightly higher due to short covering overnight as it consolidates some of last week's decline. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 1388.20 would confirm that a short term top has been posted. If March renews this month's decline, the reaction low crossing at 1352.00 is the next downside target. First resistance is the 20 day moving average crossing at 1388.20. Second resistance is the reaction high crossing at 1408.90. First support is last Thursday's low crossing at 1361.60. Second support is the reaction low crossing at 1352.00. Gold pivot point for Wednesday morning is 1387.70.


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What Patterns are Telling Us That Gold is Going Up?

David Banister has been keeping us on top of gold lately with his expert use of Fibonacci and Elliot Wave patterns he has been shareing with us. This gold bull market has been moving in very reliable Elliott Wave and Fibonacci patterns for many years now, but once in awhile the waters get a little murky for sure. Recently we have seen a fair amount of volatility near year end as position squaring and year end machinations take hold. With that said, it does appear that Gold should be poised to power higher near term, and I’m looking for a completion to a 5 wave rally that began from about $1,040 per ounce in February of this year.

Over the past several weeks, I see a clear Fibonacci trading day relationship on Gold’s swings from pivot highs to pivot lows. 8 days of correction, 13 days of rally, 8 days of correction is the recent pattern over the past 5 weeks or so. Below is a chart outlining these crowd behavioral based patterns that I rely on for both my trading service and market forecasting services. You can see the clear relationships, confirmed by the stochastics indicators at the tops and bottoms as well:

Based on the recent patterns, I believe we completed a minor wave 3 from the February bottom at $1424 a little over 5 weeks ago, and had a shallow period of 8 days to complete a wave 4 to $1,330. Now, we are in the final 5th wave up pattern to complete an entire 5 wave move from February of 2010. In the near term then, I’m expecting a pretty strong rally from this recent $1365 area to at least $1,480 per ounce, and eventually a good shot at completing the structure at $1525 ranges. Short term, we should begin a wave 3 up here, followed by a 4th wave correction, and then a final and terminal 5th wave. Below is a multi- month weekly chart view of where I see us heading and where we’ve been.

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Crude Oil Moving Higher Going Into The Year End, What's New!

As usual oil prices are ending the year with a bullish tone. Not pushing through to new highs, but hovering around the high end of the range established in 2010. But as our calls for Tuesday's trading will show, signals are neutral to bearish telling us traders are trying to put a top in here as we go into the end of the year. Looks like natural gas is going to take in the limelight as we head into 2011 with reminders of the good old take over days in the oil and gas industry. Carl Icahn is seeing to that [check out Dian L. Chu's latest article] and something tells me T. Boone is right around the corner. Ah yes, the good old days. Sometimes you can only dream of being physic and getting ahead of the take over trades. For now here is your trading numbers for Tuesday morning......

Crude oil was mostly steady overnight while extending this month's trading range. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 87.73 are needed to confirm that a short term top has been posted. If February renews the rally off November's low, May's high crossing at 93.87 is the next upside target. First resistance is the reaction high crossing at 91.17. Second resistance is May's high crossing at 93.87. First support is the 20 day moving average crossing at 87.73. Second support is last Wednesday's low crossing at 87.43. Crude oil pivot point for Tuesday morning is 88.89.

Natural gas was lower overnight as it consolidates some of Monday's rally. Stochastics and the RSI are oversold and are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 4.317 are needed to confirm that a short term low has been posted. If January extends this month's decline, November's low crossing at 3.853 is the next downside target. First resistance is the 20 day moving average crossing at 4.317. Second resistance is this month's high crossing at 4.637. First support is last Friday's low crossing at 3.951. Second support is November's low crossing at 3.853. Natural gas pivot point for Tuesday morning is 4.167.

Gold was slightly higher due to short covering overnight as it consolidates some of last week's decline. Stochastics and the RSI remain neutral to bearish signaling that sideways to lower prices are possible near term. If March extends this month's decline, the reaction low crossing at 1352.00 is the next downside target. Closes above the 20 day moving average crossing at 1387.60 would confirm that a short term top has been posted. First resistance is the 20 day moving average crossing at 1387.60. Second resistance is the reaction high crossing at 1408.90. First support is last Thursday's low crossing at 1361.60. Second support is the reaction low crossing at 1352.00. Gold pivot point for Tuesday morning is 1383.90.


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What is the Holiday Grind, and How Can You Trade It?

We go through this every year and it's amazing how many traders forget how to approach this market every year. It’s that time of year when volume dries up and prices rise into the new year. A lot of individuals are scrambling to prepare for the holidays, even though we had a year to prepare. The big money has already done most of their year end shuffling and will be taking it easy until January.

The market is overbought and sentiment readings are at extreme levels which in the past have been the start of large sell offs and even bear markets. While I am keeping a close eye for a top, there is not much we can do but stay long stocks and commodities until the market tips its hand and distribution selling is in control. The U.S. federal government is the only wild card going into year end that should be on traders’ radars. They have been doing a great job boosting prices in the equities and commodities market, but can they continue to hold things up when the big money and the proverbial herd start unloading positions in 2011?

SP500 Holiday Grind – Daily Chart
This chart shows the slow and steady grind higher that we have seen in the S&P 500. I expect this to continue into 2011 The market in my opinion is on the verge of some serious selling so long positions should be small going forward.

US Dollar On Pause For A Couple of Weeks
This 4 hour candle stick chart of the dollar shows price testing resistance (a previous high). I am expecting to see the U.S. Dollar trade sideways or possibly move closer to the previous high as we enter the new year. A sideways dollar will allow the equity and commodity markets to rise.

Conclusion:
In short, I think we could see an intraday pullback early this week and then a grind higher. The pullback would shake out some weak positions before the holiday march higher takes place. I typically don’t trade much going into the holiday season and new year. I may put on a small long position if I like what I see forming on the charts, but that would likely be about it. Light volume can be very dangerous to trade because sharp price spikes up or down can occur in a blink of an eye catching traders off guard.

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With Quadruple Witching Behind us, How do we Trade on Monday?

The end of trading last week was interesting for traders. Fridays quadruple witching, [when contracts for stock index futures, stock index options, stock options and single stock futures all expire] is known to create some "dynamic moves" in the market. Most asset classes moved higher in Fridays session, including bonds, commodities, stocks and the U.S. Dollar. This is usually a bullish signal. This usually equates to a U.S. Dollar strength/weak assets trade. When this happened earlier in the fall of 2010 it was a prelude to a rally in most commodity names.

So is all of this just another sign that this economic recovery is more sustainable? This is new territory for this new world economy. Can we have a healthy U.S. economy when it relies on the Chinese economy that has been under performing for months as they try to reel in inflation? Any real growth in China and all of the BRIC nations is only going to bring the U.S. higher gas prices. And the chance of real recovery in the U.S. is ZERO in the face of $4.00 per gallon gasoline.

That's why so many fund managers are moving to a trade only plan and not investing for the long term. Take advantage of these bull runs and take your profits using todays trading numbers.....

Crude oil was higher overnight while extending this month's trading range. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 86.82 are needed to confirm that a short term top has been posted. If January renews the rally off November's low, May's high crossing at 93.29 is the next upside target. First resistance is the reaction high crossing at 90.76. Second resistance is May's high crossing at 93.29. First support is last Wednesday's low crossing at 86.83. Second support is the 20 day moving average crossing at 86.82. Crude oil pivot point for Monday morning is 88.50.

Natural gas was lower overnight as it extends this month's decline. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near term. If January extends this month's decline, November's low crossing at 3.853 is the next downside target. Closes above the 20 day moving average crossing at 4.318 would confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 4.318. Second resistance is this month's high crossing at 4.637. First support is last Friday's low crossing at 3.951. Second support is November's low crossing at 3.853. Natural gas pivot point for Monday morning is 4.042.

Gold was higher due to short covering overnight as it consolidates some of last week's decline but remains below the 10 day moving average crossing at 1389.20. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If March extends this month's decline, the reaction low crossing at 1352.00 is the next downside target. Closes above the 10 day moving average crossing at 1389.20 would confirm that a short term top has been posted. First resistance is the 10 day moving average crossing at 1389.20. Second resistance is the reaction high crossing at 1432.50. First support is last Thursday's low crossing at 1361.60. Second support is the reaction low crossing at 1352.00. Gold pivot point for Monday morning is 1374.80.

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Do we Have a Growing Battle Between the Gold Deflationist and Inflationist?

Life has a funny way of reminding a person that he is not really in control of what is going on around him. While he may be proficient in a few specific areas, his overall knowledge is limited. Last night my hot water heater decided to go on vacation and I thought I’d try to be a real man and fix it. I have a general knowledge of how a hot water heater works, but it dawned on me that knowing how it works and fixing it are two totally separate things.

I immediately realized that I was in over my head and made arrangements to have a repair man come and fix my hot water heater. He arrived first thing this morning and I asked if I could watch not only out of curiosity, but to understand how my hot water heater worked and to learn about the man that was fixing it. He was gracious and took the time to explain my issue thoroughly and as I am writing this he is replacing my heating elements.

The interesting thing about this whole chain of events is that he brought up investments with me. Not because he wanted to talk to me or thought I knew anything, but simply because he knew I worked in that field. When you live in a relatively small town and people knew what you do for a living, they are generally quick to ask questions. He told me what he was doing with his retirement accounts and his plans for retirement in great detail.

I immediately respected him for his general knowledge and it was apparent he had done his own homework. He had made wise decisions, saved money, and invested wisely. Clearly the man working on my hot water heater was planning for a quality retirement lifestyle and it sounded as though his planning was going to pay off. He brought up that he had purchased the copper ETF $JJC when he noticed that copper pipe was becoming more difficult to acquire and he was paying more for it.

Then the conversation changed dramatically as he explained to me that he had recently bought gold coins and the gold ETF GLD. Immediately my ears perked up as I follow gold and oil quite closely as regular readers are aware. He wanted to know if I thought he should buy more on dips and if he had purchased gold at a good price. He told me he thought he had bought around the $1,200 an ounce price level. I replied that I was not qualified to offer investment advice, but that I expected gold was likely going to go through a mild pullback in coming days and weeks......Read the entire article from J.W. Jones.


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European Summits and IEA Reports Not Enough to Fool Commodity Traders

Commodity traders, especially crude oil traders, good be the smartest and least naive people on the planet. It sure didn't take long for them to realize that the IEA could possibly be turning itself into the new OPEC. Remember the old days when OPEC could issue a statement and send markets reeling. Those days appear to be here for the IEA as traders recognized the over "exaggeration" of international demand issued by the IEA this week.

Enbridge pipeline shut down, end of year tax strategies, European Summits, just to name a few, were not enough to take traders eyes off the world oil glut and the real trouble looming in the Euro. Giving the U.S. dollar new strength chasing investors out of the weak dollar/commodities trade.

Commodity traders also showed a lack of confidence in the news coming out of the Brussels Summit. Most traders think their statements just don't offer enough details to give investors any real promise of a concrete plan to shore up the Euro as the down grades just keep coming.

End of week trading is here and it always give an insight into what traders can stomach holding over the weekend. And I am thinking that is not a lot. Here is your trading numbers for Friday......

Crude oil was lower overnight and trading below the 10 day moving average crossing at 88.32. Stochastics and the RSI are bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 86.47 are needed to confirm that a short term top has been posted. If January renews the rally off November's low, May's high crossing at 93.29 is the next upside target. First resistance is last Tuesday's high crossing at 90.76. Second resistance is May's high crossing at 93.29. First support is Wednesday's low crossing at 86.83. Second support is the 20 day moving average crossing at 86.47. Crude oil pivot point for Friday morning is 87.99.

Natural gas was lower overnight as it extends the decline off last week's high. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If January extends the decline off last week's high, November's low crossing at 3.853 is the next downside target. Closes above the 20 day moving average crossing at 4.329 would confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 4.329. Second resistance is last Thursday's high crossing at 4.637. First support is the overnight low crossing at 3.987. Second support is November's low crossing at 3.853. Natural gas pivot point for Friday morning is 4.100.

Gold was lower overnight as it extends Thursday's decline below the reaction low crossing at 1372.10 confirming that a short term top has been posted. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If March extends this month's decline, the reaction low crossing at 1352.00 is the next downside target. Closes above the 10 day moving average crossing at 1391.60 would confirm that a short term top has been posted. First resistance is the 10 day moving average crossing at 1391.60. Second resistance is last Tuesday's high crossing at 1432.50. First support is Thursday's low crossing at 1361.60. Second support is the reaction low crossing at 1352.00. Gold pivot point for Friday morning is 1373.30.

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What Everyone Should Know About Shale Gas

It's no secret that natural gas will play a big role in the U.S. energy needs in years to come. And we need to understand where these sources will come from to make money investing and trading the new sources of natural gas. One of those is shale gas. Shale gas refers to natural gas that is trapped within shale formations. Shales are fine grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.

Does the U.S. Have Abundant Shale Gas Resources?
Of the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.

According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 Tcf of this resource estimate, more than double the estimate published last year. At the 2009 rate of U.S. consumption (about 22.8 Tcf per year), 2,552 Tcf of natural gas is enough to supply approximately 110 years of use. Shale gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future.

Where is Shale Gas Found?
Shale gas is found in shale "plays," which are shale formations containing significant accumulations of natural gas and which share similar geologic and geographic properties. A decade of production has come from the Barnett Shale play in Texas. Experience and information gained from developing the Barnett Shale have improved the efficiency of shale gas development around the country. Another important play is the Marcellus Shale in the eastern United States. Surveyors and geologists identify suitable well locations in areas with potential for economical gas production by using both surface level observation techniques and computer generated maps of the subsurface.

Check out this EIA article for facts on Shale Gas Formations in the U.S.

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Crude Oil's Strong Resistance and the Return of the Clinton Administration

Wednesday's huge drop in crude oil inventory, the largest in 8 years, appeared to be all the oil bulls needed to finally push through the stubborn $90-$91 resistance level. But slumping gasoline sales in the U.S. and a less then desirable Spain Bond sale has most commodity traders shorting crude near the 90.76 level has they head out the door for the holiday vacation.

Even the return of the Clinton administration, well it sure looks like it doesn't it, was not enough to return confidence to the "if you can drop it on your foot and it hurts trade". Of course this is bringing out the "dollar as bottomed" crowd on every financial news channel. And while the dollar was lower in overnight trading stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term in the dollar.

So sit back and watch our President meet with the finest business leaders in the world and use these trading numbers for Thursdays trading......

Crude oil was lower overnight and trading below the 10 day moving average crossing at 88.54 signaling that a short term top might be in or is near. Stochastics and the RSI are neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 86.25 are needed to confirm that a short term top has been posted. If January renews the rally off November's low, May's high crossing at 93.29 is the next upside target. First resistance is last Tuesday's high crossing at 90.76. Second resistance is May's high crossing at 93.29. First support is Wednesday's low crossing at 86.83. Second support is the 20 day moving average crossing at 86.25. Crude oil pivot point for Thursday morning is 88.18

Natural gas was lower overnight as it extends the decline off last week's high. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If January extends the decline off last week's high, the reaction low crossing at 4.126 is the next downside target. If January renews the rally off November's low, the 38% retracement level of the June-November decline crossing at 4.654 is the next upside target. First resistance is last Thursday's high crossing at 4.637. Second resistance is the 38% retracement level of the June-November decline crossing at 4.654. First support is the overnight low crossing at 4.162. Second support is the reaction low crossing at 4.126. Natural gas pivot point for Thursday morning is 4.231.

Gold was lower overnight as it consolidates some of this week's rally. Stochastics and the RSI are turning neutral to bearish signaling that sideways to lower prices are possible near term. Closes below the reaction low crossing at 1372.10 would confirm that a short term top has been posted. If March renews this year's rally into uncharted territory, upside targets will be hard to project. First resistance is last Tuesday's high crossing at 1432.50. First support is the reaction low crossing at 1372.10. Second support is the reaction low crossing at 1352.00. Gold pivot point for Thursday morning is 1387.50.


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Trading The Inverse Relationship Between The SP 500 and the U.S. Dollar

Between the FOMC meeting, low volume holiday trading and Chinese government banking action this week, no surprise that the street is starting show a lack of confidence in the equities market. This Wednesday we started to see fear (green indicator) reach a level which tells us to start looking for the market to bottoming. I do follow a few other charts and indicators which warn me of a possible trend reversal (high probability setup) before it takes place but the US Dollar and selling volume are key.

As we all know, when the market is trying to top and roll over it tends to be more of a process than a couple day event. It’s this lengthy topping process which has a lot of choppy price action sucking traders into a position much to early or shakes you out of the position before the market does what you anticipated. Knowing that tops tend to drag out for an extended period of time is critical for an options trader simple because of Theta (time decay)

On the flip side, bottoming is more of an event because it tends to happen after a strong wave of panic selling. Fear is the most powerful force in the market (other than the Fed/Manipulators.. but that’s another topic). That being said, when you know what to look for in bottoms you can generally see the market starting to bottom and prepare for it.

The charts below of the US Dollar Index and the SPY clearly show the inverse relationship they have. Right now it seems everything is directly connected with the dollar… it has been like that for most if the year… I will note that its not normally this clear. Anyways, the dollar is currently trading at resistance which means there is a good chance it will turn back down. So if the dollar drops, then it should boost the SPY (equities market) and put in a bottom for stocks.

Looking at the lower chart of the SPY etf you can see that recent prices have dropped down to a support zone. The important thing to note here is how selling volume is ramping up. This to me means more traders are getting worried and are cutting their losses or locking in gains before it gets worse. We typically see panic selling enter the market near the end of pullbacks. Just like in a bull market where the retail trader (John Doe) is the last to buy into a stock before it falls, it’s the same but flipped in a down trend. The retail trader is the last to panic and sell out of their position before the market bounces/rallies.

Currently the equities market looks to be showing signs that a bottom is nearing. Over the next session or two the rest of this equation should come to light as a tradable bottom or to start playing the down side of the market, only time will tell.....

Posted courtesy of Chris Vermeulan at The Gold and Oil Guy.Com

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