Sharon Epperson: Where is Gold and Commodities Headed on Wednesday

CNBC's Sharon Epperson discusses the day's activity in the commodities markets and looks at where oil and precious metals are likely headed tomorrow.

Adam Hewison: Is The Market Ready For A Rally?

The equity markets put in a very strong performance yesterday, pushing to their best levels since August 5th. We would not be surprised to see this very overbought market possibly rally to the 1230 area and 1250 zone.

The gold market once again bounced over the $1,800 an ounce hurdle and is currently trading at $1,822. This market needs to regroup further if it is going to challenge the $2000 level. The trend is in a positive mode despite the recent $200 pullback.

Crude oil is now very much overbought and approaching the upper levels of the Donchian trading channel. We expect that this channel and the fact that this market is overbought will provide enough resistance to any halt any further upside action.

The dollar index continues to bounce off the support level of 73.50 which we have outlined on numerous occasions. Currently this market is trading at 74.00. The CRB index has rallied quite dramatically after making a low on August 9th. This market is largely reflective of the move in crude oil.

Now, let’s go to the 6 major markets we track every day and see how we can create and maintain your wealth in 2011.

S&P 500
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

The S&P 500 index rallied to its best levels since August 5th. However, this market is heavily overbought and we still view the longer term trend, based on our monthly Trade Triangle, as negative for this market. We would not rule out a potential rally to the 1230 level or even the 1259 level, both of which represent Fibonacci retracements. You may remember that the 1250 area was key support in this index. It would not be unusual for the market to go back up and test this level now as resistance.

SILVER
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trend = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The silver market is definitely the stepchild of the metals market and would appear to be regrouping around the $41.00 level. Both of our intermediate and long term indicators are friendly to the silver market and we would not rule out further strength in the near term. The Williams % R indicator is trading around –50 and it is neither oversold nor overbought at this time.

GOLD
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The gold market appears to be settling down around the $1,800 an ounce level and with our intermediate and longer term indicators still positive, we must remain in the bullish camp for now. It would appear as though the $1,770 level should provide some support on any pullbacks in this market.

The goal market is in the mid range of its major oscillator, the Williams % R, and therefore is not giving us any clues as to its next swing direction. We would imagine a move over $1,850 will be a very positive indicator for gold. Both intermediate and long term traders should maintain long positions with money management stops in place.

CRUDE OIL
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 65

Please note that our comments are based on the October contract. The 89.19 level we mentioned yesterday was enough to stop the current rally today. The crude oil October contract is very close to the top of the Donchian trading channel. On top of that, the market is extremely overbought and we would not be surprised to see a pullback from current levels. At the present time our long term indicator is negative and our short term weekly Trade Triangle is positive, sending a mixed picture for crude oil. However, the longer term monthly Trade Triangle must be given more weight then the two shorter term ones.

DOLLAR INDEX
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 60

Once again the dollar index bounced from the support level at 73.50. The market traded over the 74 level after finding support at 73.50. With a Chart Analysis Score of –60 we would want to trade this market using our Donchian Trading Channels and our Williams %R indicator. The index remains below its 200 day moving average while our longer term Trade Triangle remains positive.

REUTERS/JEFFERIES CRB COMMODITY INDEX
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 60

This index has put in a good performance largely through the move up in crude oil and other commodity type markets. At the moment our indicators are mixed, indicating the absence of a strong trend in either direction. The CRB index is overbought and also at the top of the Donchian trading channel.

We would not be surprised to see some profit taking coming in to this market and a pullback from current levels. Our bias is towards inflation in the future, but I’m expecting to see more of a two way market in this index in the next week or so. Intermediate and short term traders should be out of the market and on the sidelines at the present time.

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Federal Reserve Statements Give Bulls the Upside Momentum

Crude oil closed up $1.49 a barrel at $88.76 today. Prices closed near the session high today and hit a fresh three week high as the bulls gained some more upside technical momentum today. Prices have been trending higher for three weeks. Today, the crude market got a boost when a U.S. Federal Reserve governor hinted at more quantitative easing, which would be bullish for commodities.

Natural gas closed up 8.4 cents at $3.914 today. Prices closed near the session high today and did hit another fresh contract low early on. Short covering in a bear market was featured. Bears still have the solid near term technical advantage. The next upside price breakout objective for the bulls is closing prices above solid technical resistance at last week's high of $4.024.

Gold futures closed up $37.40 an ounce at $1,829.00 today. Prices closed nearer the session high today and saw bargain hunting and some fresh safe haven buying interest after a U.S. Federal Reserve Board governor said he wanted aggressive easing of monetary policy by the Fed and was worried about the U.S. economic recovery.

The gold bulls have made a strong recovery from last week's spike low on the daily chart, to suggest last week's low will become a "reaction low" on the daily bar chart. If prices can continue to work sideways to higher in the near term, then bulls would gain confidence the uptrend on the daily chart has been restarted.

Don Hodges: Despite Fall in Oil Prices, Buy Haliburton, Devon and Sandridge

Don Hodges, portfolio manager for the Hodges Fund, says energy plays like Halliburton, Devon and SandRidge are still moneymakers despite the drop in oil prices.

Positive Consumer Spending Report Lifts Oil and Equities

Crude oil closed higher on Monday as it extends last week's rally on positive consumer spending reports. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

Closes above the reaction high crossing at 89.19 are needed to confirm that a low has been posted. If crude oil renews this summer's decline, the 75% retracement level of the 2009-2011 rally crossing at 71.72 is the next downside target.

First resistance is the reaction high crossing at 89.19. Second resistance is the May-July downtrend line crossing near 95.01. First support is the reaction low crossing at 79.38. Second support is August's low crossing at 76.15.

Sharon Epperson: Where is Gold and Crude Oil Headed on Tuesday

CNBC's Sharon Epperson discusses the day's activity in the commodities markets and looks at where oil and precious metals are likely headed tomorrow.

What is Next For Gold and the SP 500

Two of our partners, J.W. Jones and Chris Vermeulen, have partnered to give us special insight on how they are trading this market and how price action in coming weeks will offer clues about what lies ahead for U.S. equity markets......

Now that Mr. Bernanke’s speech is old news, what was the financial media thinking exactly? A significant number of financial writers have been anticipating discussion of QE III or QE III Lite which clearly were never even on the Fed Chief’s radar this week. The focus of the Jackson Hole Summit was how to achieve long run growth, not conduct discussion of monetary policy.

QE III will not be discussed openly until the next FOMC meeting in September, which noticeably was extended to two days. Besides the extension and the Fed Chairman’s prediction of growth in the back half of the year, the remainder of Mr. Bernanke’s speech was nothing more than a brief synopsis of what he has already said in the recent past.

While Chairman Bernanke focuses on the U.S. economy, I have been more inclined to monitor the action across the pond. Price action in Europe is having a major impact on financial markets here in the United States. Traders are monitoring credit default swap (CDS) spreads on European sovereign debt as well as on domestic and European banks.

Recently U.S. banks have seen the CDS swaps on their debt rising indicating that the marketplace believes their debt is a greater risk to investors. While the price action is nowhere near the 2008 & 2009 levels, current prices are relatively consistent with what was seen during the correction in the late spring of 2010. While there is no reason to panic at this point, this is a trend that I will be monitoring closely going forward.

For now, I continue to believe that equity markets will rally in coming weeks as conditions are extremely oversold. The price action so far today makes sense as the wild price swings helped flush out weak hands that were long. Consequently, the snap back rally pushed shorts into stop levels as well.

A significant move lower does not seem likely at this point, but a retest of the recent lows is possible, if not probable. I would remind readers that stock market crashes generally happen within the context of an oversold market. While the likelihood of a crash is remote, it is still possible and tight risk definition in this environment is warranted regardless of which side of the tape a trader is playing.

One price chart that I have been watching closely is the German DAX. The German DAX is presently a thermometer for traders to monitor the situation in Europe. The reason the German stock market index is so important is due to the financial strength of Germany within the Eurozone. Without Germany, the Eurozone would crumble in on itself and the Euro currency would be in trouble. Recently Germany’s equity markets have been crushed and the daily chart below illustrates the recent carnage:

Another metric I monitor regularly is market momentum. The chart below illustrates the number of domestic stocks trading above their 200 period moving averages. As can be seen below, the U.S. equity market has not been this “oversold” since back in 2009. Chart courtesy of Barchart.com.

In my previous article posted back on August 18th, I discussed the likelihood for stocks to pullback and put in some form of a basing pattern. I wrote the following statement in that article:

“It is entirely plausible that Mr. Market thrusts lower from here to shake out longs. If that scenario plays out it could potentially carve out a double bottom or another basing pattern which would give active traders another entry point to get long.”

Since August 18th, we have seen the S&P 500 push lower and there is a double bottom on the daily chart which is capturing quite a bit of attention in the trading community. I would also draw your attention to the wedge pattern that is also present. A breakout higher or lower out of this wedge pattern will be the clue that will indicate Mr. Market’s short term price direction. I continue to believe we will see a breakout higher, but a retest of the lows is always a possibility. The daily chart of the S&P 500 Index is shown below:

In the short to intermediate term, I believe we will see higher prices and a test of the key S&P 1,220 area or possibly a re-test of the key S&P 1,250 price level which corresponds with the March 2011 pivot lows. Additional resistance would come in around the 1,260 – 1.270 area which marks the neckline of the recent head and shoulders pattern which triggered the selloff in the S&P 500. The daily chart of the SPX below illustrates the key resistance areas:

Gold Analysis
My most recent article argued that gold prices were going parabolic and that a pullback was likely. We have seen a major pullback in gold prices. Admittedly, I was about $200 an ounce early on my call, but members of my service were able to capitalize on an option trade that captured 32% based on maximum risk through the use of a double calendar spread. While my timing was not precise, the juiced volatility in the GLD options allowed me to roll contracts forward and make additional adjustments to produce a strong gain for the service.

Some traders argue that gold prices are going to rally back sharply in short order, which I find hard to believe. Instead, I am of the opinion that we could see additional downside in the weeks/months ahead in gold prices. There is an ominous pattern starting to form on the gold daily chart which if it is carved out and triggered, it could produce the next leg of this selloff. The daily chart of gold is shown below:

While it is far too early to determine if a head and shoulders pattern will be carved out or if lower prices take place, I am of the opinion that this selloff will offer an attractive entry point for longer term investors. At this point it is a bit too early to get involved, but if my analysis is accurate the next leg of the gold bull market will be potentially extreme.

While I believe stocks will rally in the short to intermediate term, I am of the opinion that we have officially entered the next phase of the bear market. The next wave lower in stocks is going to be just as severe as the likely rally in gold.

The reason I believe gold will rally is primarily due to future weakness in Europe. If European banks have a credit crisis, a sovereign nation unexpectedly defaults, Germany leaves the Eurozone, or a currency crisis transpires gold prices should soar while U.S. equity prices tank.

While it is far too early to make that determination, if the S&P 500 puts in a lower high on this next advance higher and consequently takes out the recent lows on a selloff, the bear will be in full swing and gold prices should take off. The chart below illustrates my expectations for the S&P 500 in the future:

The next few weeks are going to be very telling about the future in domestic markets. Is this just a correction that pushes stocks higher by the end of the year, or is this the beginning of something far worse?

For now I am going with the latter, but price action in coming weeks will offer clues about what lies ahead for U.S. equity markets. Right now this is nothing more than speculation, but the next few months should be very interesting. Risk remains exceedingly high.

Check out J.W. Jones site at  Options Trading Signals.Com for a 24 hour 66% off coupon. And sign up for Chris Vermeulens unique services at The Gold and Oil Guy.Com

Crude Oil Bulls Take Charge in Mondays Early Trading

Crude oil bulls gained solid momentum Monday morning as oil traded slightly higher in Sunday evenings trading as it extends last week's short covering rally. Bulls extended the run on Monday morning after a report that showed U.S. consumer spending climbed more than forecast in July. Stochastics and the RSI remain neutral to bullish for the near term but we remain bearish overall as long as the bulls do not make a significant breach of the 89 dollar level.

Closes above the reaction high crossing at 89.19 are needed to confirm that a short term low has been posted. If October renews the decline off May's high, the 75% retracement level of the 2009-2011 rally crossing at 71.73 is the next downside target.

First resistance is the 20 day moving average crossing at 85.80.
Second resistance is the reaction high crossing at 89.19.

Crude oil's pivot point for Monday trading is 84.65.

First support is the reaction low crossing at 79.38.
Second support is this month's low crossing at 76.15.

Crude Oil Markets Welcome Ben and Irene over for Friday Trading

Crude oil was slightly lower in Thursday overnight trading as traders watched Hurricane Irene bear down on North Carolina threatening at least 10 oil refineries. But traders seemed to be more concerned with overall demand and how Ben Bernanke will spin the markets from Jackson Hole Wyoming today.

We are giving the oil bulls a slight near term advantage as the Stochastics and RSI remain bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 89.19 are needed to confirm that a short term low has been posted. If October renews the decline off May's high, the 75% retracement level of the 2009-2011 rally crossing at 71.73 is the next downside target.

First resistance is the 20 day moving average crossing at 86.27. Second resistance is the reaction high crossing at 89.19. First support is last Friday's low crossing at 79.38. Second support is this month's low crossing at 76.15. Crude oil pivot point for Friday morning trading is 84.96.

Crude Oil Bulls Struggle to Gain Momentum in Thursdays Session

Crude oil closed lower on Thursday as it consolidates some of this week's rally. The mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI are bullish hinting that a low might be in or is near.

But the bulls have a lot of work ahead of them as closes above the reaction high crossing at 89.19 are needed to confirm that a low has been posted. If October renews this summer's decline, the 75% retracement level of the 2009-2011 rally crossing at 71.72 is the next downside target.

First resistance is the 20 day moving average crossing at 86.82. Second resistance is the reaction high crossing at 89.19. First support is this month's low crossing at 76.15. Second support is the 75% retracement level of the 2009-2011 rally crossing at 71.73.