Crude Oil, Natural Gas and Gold Market Commentary For Monday Oct. 10th

Crude oil moved higher this morning along with equities as it extends the rally off last Monday's low. Stochastics and RSI are bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 83.31 are needed to confirm that a short term low has been posted. If November renews this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 72.20 is the next downside target. First resistance is the 20 day moving average crossing at 83.31. Second resistance is the reaction high crossing at 84.77. First support is last Monday's low crossing at 74.95. Second support is the 75% retracement level of the 2009-2011 rally crossing at 72.20. Crude oil pivot point for Monday morning trading is 82.78.

Just click here for your FREE trend analysis of crude oil ETF USO

Natural gas extends it's decline off June's high. Stochastics and RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If November extends the aforementioned decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.778 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.645. Second resistance is the 20 day moving average crossing at 3.778. First support is the overnight low crossing at 3.455. Second support is monthly support crossing at 3.225. Natural gas pivot point for Monday trading is 3.517.

Just click here for your FREE trend analysis of UNG, the Natural Gas ETF

Gold extends the trading range of the past nine days. Stochastics and RSI are bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 1700.20 are needed to confirm that a short term low has been posted. If December renews the decline off September's, the 38% retracement level of the 2008-2011 rally crossing at 1476.20 is the next downside target. First resistance is last Monday's high crossing at 1681.50. Second resistance is the 20 day moving average crossing at 1700.20. First support is September's low crossing at 1535.00. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1476.20. Gold pivot point for Monday morning trading is 1643.80.

Just click here for your FREE trend analysis of gold ETF GLD

Phil Flynn: Bail Out Bonanza

Another day, another bailout and yes, bailouts are bullish! Another plan to save Europe and rising expectations of the US economy has oil back on an upward track. Oil got an initial bounce off of a jobs report that seemed to suggest that we are not in a recession. Yet after a surprise downgrade of Italy and Spain, oil took a late drop. Holy Fitch! Yet over the weekend German Chancellor Angel Merkel said that Germany and Spain have a plan to bail out European banks. Well at the very least they have a plan to make a plan and the details will be forthcoming. Huh? Well no matter, enjoy the ride!

Plus there are reports that the French-Belgian bank Dexia agreed to the nationalization of its Belgian banking division and secured 90 billion euros or $121 billion dollars in state guarantees. Now it appears that other banks in Europe will be backed by the governments in an effort to forestall an economic collapse. Bloomberg News reported that Angela Merkel and Nicolas Sarkozy turned their crisis fighting focus to banks, promising a recapitalization blueprint this month that will overtake a 12 week old rescue plan that has yet to be put into place. “We will recapitalize the banks,” the French president said in Berlin yesterday at a joint briefing with the German chancellor without providing details. “We’ll do it in complete agreement with our German friends because the economy needs it, to assure growth and financing.”

Of course the recent drop in crude oil price may cause some to change their long term demand forecasts and their outlook for future production capacity as well! The Saudis announced that they have put on hold their expansion of oil production capacity. The Saudis had planned to add another 2.5 million barrels of day of capacity to meet growing global demand. That would have the Saudi's production capacity at around 15 million barrels per day. The Wall Street Journal reported that Saudi Aramco Chief Executive Khalid Al Falih said, "There is no reason for Saudi Aramco to pursue 15 million barrels (of output capacity),"It is difficult to see (an increase in capacity) because there are too many variables happening," he said. "You've got too many announcements about massive capacity expansions coming out of countries like Brazil, coming out of countries like Iraq.

The market demand is addressed by others." He went on to say, "Our objective is not to grow our production for the sake of growing our production," Falih said, "but to be there for the market if the market needs it, and we are waiting to see what happens on the supply side as well as how demand stabilizes. Our planning horizons are in the decades and most of our investments are investments that will do very well at the end of an economic recession so we will pursue them ... regardless of what happens in Europe or in the U.S.," he said.

Now some peak freaks will claim the real reason is because the Saudis can't raise production because they are running out of oil. Yet the truth is that they are worried that an increase in capacity will put downward pressure on price at a time when global demand is faltering.


Tune into the Fox Business Network where you can see Phil every day! Also sign up for a trial to his daily trade levels! Just email him at pflynn@pfgbest.com

Don't miss "Is The SP 500 About to Stage a Multi Month Rally?"

OPEC Likely to Agree to Keep Output Target Unchanged

OPEC’s members are likely to decide to keep their output target for oil unchanged when they meet in December, Iran’s representative to the Organization of Petroleum Exporting Countries said.

Producers and consumers are satisfied with the current price level for crude, Iran’s Governor to OPEC Mohammad Ali Khatibi said, according to Shana, the Iranian Oil Ministry’s news website. “The situation is such that most OPEC members are expected to agree with maintaining the current level of oil production,” Khatibi said.

OPEC is responsible for 40 percent of global oil output, and the group’s 12 members are to meet Dec. 14 in Vienna to review output policy. Iran is OPEC’s second largest producer after Saudi Arabia. When the group last gathered on June 8, Iran and five other members rejected a Saudi proposal to raise output by 1.5 million barrels a day, and the meeting ended without agreement for the first time in at least 20 years.

The average price for OPEC’s main crude oil grades fell below $100 a barrel last week for the first time since Feb. 18, before rising back above that level on Oct. 6. The price for the so called OPEC basket of crudes advanced to $101.63 from $99.90 on Oct. 5, according to OPEC’s website. The basket price is calculated using one key export blend from each of the organization’s members and weighting each according to production.

Before last week, the OPEC price had exceeded $100 since the beginning of 2011. “Prices aren’t expected to fluctuate much,” Khatibi said.


Posted courtesy of Bloomberg News

Oil N' Gold: Crude Oil Weekly Technical Outlook

From the staff at Oil N' Gold.Com, their weekend market update.......

Crude oil breached 75.71 to 74.95 initially last week but that was brief. It then rebounded strongly to as high as 84.00. Initial bias is mildly on the upside this week and further rebound might be seen to 84.77 and above. But there is no change in the bearish view that decline from 114.83 is not finished. Hence, we'd expect upside to be limited well below 90.52 key resistance and bring another fall. Below 79.08 minor support will flip intraday bias back to the downside. Break of 74.95 will target 70 psychological level.

In the bigger picture, medium term rebound from 33.2 is treated as the second leg of consolidation pattern from 147.24 and should have finished at 114.83 already. Current decline should target next key cluster support at 64.23 (61.8% retracement of 33.2 to 114.83 at 64.38) next. Sustained break will pave the way to retest 33.2 low. On the upside, break of 90.52 resistance is needed to invalidate this view or we'll stay bearish in crude oil now.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2, second wave might be finished. Upon confirmation of medium term reversal, the third wave of the pattern should have started for a retest on 33.2 low.

Don't miss our most popular recent posts.......

Is The SP 500 About to Stage a Multi Month Rally?

Gold, DAX and Dollar Still Pointing to Sharply Lower Prices

Is The SP 500 About to Stage a Multi Month Rally?

J.W. Jones of Options Trading Signals tells us where he sees this market headed...... 

The S&P 500 must have taken notice of the multitude of headlines coming at market participants and proceeded on a path of pure chaos. Since October 4th, the S&P 500 Index (SPX) managed to trade in a range that spanned from 1,074 to as high as 1,171 in 4 days. To put the past 4 days price action into perspective, the S&P 500 Index rallied 97 points or 9% in less than 96 hours.

Since late July, market participants have been dealing with a whipsaw that has been wrought with headline risk coming from Europe and huge swings in the price action of the volatility index. A few short days ago I was calling for a bounce higher in the SPX as every time frame was oversold. After the jobs number came out Friday morning domestic equities rallied sharply higher and in the short term prices were excessively overbought prompting some profit taking.

Around lunch time the news wires broke that Spain and Italy had their sovereign debt downgraded by Fitch Ratings. The downgrade put U.S. banks under pressure quickly and the price action started to rollover. By the end of the day price action was starting to work higher but a sharp selloff played out in the final 30 minutes of the session putting the major indices back into the red at the closing bell. So the real question that lies ahead is where do we go from here?

There is no easy answer to that question as the headline risk coming out of Europe over the weekend could have a dramatic impact on prices on Monday. Just as a reminder, U.S. bond markets will be closed on Monday for Columbus Day, but equities markets will be open as usual. At this point in time my short term bias is to the downside.

It would be healthy to see the S&P 500 roll over here and find a key support level where buyers step in and support prices. A higher low would be constructive and could lead to a more prolonged intermediate term rally which could last into the holiday season. However, before we can see any sort of rally we need to see a bottom form. While I do believe we have initiated that process, until I see a higher low carved out on the daily chart I will consider the current price structure to remain bearish.

In order to break to new lows, the SPX would have to push through several layers of support. I am of the opinion that we are unlikely to see the recent lows broken, but the chart below illustrates the key support levels going forward. A test of the 1,040 – 1,050 price range remains possible, but the price action the past week makes it seem less likely. Within the context of a hyper volatile period of time, just about any possible outcome remains feasible. The daily chart of the SPX below illustrates key support levels for the index:

In addition to the weak price action into the close on Friday, several other clues are pointing to potentially lower prices in the near future. Members of my service know that I focus daily on several underlying ETF’s which help me get a grasp of the overall market conditions. On Friday, the financials (XLF), the Dow Jones Transportation Index (IYT), and the Russell 2000 Index (IWM) all showed relative weakness against the S&P 500. The chart below illustrates the relative performance on Friday:

The financials and the Dow Jones Transportation Index are excellent sectors to monitor when trying to determine the future price action of the S&P 500. Most of the trading session on Friday the financials (XLF) were exhibiting relative weakness versus the S&P 500 Index. Later in the session, the Dow Jones Transportation Index (IYT) started to roll over as well and once both ETF’s were under pressure it was not long before the S&P 500 Index flipped the switch to the downside.

The financials (XLF), the Russell 2000 (IWM), and the Dow Jones Transports (IYT) all put in large reversal candlesticks on the daily chart by the close of business on Friday. This is an ominous signal that lower prices for domestic equities may be forthcoming. The fact that key sectors are showing signs of weakness is a negative omen for the S&P 500 and the early part of next week. However, there is a bright side to this scenario.

If support levels can hold up prices next week and we see a higher low on the daily chart form, the bottoming process could be underway which could lead to a strong rally into year end. Obviously a probe to new lows is possible, but I believe that we are in the beginning stages of forming a bottom and a base for a rally to take shape.

If support levels hold up prices, a bottoming formation will likely get carved out on the daily chart of the SPX. The chart below illustrates two potential outcomes that could cause prices to rally sharply. In one case, a higher low is formed and we see prices take off to the upside. The other scenario involves an intraday selloff down to the 1,040 – 1,050 price level that gets snapped back up and a huge reversal candlestick would be formed. These scenarios are common during bottoming processes. The daily chart of the S&P 500 Index is shown below with the two scenarios highlighted:

The other scenarios would involve prices blowing through support and possibly knifing down to test the S&P 500 1,000 – 1,008 support area. While I find this scenario to be less likely at this time, anything could happen in this trading environment.

The key in the short run is the utilization of defined risk through the use of stop orders. In addition, a trading plan with stop orders and profit taking levels planned ahead will help remove emotion in a volatile tape. The price action is wild, but from my perch the likely scenarios all involve some short term selling pressure. If my analysis is right, this could be a huge turning point for price action the rest of the year.

The next few weeks are going to provide us with clues about the rest of 2011. 

The question traders should really be asking is whether support will hold, or will we break below the recent lows? Right now, the upside looks limited, but in this trading environment the best thought out plans can turn out to be useless if price action does not cooperate. Be nimble and define your risk, as volatility is not likely to subside anytime soon.

Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at Options Trading Signals.com and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

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Seadrill Secures a Five Year Contract for New Rig..... The West Capricorn

In a quest for reliable dividend plays one of our "fund favorites" has become Seadrill, ticker SDRL. Closing at 28.92 on Friday and paying a handsome $3.00 - 11.10% dividend, Seadrill released even more great news......

Seadrill has entered into a Memorandum of Understanding with a major oil company for a five-year contract for operations in North America with the ultra deepwater semi submersible rig West Capricorn. The potential contract value for the firm five year period is US$919 million, which includes a US$30 million mobilization fee. The oil company has the right to extend the contract term for two additional one year periods.

West Capricorn is currently under construction at Jurong Shipyard in Singapore. The unit will commence its transit to North America upon delivery that is scheduled for late December 2011. Start up operations are scheduled for May 2012. West Capricorn will be the fourth rig of the proven Friede & Goldman ExD Millenium design that Seadrill has taken delivery of from the Jurong Shipyard since 2008. Furthermore, the rig will be the first ultra deepwater unit in the industry that is outfitted with a 7-ram blowout preventer.

Alf C Thorkildsen, Chief Executive Officer in Seadrill Management AS, says, "We are pleased to have secured a long term contract for one of our new rigs in one of the most promising deepwater regions. The contract duration proves the attractiveness of our modern fleet and offers strong earnings visibility for our shareholders. Furthermore, it gives us the opportunity to have two sister rigs working in the same region which provide for operational synergies related to performance and costs."


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Employment Numbers Give Crude Oil Bulls Hope

Better then expected employment numbers have commodity traders attempting to push crude oil out of the current trading range as crude traded as high as $84.00 in Wednesday evenings overnight session. But trading at the opening of U.S. markets this morning make it painfully obvious, it's not enough. The financial crisis in Europe is front and center for these markets.

Stochastics and the RSI are oversold and are turning bullish hinting that a low may be in. But closes above the 20 day moving average crossing at 83.46 are needed to confirm that a short term low has been posted. If November extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 72.20 is the next downside target.

First resistance is the 20 day moving average crossing at 83.46. Second resistance is the reaction high crossing at 84.77. First support is Monday's low crossing at 74.95. Second support is the 75% retracement level of the 2009-2011 rally crossing at 72.20. Crude oil pivot point for Thursdays trading is 81.52.


Don't miss Chris Vermeulens take on the markets direction. Read "Gold, DAX and Dollar Still Pointing to Sharply Lower Prices"

Chris Vermeulen: Gold, DAX and Dollar Still Pointing to Sharply Lower Prices

The past month has been a wild ride for both equity and commodity traders around the globe. Novice traders have had their heads handed to them and their investment accounts drained. When fear, uncertainty and volatility are running high, some of the best opportunities become available to those who know what to look for. These market conditions force you to focus and strive for perfection in finding low risk entry setups and to also actively managing positions with laser focus because within hours a winning trade can turn into a losing trade.

Looking back on the daily charts of the dollar, SP500, gold, and also the overseas markets it looks as though we are nearing a market bottom. I say NEARING because I think investments need more time for the current selling pressure and bearish sentiment to run its course, which could take another few weeks and possibly a few month before truly bottoming.

Let’s take a quick look at some charts…...

SPY 30 Minute Chart Looking Back 2 Months

As you can see below price action has been wild. But for subscribers to my newsletter it has been a fun and exciting time having pocketed over 40% return from August 1^st – up until today.

The point of this chart is to show you the basic market phases (Impulse, Uncertainty, and Corrective). Understanding how to identify each phase using momentum, price action, volume analysis and market sentiment is crucial for success in today’s volatile market. Once mastered you can trade virtually any investment with a high level of confidence, though I recommend mastering 3-4 investments at most and just trading those full time with pinpoint accuracy. Through my newsletter members learn exactly how to read the market and manage positions from my daily video market analysis, intraday updates, trade alerts and trading tips.

As you can see below I am anticipating weakness in the market over the next few days. Once those levels are reached or if the charts start hinting that a reversal back down is imminent I will be ready to take action using an inverse leveraged ETF.

Gold 30 Minutes Chart Looking Back 2 Months

This chart will piss some people off for sure… but the chart to me is still pointing to lower prices at this time. Until we get a breakout above the upper resistance level I am not bullish on gold. Keep in mind that during strong selloffs in the stock market almost all investment drop together (gold, silver, oil, stocks).

German DAX Daily Chart Looking Back 3 years

This chart shows the long term chart of the DAX which I think is giving us some insight to a global market bottom in the coming months. You will notice I painted the phases over the chart and where I feel the market is trading and where it is headed looking forward.

Dollar Index Daily Chart Looking Back 3 Years

The dollar also shows us three years for price action. If this strong rally continues in the dollar we will see lower stock and commodity prices for a few more months.

Trend Trading Idea Conclusion:

In short, I feel we have some very exciting times ahead along with huge potential trades starting to unfold. While I don’t want the market to collapse I will admit I prefer trading the short side of the market because fear is easier to trade than greed, not to mention prices drop much quicker than they rise… I’m sure you like making money fast also........

I can email you my bi weekly reports and videos by joining my free newsletter here at the Gold and Oil Guy.com

Read Chris' Most Recent Gold and Oil Guy Articles

Rigzone: Greece to Invite Crude Oil Exploration in January

Greece in January will invite offers for oil exploration off its western shores in the hopes of tapping reserves of some 280 million barrels, the junior energy minister said Thursday.

Yiannis Maniatis said the cabinet had approved drilling in the gulf of Patras, the sea region west of Ioannina and Katakolo off the Peloponnese coast, the semi state Athens News Agency reported.

"It is the first time Greece is taking such a step, and it will be done in complete transparency," Maniatis said according to the agency.

A contractor is expected to be appointed within a year.

The gulf of Patras is thought to hold some 200 million barrels of crude oil, while another 80 million barrels are believed to lie near Ioannina and another three million near Katakolo.

The cash strapped Greek state, which is struggling to escape default, could draw up to EUR14 billion over the next 15 years, ANA said.


Posted courtesy of Rigzone.Com

Oil N' Gold: Drop in Crude Inventory Fails to Alter the Downtrend

Total crude oil and petroleum products stocks declined -4.63 mmb to 1074.56 mmb in the week ended September 30. Crude stockpile fell -4.68 mmb to 336.28 mmb as 3 out of 5 PADDs recorded stock draws and Gulf Coast inventory plunged -5.24 mmb. Cushing stock also fell -0.83 mmb to 30.09 mmb. Utilization rate fell -0.1% to 87.7%.

Gasoline inventory dropped -1.14 mmb to 213.72 mmb although demand slipped -0.06% to 8.989M bpd. Imports dropped -6.65% to 0.51M bpd while production edged up +0.08% to 9.29M bpd during the week. Distillate inventory slipped -0.74 mmb to 156.93 mmb as demand jumped +7.39% to 4.10M bpd. Production gained +2.37% to 4.67M bpd while imports soared +36.67% to 0.21M bpd during the week.

WTI crude oil price rebounded to 78.84 after the report as crude inventory surprisingly fell. Distillate and gasoline stockpiles were also down during the week. However, the near-term outlook remained dismal amid global economic concerns and worries about European sovereign crisis.


A Comparison between API and EIA reports at Oil N' Gold


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