Musings: Upcoming Winter Could Be A Repeat Of Last Year's Winter

Recently, ImpactWeather, a Houston based weather forecasting and consulting firm, held a webinar in which they discussed their view of the weather trends that will impact temperatures and precipitation in the United States during both the next 30 days and the winter period of December through February. The bottom line is that the developing La Niña in the South Pacific Ocean is controlling the weather patterns. So far the pattern has allowed an active hurricane season to develop but has contributed to only a few of the storms entering the Gulf of Mexico and making landfall on the U.S. coast.

ImpactWeather showed a chart that contained the various global sea surface temperature (SST) anomalies that are influencing global weather patterns. ENSO (El Niño/La Niña Southern Oscillation) is probably the most prominent SST anomaly, but the Pacific Decadal Oscillation (PDO) Pattern, the Atlantic Multi-decadal Oscillation (AMO) Pattern and the Indian Ocean Dipole (IOD) Pattern are also strong weather influencing factors. As shown in the accompanying chart (Exhibit 3), ENSO and PDO are in their cold phase while the AMO and IOD are in their warm phase.

Exhibit 4. La Niña Dominates Winter Weather
 
Source: ImpactWeather

The impact of the PDO and La Niña phases is best shown by the forecasts showing the deviation in temperatures that can be expected in the future as a result of these patterns. As shown in Exhibit 5, the 2011-2012 winter forecast shows that temperatures should average between 1°C and 1.4°C below normal. The forecast for November called for a 1.4°C lower temperature range, which would seem to be consistent with the cooling that has been experienced since late October. The chart shows a multitude of temperature forecasts generated by computer models, virtually all of them showing negative deviations. If one compares the forecasted temperatures for this winter with the temperatures experienced last winter (the far left side of the chart), they look similar, but the forecasted temperature anomalies don't show the move back to zero as experienced last summer. That would suggest that in the United States we may not experience the extreme heat witnessed last summer. That doesn't mean that the drought conditions will end, but lower temperatures would be a welcome relief......Read the entire Musings From The Oil Patch Article.


Today’s Stock Market Club Trading Triangles

Crude Oil Market Summary and Trend Analysis For Tuesday November 22nd

We are now tracking the January contract. No change in our commentary from yesterday. As mentioned last week, we felt that the crude oil market was topping out. In retrospect, we have confirmation that is indeed the case. We are now expecting and look for support to come in at $94.55 (basis the January contract), which is a 61.8% Fibonacci retracement.

At the present time, both our monthly and weekly Trade Triangles remain in a positive mode, which is the direction of the major long term trend. Resistance is the $100 level. Long term, Intermediate term should be long this market with appropriate money management stops.

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

EIA: North Dakota's Oil Production Has More Than Quadrupled Since 2005

North Dakota's oil production averaged over 460 thousand barrels per day (bbl/d) in September 2011, more than four and one half times its September 2005 level. Although the State's oil production growth slowed during the first few months of 2011, more favorable weather conditions helped operators significantly boost output in June, July, August, and September. North Dakota currently trails only Texas, Alaska, and California among oil-producing States.

The early 2011 slowdown in the State's oil production growth was due in large part to an especially severe winter and spring flooding that hampered exploration and development activity. Through May, monthly increases averaged just over 1%, well below the average monthly production growth of about 3% in 2010.

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

North Dakota operators reported stronger production gains more recently. In June 2011, oil production averaged 385 thousand bbl/d, an increase of nearly 6% over May. In July, oil production grew by more than 10% from the previous month, averaging 424 thousand bbl/d. Production in August and September rose by 5% and 4%, respectively. According to North Dakota's Department of Mineral Resources (DMR), warmer and dryer weather has resulted in a sharp increase in active drilling rigs and hydraulic fracturing activity as operators escalate exploration and development programs.

Production increases in North Dakota are mainly associated with accelerating horizontal drilling programs in the Bakken shale formation situated in the northwest portion of the State (and extending into Montana and portions of Canada). By combining horizontal wells and hydraulic fracturing (the same technologies used to significantly boost the Nation's shale gas production), operators increased North Dakota's Bakken oil production from less than 3 thousand bbl/d in 2005 to over 230 thousand bbl/d in 2010.

Citing a backlog of over 350 wells awaiting fracturing services, the DMR anticipates further oil production increases through the remainder of 2011 and over the next several years (reaching as much as 750 thousand bbl/d by about 2015, up from its earlier estimate of 700 thousand bbl/d mentioned in This Week in Petroleum). According to the DMR, the State's crude oil takeaway capacity (via pipeline, rail, and truck) is adequate to accommodate near term projected production increases.


Risk Surrounds Gold and the SP 500

Phil Flynn: Arab Spring Sprung

Ah another sign of spring. No, not the weather but the Arab spring. While oil got slammed yesterday on European Sovereign debt woes and fears that France may get a downgrade, the focus today may be on a new round of sanctions on Iran and another revolution in Egypt.

Oh sure it helps too that the rating agencies reaffirmed the US credit ratings after the Super Committee seemed to lose its super powers. Reuters News said, "rating agencies Standard & Poor's and Moody's said there will no immediate downgrade of their credit ratings on the United States due to the failure of a congressional "super committee" to reach an agreement on debt reduction. But Fitch, the third leading ratings agency, which currently has the most positive rating of the three on U.S. debt, said it could cut the outlook on its triple-A" rating, with a downgrade an outside possibility."

Yet while gold and silver plummeted, oil prices fought back off the lows despite the pressure in the outside markets as pictures of violence in Egypt flashed across the TV screen. Word that protesters were demanding an end to the military rule that has been in place since Hosni Mubarak was deposed caused the country's interim cabinet to resign. Yet the masses in the second Egyptian revolution don't seem to be buying it and appear even more determined than some of the "Occupy Wall Street" folks......Read Phil's entire article.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Natural Gas Bulls Score an "Outside Up Day" in Monday Trading

Crude oil [now trading January contract] closed down $0.53 a barrel at $97.14 today. Prices closed nearer the session high today. A stronger U.S. dollar index again today and a sell off in the U.S. stock market pressured energies. Recent price action in crude does hint that a near term market top is in place. Crude bulls do still have the overall near term technical advantage, but they have faded.

Natural gas [also trading January contract] closed up 7.7 cents at $3.573 today. Prices closed nearer the session high today after hitting another fresh contract low early on. Today's price action scored a bullish “outside day” up on the daily bar chart and if there is good follow through buying on Tuesday then that would confirm a bullish “key reversal” up on the daily bar chart, which could be one early technical clue that a market low is finally in place. But right now the bears still have the solid overall near term technical advantage.

December gold futures closed down $56.40 an ounce at $1,668.90 today. Prices closed near the session low today as the market was hammered to a fresh four week low. The key “outside markets” were bearish for gold today, as the U.S. dollar index was firmer and crude oil prices were lower. Near term technical damage has been inflicted recently, including more today. Bears now have the slight near term technical advantage.


Here is a preview of our MarketClub Trade Triangle Chart Analysis and Smart Scan technology

Crude Oil Takes a Bearish Tone as January Contract Comes Into Play

Attention we are now tracking the January contract.

As we mentioned last week, we felt that the crude oil market was topping out. In retrospect, we have confirmation that is indeed the case. We are now expecting and look for support to come in at $94.55 (basis the January contract), which is a 61.8% Fibonacci retracement. At the present time both our monthly and weekly trade triangles remain in a positive mode, which is the direction of the major long term trend. Resistance is the $100 level. Long term, Intermediate term should be long this market with appropriate money management stops.

Combined Strength of Trend Score = +55

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative


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Risk Surrounds Gold and the SP 500

By JW Jones - Options Trading Signals.com

The current trading environment is one of the most difficult that I can recall in recent memory. Risks abroad regarding the European sovereign debt crisis is keeping market participants on edge as headline risk seemingly surrounds traders at every turn.

In addition to the risk posed by Europe, the market’s reaction to the Congressional Super Committee’s upcoming statements also poses risks. As it stands now, the media is reporting that the committee is in gridlock and has yet to compromise. The deadline for the Super Committee is Wednesday, November 23^rd. The gridlock leads to uncertainty, and Mr. Market hates uncertainty. High levels of uncertainty corresponds with increased volatility levels, thus caution is warranted.

Recently I have been actively trading around the wild price action, but I have been utilizing smaller position sizes in light of the elevated volatility levels. In addition to the smaller position sizes, I have been aggressively taking profits and moving stops in order to protect trading capital.

This past week, members of my service enjoyed two winning trades. We were able to lock in gains on a SPY Put Calendar Spread for a nice 20% gross gain. On Friday we closed a USO Put Calendar Spread for a gross gain of 17%. These trades were relatively short term in duration, but the gains they produced were strong.

Both trades took advantage of increased volatility which resulted in enhanced profits. If volatility remains elevated going forward which I expect, these types of trades will offer great risk / reward going forward. Volatility is an option traders friend, and this past week members of my service were able to lock in some strong gains with relatively muted levels of risk.

Gold Futures

I have not written much about gold recently as I have honestly not seen a great deal of opportunity in either direction there. The price action has been quite volatile, but this past week we saw gold futures sell off sharply. I believe the explanation for the selloff is partially due to strength in the U.S. Dollar. The daily chart of the U.S. Dollar Index is shown below:

The recent selloff in gold can likely be attached to the increase in margin calls around the world as a likely consequence of the MF Global bankruptcy. Uncertainty surrounds the commodities market as the collapse of MF Global has interrupted traditional capital flows and broad based volume around the world. The MF Global situation continues to provide a negative headwind for financial markets in general.

I continue to be a long term bull regarding precious metals as nearly every central bank is either printing money deliberately or is increasing the money supply through quantitative easing. With multiple calls coming out of Europe over the weekend for the European Central Bank to print money to monetize European sovereign debt, it may not be long before the ECB begins their own quantitative easing program. In the long term this can only mean higher prices for gold.

Right now the short term looks bearish for gold as the daily chart of gold futures shows gold tested near the top of a recent rising channel and failed. The selloff was strong, but  a pullback here makes sense from a technical perspective. The daily chart of gold is shown below:

The longer term time frame continues to remain technically positive for the yellow metal. As long as gold prices hold in their multi-year rising channel, higher prices remain likely. Right now the $1,500/ounce price level needs to hold as support if the bulls are going to remain in control in the long term time frame. The weekly chart of gold futures shown below illustrates the long term rising channel:

Right now we are in a seasonally strong period for gold. I am going to be watching closely in coming weeks for a solid entry point to get long the yellow metal for a longer term time frame. Right now the short term remains bearish, but the longer term is bullish from technical and fundamental viewpoints.

S&P 500

The S&P 500 Index sold off sharply during the past week. In my most recent article, I discussed two key price levels to monitor to the downside. The key support levels were the 1,230 and 1,190 price levels respectively. The bulls need the 1,190 area to hold as support to give them any chance for a “Santa Claus Rally” into year end.

Last week the S&P 500 Index closed below the 1,230 support level meaning the 1,190 area has to hold. Otherwise, we could see a sharp selloff into the end of the year. The daily chart of the S&P 500 below illustrates the key support levels:

The S&P 500 looks vulnerable to the downside presently. However, headlines coming out of Europe and/or the Super Committee this week could push prices higher. The key pivot line remains around the 1,257 price level on the daily chart. If the bulls can regain the 1,257 price level on a weekly close a test of 1,290 will become more likely. However, as long as prices remain below 1,230 and 1,257, the S&P 500 is vulnerable to additional downside.

I would not be shocked to see the S&P 500 push higher this week to work off short term oversold conditions. Truncated weeks result in lower than average volume which generally favors the bulls. However, in this environment anything could seemingly happen. Risk is high in either direction.

Subscribers of Options Trading Signals have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out my OTS service at Options Trading Signals.com and join the hundreds that are taking home the profits.

Precious Metals Charts Point to Higher Prices – Part II

Over the recent couple months the precious metals charts have made some sizable moves. Most investors and traders were caught off guard by the sharp avalanche type sell off and lost a lot of hard earned capital in just a few trading sessions. Gold dropped over 20% and silver a whopping 40%.

The crazy thing about all this is that these types of moves in precious metals can be avoided and even taken advantage of in certain situations. There is no reason for anyone to continue holding on to those positions after they pullback 6% of more because of the type of price and volume action both gold and silver had been displaying in the past few sessions.

I warned investors on August 31^st that precious metals were about to top any day and that protective stops should be tightened or taking profits was also a smart move. It was only 2 trading sessions later that precious metals topped and went into a free fall. You can get my detailed analysis if you read my report “Dollar’s On the Verge of a Relief Rally Look Out!”.

A couple weeks later once precious metals has found support and the uneducated investor’s were licking their wounds wondering what the heck just happened to their trading accounts… I put out another report but this time with a bullish outlook. Silver was currently trading at $29.96 and I had a $35-$36 price target over the next two months. Gold was trading down at $1611 and I saw it heading back up to $1750-$1775 area before finding resistance and pulling back. Both these forecasts were reached over the next two months. You can quickly review the report called “Precious Metals Charts Point to higher Prices” for more info.

With all that said, what exactly are the charts saying right now?

Current Precious Metals Charts Summary:

The past 6 weeks we have been watching both gold and silver struggle to hold up but they have managed to grind their way to my price targets. After reaching those targets a couple weeks ago sellers have stepped back into the precious metals market and put pressure these metals.

Last week gold and silver started to pullback in a big way with rising volume. This could just be the start of something much larger which I will cover in just a moment.

The wild card for precious metals and for every stock and commodity for that matter is Europe. Every other day there seems to be headline news moving the market and most of takes place in overnight trading for those of us living in North America. It’s this wild card which is keeping me from getting aggressive in the market right now.

Let’s take a look at the charts…

Silver Precious Metals Chart:

Silver is currently in a down trend and may be starting another leg down this week. Long term I am bullish but for the next couple months I am remain neutral to bearish for silver until it forms a base to start a new uptrend from.

Precious Metals Charts

 Gold Precious Metals Chart:

Currently I am neutral/bearish on gold. If it can trade sideways for a few weeks then I will become bullish.

Precious-Metals-Charts

 Precious Metals Charts Conclusion:

In short, I feel there is a good chance the US dollar will continue higher and if that happens we should see strong selling in North American equities, commodities and likely on the precious metals charts.

Financial markets around the world are at a tipping point meaning something really big is about to take place. The question is which way will investment move. The only thing we can do is trade with the current trends, price patterns and volume.

At this time I still see a higher dollar and that means lower stocks and commodities. This could change at the drop of a hat depending on the news that comes out of Europe so the key to trading right now is to remain cash rich and taking only small positions in the market.

If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my FREE trading education newsletter and my premium trading alert service here at  The Gold and Oil Guy.com

Chris Vermeulen

ONG: Crude Oil Weekly Technical Outlook

Crude oil rose to as high as 103.37 last week but failed to sustain above 100 psychological level and retreated. A short term top should be formed and initial bias is mildly on the downside for deeper pull back towards 94.65 support. Nevertheless, downside is expected to be contained by 89.16/17 cluster support (50% retracement of 74.95 to 103.37) and bring rebound. On the upside, above 100.15 minor resistance will turn bias neutral and bring consolidations. But break of 103.37 resistance is needed to confirm rally resumption. Otherwise, we'll stay near term neutral and expect more sideway trading first.

In the bigger picture, current development indicates the fall from 114.83 has finished at 74.95. The structure suggests it's merely a correction or part of a consolidation pattern. Hence, rise from 33.2 is not finished yet. As long as 89.16/7 support holds, we'd now favor a break of 114.83 resistance to resume the rally from 33.2. Meanwhile, break of 64.23 support is needed to confirm completion of the whole rise from 33.2. Otherwise, we'll continue to stay bullish in crude oil.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

One to Three Years Left For Gold’s Run

Gold has a couple more years to outperform the stock market before the end of this leg, if history is any guide.

This week's chart looks at the Dow Jones Industrial Average expressed in terms of the number of ounces of gold it would take to "buy" the DJIA's index value.  This is a popular comparison that a lot of chartists like to show, especially when it gets up to a really high level like it did back in 1999-2000, at the end of the tech bubble.

 

It has been falling since then, as gold prices have gone higher.  Having an ounce of gold become more valuable means that it takes less of it to buy something else.  And the (violently) sideways movement of the stock market over the past decade has allowed gold's price rise to pull this ratio back down toward "normal" levels seen over the past century.

Based on this way of looking at the DJIA, there have been 3 big bubble tops in the DJIA as expressed in ounces of gold.  What I find interesting and relevant just now is that the declines out of those first two took 13 and 14 years respectively.  So if the current decline follows the same course, then we can expect this ratio to bottom out about 13-14 years from the most recent top.

Doing the math on that is a little bit problematic, since the last top was actually 2 tops, in August 1999 and October 2000.  So if we take 13 years from 1999, and 14 years from 2000, that gives us a date range of 2012-2014 for when to expect a bottom for this ratio. 

That tells us about the "when", but it does not tell us about the "how far".  The bottoms for this ratio in the 1930s and 1940s were down below 3.0, and it got all the way down to 1.3 at the low in January 1980 (based on monthly closes).  If the DJIA were to stay around 12,000 for the next few years, then a ratio of 2-3 would mean gold at around $4000 to $6000 an ounce.  Or the ratio could get down below 3 by having gold stay where it is, and the DJIA get cut in half, or some other combination of movements.  That's how the math works. 

It is risky to forecast both the timing and the price for the end of a trend, so I'll refrain from endorsing those numbers.  I just offer them as food for thought.  Nothing mandates that this ratio reach any particular level. 

The more important conclusion to take from this is that the decline in this ratio does not seem to be done, and is not due to be done for a little while longer.  But the end to this decline in the DJIA/gold ratio is going to come someday, probably when the Fed decides to wake up and start fighting inflation again via higher interest rates.  That does not appear to be on their agenda any time soon. 

Tom McClellan
Editor, The McClellan Market Report