Precious Metals, Equities and Crude Oil Long Term Outlook Part II

It’s that time of year again and I’m not talking about the holiday season...... What I am talking about is another major market correction which has been starting to unfold over the past couple weeks.

I have a much different outlook on the markets than everyone else and likely you as well. However, before you stop reading what I have to say hear me out. My outlook and opinion is based strictly on price, volume, inter market analysis, and crowd behavior and you should put some thought as to what I am saying into your current positions.

Two weeks ago I sent my big picture outlook to my subscribers, followers, and financial websites warning of a major pullback. You can take a quick look at what the charts looked like 2 weeks ago...... 

"The Currency War Big Picture Analysis for Gold, Silver & Stocks"

Since my warning we have seen the financial markets fall:
SP500  down 2.6%
Crude Oil down 4.4%
Gold down 9.6%
and Silver down 12.2%

If you applied any leverage to these then you could double or triple these returns through the use of leveraged exchange traded funds. The amount of followers cashing in on these pullbacks has been very exciting to hear. The exciting part about trading is the fact that moves like this happen all the time so if you missed this one, don’t worry because there is another opportunity just around the corner.

While my negative view on stocks and precious metals will rub the gold and silver bugs the wrong way, I just want to point out what is unfolding so everyone sees both sides of the trade. I also would like to mention that this analysis can, and likely will change on a weekly basis as the financial markets and global economy evolves over time. The point I am trying to get across is that I am not a “Gloom and Doom” kind of guy and I don’t always favor the down side. Rather, I am a technical trader simply providing my analysis and odds for what to expect next.

Let’s take a look at some charts and dig right i........

Dollar Index Daily Chart:

 

SP500 Futures Index Daily Chart:

Silver Futures Daily Chart:

Gold Futures Daily Chart:

Crude Oil Futures Daily Chart:

Mid-Week Market Madness Trend Analysis Conclusion:

In short, stocks and commodities are under pressure from the rising dollar. We have already seen a sizable pullback but there may be more to come in the next few trading sessions.

Overall, the charts are starting to look very negative which the majority of traders/investors around the world are starting to notice. With any luck they will fuel the market with more selling pressure pushing positions that my subscribers and I are holding deeper into the money.

Now that the masses are starting to get nervous and are beginning to sell out of their positions, I am on high alert for a panic washout selling day. This occurs when everyone around the world panics at the same time and bails out of their long positions. Prices drop sharply, volume shoots through the roof, and my custom indicators for spotting extreme sentiment levels sends me an alert to start covering my shorts and tightening our stops.

Hold on tight as this could be a crazy few trading session........

If you want to get these free weekly reports just  click here to join my free newsletter! 

Chris Vermeulen

OPEC Agrees to 30 Million Barrel Output Limit

OPEC decided to increase its production ceiling to 30 million barrels a day, the first change in three years, moving the group’s supply target nearer to current output. “We have an agreement to maintain the market in balance and we’re going to adjust the level of production of each country to open space for Libyan production,” Venezuelan Energy Minister Rafael Ramirez said after the Organization of Petroleum Exporting Countries meeting ended today in Vienna.

The group won’t set individual quotas for each member nation, a person with knowledge of OPEC policy said earlier today while the ministers were still in talks. The 30 million barrel a day limit is for all of OPEC’s 12 member nations, including Iraq and Libya, United Arab Emirates Oil Minister Mohamed al-Hamli said after the meeting ended.

OPEC is raising its quota to more closely match actual production while at the same time gauging the possibility of a slowing global economy and rising Libyan supply. Its last meeting in June broke up without consensus when six members including Iran and Venezuela opposed a formal push to pump more oil by Saudi Arabia and three.....Read the entire Bloomberg article.


The Currency War Big Picture Analysis for Gold, Silver & Stocks

Crude Jumps On False Iran Rumor, But Holds Onto Gains

Crude oil futures leapt more than three percent in just minutes Tuesday on a market rumor that Iran closed a major oil shipping channel, but then pared gains as the rumor proved untrue.

According to the rumor, the Iranian government closed the Strait of Hormuz. The strait, located between Iran and Oman, is the most important oil shipping channel in the world, handling about 33% of all ocean borne traded oil, according to the U.S. Energy Information Administration.

The rumor was picked up on financial blogs and a handful of news web sites, and sent Nymex crude futures rocketing as high as 3.6% over Monday's settlement, to $101.25 a barrel.

An Iranian official later dismissed the rumor, and a spokeswoman for the U.S. Navy's 5th fleet in Bahrain said shipping traffic in the strait was flowing normally. The rumor appeared to be founded on a news item from Monday afternoon, in which a member of the Iranian parliament said its military was preparing to practice closing the straight......Read the entire Rigzone article.


How to Trade Using Market Sentiment & the Holiday Season

Dennis Gartman: The Gold Bull Run is Dead

Calling the death of gold's bull run, and the beginning of a gold bear market, with Dennis Gartman, The Gartman Letter.



Is This December Similar to 2007 & 2008 for Gold & Stocks?

ONG: Crude Oil Daily Technical Outlook For Tuesday Dec. 13th

Crude oil continues to stay in tight range above 97.36 temporary low and intraday bias remains neutral for the moment. As noted before, more consolidative trading would likely be seen below 103.37 high. Below 97.36 minor support will flip bias to the downside for 94.99 and possibly below. But in such case, 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, break of 103.37 will confirm resumption of recent rally and should target 114.83 resistance next.

In the bigger picture, fall from 114.83 has finished at 74.95 already. 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 89.16/17 support holds, we'd favor a break of 114.83 resistance to resume the rally from 33.2. However, break of 89.16/17 will indicate that rebound from 74.95 has completed and whole fall from 114.83 is possibly resuming for another below 74.95.

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


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Crude Oil Stochastics and RSI Turn Bearish, Sideways or Lower Prices Likely

Crude oil closed lower on Monday due to concerns over the global economy and the prospect for falling demand near term. A short covering rally tempered early session losses and the high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near term.

Closes below the reaction low crossing at 94.99 are needed to confirm that a short term top has been posted. If January renews the rally off October's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target.

First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is the reaction low crossing at 94.99. Second support is the reaction low crossing at 89.05.

Look for the $100.00 area basis the January contract to offer stiff resistance for any rallies in this market. We would not be surprised to see this market move down to the lower band of its Donchian Trading Channel, around the $95 level.

With two of our Trade Triangles green, giving us a +65 Chart Analysis Score, it still appears as though the under lying elements of this market remain bullish. Long term, and intermediate term traders should be long this market with appropriate money management stops.


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Residual Fuel Consumption in the U.S. Continues to Decline

After reaching a high point of over three million barrels per day (bbl/d) in the late 1970s, demand for residual fuel oil in the United States has steadily declined (product supplied as seen in the chart above is a proxy for demand). Residual fuel is used as fuel for large ships and for electricity generation, industrial process and space heating, and other industrial purposes. Between 2000 and 2010, average annual residual fuel use fell from approximately 900,000 bbl/d to 500,000 bbl/d. It averaged nearly three times that in the 1940s and 1950s. As its name implies, residual fuel oil is the remaining fraction resulting from the crude oil refining process. Because residual fuel is a heavy product, it has limited uses and relatively high emissions.

Source: U.S. Energy Information Administration, Petroleum Supply Monthly.
Note: Product supplied is a proxy for demand.
Download CSV Data

Changes on both the residual fuel supply and demand side of the equation are contributing to the downward trend.

Demand The demand-side landscape for residual fuel has changed over the course of the past few decades, particularly in the electric power sector. From 2000 to 2005, natural gas and oil prices tracked closely. Since 2006, the prices of these two fuels decoupled, as rapidly increasing supply drove natural gas prices down. As a result, the power sector began relying more on natural gas and less on residual fuel, except in circumstances where spot natural gas prices soared due to weather-related constraints. Other exceptions include Hawaii, which relies on residual fuel for much of its power generation (58% in 2010). To a lesser degree, Alaska and Florida use residual fuel, and in-city generators in New York City must use a minimum of residual fuel to meet reliability requirements. Other factors accounting for declining generation at residual-fired plants include: the availability of more efficient natural gas combined-cycle units, increased stringency of air emissions, and at times rising sulfur dioxide emissions costs.

Aside from the electricity sector, other major demand sectors, such as transportation, have not seen much change in residual demand over the same period. Residual fuel, often called bunker fuel in this context, continues to power large ships.

Source: U.S. Energy Information Administration, Fuel Oil and Kerosene Sales.
Download CSV Data

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Supply The supply of residual fuel oil from domestic refining has also declined. U.S. refinery yield for residual fuel oil dropped from 5.8% in 1993 to 3.8% in 2010. Refinery yield represents what finished petroleum products are made from crude oil run through refineries' crude distillate units and other downstream processes. Lighter petroleum products, such as motor gasoline and ultra low sulfur distillate, command higher market prices. Therefore, refineries focus their operations to maximize production of those products. By investing in more sophisticated downstream unit capacity, refineries can increase the amount of lighter products from each barrel of crude, and, as a result, lessen the production of heavier products such as residual fuel oil.

Due to rising gross exports and falling gross imports, the United States became a net exporter of residual fuel oil in 2008 (see chart below). U.S. gross exports of residual fuel oil increased steadily since the early 1990s. Additionally, after a sharp decline in gross imports from a high of more than 1,800 thousand barrels per day in 1973 to a low of less than 200 thousand barrels per day in 1995, gross imports have averaged about 350 thousand barrels per day over the last 10 years.

Source: U.S. Energy Information Administration, Petroleum Supply Monthly.
Download CSV Data

Will The Dollar Ruin The Santa Claus Rally in the S&P 500?

Experienced traders recognize that volume typically dries up going into the holiday season. Light volume and the holiday seasonality generally push equity prices higher. The discussion of whether Santa Claus comes to Wall Street has arrived in earnest.

I do not envy Santa as he has the most arduous task of determining if Wall Street was naughty or nice. I suppose it depends on whether he reviews recent performance, or if past performance comes into play. Clearly coal will likely be found in a few stockings soon enough. If I were John Corzine, I would not expect to get a lump coal, but something far worse potentially.

In all seriousness, the bullishness has gotten pervasive in the media and economic data points such as unemployment and consumer credit have improved according to the government. One way to gauge investor sentiment is to look at the weekly advisor sentiment numbers courtesy of Bloomberg and Investor’s Intelligence.

According to this week’s advisor sentiment numbers, advisors who are bullish advanced to 47.4% from 44.2% last week. Bearish advisors dropped to 29.5% from 30.5% from the previous week. The 29.5% bearish data point matches a level that has not been seen in nearly 4 months. Bullishness has clearly become the leading expectation in the marketplace.

Only one asset has the opportunity to be “The Grinch” and ruin Christmas on Wall Street. If the U.S. Dollar rallies sharply, risk assets are certain to get hammered lower. In addition to the bullish tenor of market participants, most market pundits and gold bugs believe strongly that the U.S. Dollar is doomed fated for lower prices.

When I look at the long term momentum of a stock or commodity contract I will look at a monthly chart and plot the 12 month moving average against the price action. While it seems simple, equity and futures positions adhere to the 12 month moving average quite closely in many cases. The analysis is very simple as prices above the 12 month moving average equate to bullishness and prices below the moving average predict lower prices. The monthly chart of the Dollar Index futures is shown below:

As can be seen above, the Dollar Index futures are showing strength currently. The 12 month moving average is starting to flatten out which is also a bullish indicator. When looking at the daily time frame we can see that price action is trading inside a wedge pattern and is bouncing higher off of support:

An additional catalyst that could push the U.S. Dollar higher is the economic tragedy that is Europe. European political leaders need to come up with a series of strong solutions that will stabilize their economic crisis otherwise the Euro will weaken further. A weakening or potentially crashing Euro will push buyers back into the U.S. Dollar. This would in turn place downward pressure on equities and commodities.

S&P 500

On Thursday the S&P 500 flushed over 2% lower by the close as the European Central Bank disappointed investors with an expected 0.25% rate cut and no new bond purchase announcements. The bulls will tell you that the Thursday the week prior to monthly option expiration usually is volatile and price direction is generally in the opposite direction of the primary trend. We will find out next week whether that axiom holds true. The daily chart of the S&P 500 is shown below:

The strength of Thursday’s move is not going to easily be reversed. The European leaders need to shock the market with tangible decisions and launch a major offensive against their growing fiscal issues. If European leaders disappoint investors, the reaction to the news could be a violent selloff that leaves bulls flatfooted next week.

Those who are leaning long in size should consider that their trading capital is being leveraged on the hope that European leaders can come to a groundbreaking agreement. I will be in cash watching the price action in the S&P 500. However, once the dust settles and others have done the heavy lifting, I will likely get involved with a directional trade. Until then, I am just going to ponder if I were Santa, would Wall Street get a present or a lump of coal?

Get these weekly reports and trade ideas free at Options Trading Signals.com

J.W. Jones

Has AlgaeTec Cracked Algae's Biofuel Pricing Ability to Compete with a Barrel of Oil?

Amidst the relentless promotion of renewable biofuel alternatives to traditional fossil fuel hydrocarbons, the three leading contenders are jatpropha, camelina and algae. But among the many barriers holding back industrial production of biofuels is that no company up to now has yet figured out how to produce a gallon of biofuel at a price that can compete with gasoline.

Apparently until now, if press releases by Algae.Tec are anything to go by. The company, founded only three years ago, has offices in Atlanta, Georgia and Perth, Western Australia.

Algae.Tec founders, Earl McConchie and Roger Stroud, have been involved in the biofuel industry since 1999 and have developed a high yield enclosed algae growth and harvesting system, they labeled the McConchie-Stroud System, which uses low maintenance technologies and an efficient solar system to produce algae in one tenth of the land surface as compared to the current pond methods for producing algae. The McConchie-Stroud System photo-bioreactors produce oils which can be refined into biodiesel, sugar carbohydrates that can be used in the production of ethanol, proteins that can be used as feedstock for farm animals, and protein and carbohydrate biomass that can be combined to produce jet fuel.

Beating the PR drum for his company Stroud said, "Algae technology developed by the company has demonstrated exceptional performance, providing step change improvements in productivity, product yield, carbon dioxide sequestration, plant footprint requirements and substantial capital and cost savings as compared to agricultural crops and other competitive algae processes in the industry."

Most interestingly, for a world increasingly concerned with greenhouse gas emissions (GGEs), the McChoncie-Stroud System technology captures CO2 pollution from power stations and manufacturing facilities, which in turn are used to feed the algae growth system. Algae.Tec currently has 11 patent applications pending for its proprietary technology.

For a relatively new start-up company, Algae.Tec has already signed two Memorandums of Understanding (MOUs), one in China and the other in Australia and in January the company was listed on the Australian Stock Exchange (ASX).

But moving beyond theory, Algae.Tec is now building a full scale prototype plant, having earlier this month signed a collaboration agreement to provide five bioreactor modules to Sri Lankan Holcim Lanka Limited cement and building materials company. The collaborative effort will result in Asia's first algae biofuels production facility designed to reduce carbon dioxide emissions from cement manufacturing.

Holcim Lanka Limited decided to invest in Algae.Tec's technology as it had the dual benefit of reducing the company's carbon footprint by channeling waste carbon dioxide into the bioreactor's algae growth system, which in turn will generate biofuel at below market cost.

Note the phrase, "below market cost."Bringing the five photo-bioreactor modules will enable Holcim Lanka Limited to evaluate the benefits of capturing more waste carbon dioxide in a much larger facility, which in turn could lead to the company purchasing further modules for use at other sites.

Holcim Lanka Limited CEO Stefan Huber said, "the Algae.Tec facility is designed to reduce the cement manufacturing carbon dioxide emissions with an off-take into the algae growth system. We look forward to working with Algae.Tec on this exciting development that is aligned with our focus on sustainability and a commitment to the environment. Algae.Tec has a truly innovative technology backed by an expert international engineering team."

While Sri Lanka seems an exotic locale for such a facility, consider that Holcim Lanka Limited is part of Holcim Group, a global company with market presence in over 70 countries and is currently the second largest cement manufacturer in the world.

Accordingly, the potential for Algae.Tec contract is enormous, and what country has a surfeit of cement?

AlgaeTec is thinking far beyond Sri Lanka, targeted markets for its facilities in Australia, the U.S., China, Brazil and Southern Europe. If its McConchie-Stroud System technology can deliver on both recycling CO2 and provide biofuel at below market prices, then Algae.Tec will have a printing press for money that even the Federal Reserve might envy.

We shall see.

Posted courtesy of Dr. John C.K. Daly at Oilprice.com


Gold’s 4th Wave Consolidation Nears Completion and Breakout

ONG: Crude Oil Weekly Technical Outlook

Crude oil dipped to as low as 97.36 last week but recovered since then. Nonetheless, crude oil remains bounded in range of 94.99/103.37 and near term outlook remains neutral. More choppy sideway consolidation could still be seen. Below 97.36 minor support will flip bias to the downside for 94.99 and possibly below. But in such case, 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, break of 103.37 will confirm resumption of recent rally and should target 114.83 resistance next.

In the bigger picture, fall from 114.83 has finished at 74.95 already. 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 89.16/17 support holds, we'd favor a break of 114.83 resistance to resume the rally from 33.2. However, break of 89.16/17 will indicate that rebound from 74.95 has completed and whole fall from 114.83 is possibly resuming for another below 74.95.

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, Monthly Charts


Gold’s 4th Wave Consolidation Nears Completion and Breakout