Holiday Short Squeeze & Crude Oil Trade Idea

Typically, the week before Christmas, stocks and commodities drift higher due to the lack of participants.  Light volume favours higher prices, which is why stocks want to rise going into the holiday season.

The big money players, like hedge fund managers, are finished for the year. They’re sitting on the sidelines enjoying the holiday season while waiting for their year-end bonus checks.

Let’s take a quick look at how the week finished......

Friday was an interesting session as stocks and oil reached some key resistance levels.  Below are my thoughts, charts, and a possible trade idea for next week.

Gold & Silver Thoughts:

Looking at the long term charts of gold and silver, I feel they could head much lower in the first quarter of 2012.  The inverse relationship between the dollar index and gold makes me think this is a high probability scenario.

The weekly dollar index chart remains strong at this point and could start another very strong rally any day. Once the dollar starts heading higher, expect precious metals to move down along with equities.

SP500, Dollar and Volatility Index

Below are three charts stacked on top of each other.  They are marked with my analysis and thoughts for next week.  Personally, I don’t feel shorting stocks is a safe play.  The last week of the year, we can see the volatility index (VIX), and the dollar, rise without putting pressure on stocks.  So be aware of that.

TRADE IDEA – View Chart:

Crude oil looks like a great low risk opportunity (a real “Christmas” present!) from Mr. Market. SCO would be the ETF for US based traders.  HOD, which is listed on the TSX, is good for Canadians.  I favour this setup because I don’t feel that oil will be as affected from the holiday bulge as will American equities.

Pre-Holiday Trading Conclusion:

I was planning on avoiding the market Friday, but the charts were calling my name......  The session ended with what looked to be a short squeeze. The remaining short positions didn’t get their expected drop in price.  Consequently, when the traders all started to cover their shorts (buy) just before the close, it caused a strong surge higher.

I do not recommend shorting stocks next week because of the light volume.  However, oil looks good to me.

Just thought I would share my end of the week thoughts, and wish you a Merry Christmas!

Cheers!

Chris Vermeulen

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Gold and Silver on the Verge of a Big Move

The past few months have been tough for those holding precious metals stocks, PM futures contracts or physical bullion. With silver is trading down 41%, precious metals stocks down 30% and gold 15%. It has people scratching their head.

The question everyone keeps asking is when can I buy gold and silver?

Unfortunately that is not a simple answer. With what is unfolding across the pond and the bullish outlook for the US Dollar index the next move is a coin toss. That being said, I do feel a large move brewing in the market place so I am preparing for fireworks in the first quarter of 2012.

If you step back and look at the weekly trend charts of the dollar index and the SP500 index you will see the strength in the dollar along with a possible stop in equities forming. What these charts are telling is that in the next 3 months we should know if stocks and commodities are going to start another multi month rally or roll over and start a bear market sell off.

With the holiday season nearing, hedge fund managers sitting on the sidelines just waiting for their yearend performance bonuses, I cannot see any large selloff start until January. Selloffs in the market require strong volume and the second half of December is not a time of heavy trading volume. This leaves us with a light volume holiday season, major issues overseas and no big money players willing to cause waves.

So let’s take a quick look at the charts as to where the line in the sand it for the dollar index, gold and silver.

Dollar Index Daily Chart

This week we have seen a strong shift of money out of risk off assets (Bonds) and into risk off (Stocks). This shift is happening before the dollar has broken down indicating the dollar may be topping and could be an early warning of higher stocks prices going into year end. Also note that light volume market conditions also favour higher prices.

Gold Price Daily Chart

Gold could still head lower but at this point it is holding a key support level. If we see the dollar breakdown below its green support trendline then I expect gold to have a firm bounce to the $1675 – $1700.

Silver Price Daily Chart

Silver continues to hold a key support level. If the dollar breaks down the silver should bounce to the $31.50 – $32 area. But if the dollar continues to rally then silver and gold may drop sharply.

Mid-Week Trend Conclusion:

In short, I think the best thing to do is enjoy the holiday season with family and friends. Trading right now is not that great and with the market giving mixed signals. I am keeping my eyes on the market in case it flashes a low risk setup and I will keep you informed if we get one.

Be aware that Monday is a holiday and once January arrives the market could go crazy again. If you want all my swing trades that I personally do be sure to join my alert service The Gold & Oil Guy.Com

Happy Holidays to you and your loved ones!

Cheers,
Chris Vermeulen

ONG: Crude Oil Daily Technical Outlook For Wednesday Dec. 21st

The strong rebound in crude oil and break of 95.99 minor resistance argues that the correction pattern from 103.37 might be completed with three waves down to 92.52 already. Intraday bias is back on the upside for 102.44/103.37 resistance zone first. Break will confirm resumption of the whole rise from 74.95 and should target a test on 114.83 key resistance. On the downside, though, below 92.52 will invalidate this bullish case and bring further pull back towards 89.16/7 support zone.

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 low below 74.95.

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

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Geopolitical Worries Boost Crude

Crude oil futures jumped nearly 3.6 percent Tuesday, driven by worries that geopolitical tensions could impede global supplies, as well as encouraging U.S. economic data that boosted the stock market as well.

Light, sweet crude for January delivery ended the day up $3.34, at $97.22 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange settled up $3.09, or 3 percent, to $106.73 a barrel. The January Nymex contract expired at the end of trading Tuesday; the February contract, which becomes the front month contract Wednesday, settled up $3.19 to $97.24. Volume was light in both contracts, at about half the average because of the holiday week.

Iranian news dominated the oil market. Leaders of 11 nations including the U.S. and Saudi Arabia were scheduled to meet Tuesday to discuss sanctions of Iranian oil exports. Iran is the world's third largest oil exporter, supplying 2.2 million barrels per day to the world. Though the U.S. does not buy crude from Iran, the fear is that an already tight global supply portfolio would be further pinched. The U.S. and other western countries are targeting Iran's oil and financial sectors in response to Iran's nuclear ambitions. Meanwhile, the Pentagon sought to downplay comments by U.S. Defense Secretary Leon Panetta saying Iran could have a nuclear weapon in a year or less. Separately, Iran invited UN weapons inspectors into the country.

Concerns were also rising over an apparent breakdown in Iraq's central government, just as the oil industry there is beginning to show signs of progress in its recovery from the war. And in Kazakhstan, the government declared a state of emergency in the Caspian oil town of Zhanaozen after clashes between laid-off oil workers and security forces during an anti-government protest, and at least 11 people were reported killed. Kazakhstan exported 1.5 million barrels of oil a day in 2010.

"There is an undercurrent in crude oil with the issues happening in the Middle East, and the massacre in Kazakhstan," said Bill O'Grady, chief market strategist for Confluence Investment Management in St. Louis. "It's just further evidence that you've got unrest in energy producing areas...It's just like, 'Oh my God, another energy producer. What's next, are we going to start having riots in Texas?"

Crude oil was also boosted by a report from the Commerce Department saying housing starts increased to the highest level in 19 months. Stocks soared as well, with the Dow Jones Industrial Average up 325 points in mid-afternoon. Front month January reformulated gasoline blendstock, or RBOB, rose 8.96 cents, or 3.6 percent, to $2.5787 a gallon. January heating oil was up 6.9 cents, or 2.5 percent, to $2.8494 a gallon.

Posted courtesy of Rigzone

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Phil Flynn: The Hopes and Fears!

The Hopes and fears of oil traders are met in the Euro Zone tonight! There is nothing like a good Spanish bond auction and a strong German consumer confidence number to get our minds off Mario Draghi. German confidence unexpectedly gained and Spain sold 7.4 billion dollars in T-bills in a successful bond auction with a reasonable yield of 1.735% on the three-month T-bills, down from 5.11% at the previous sale on Nov. 22, and it paid an average yield of 2.435%, down from 5.227%.

It is all about hopes and fears and that has been the dominate force driving oil this year and in recent days. The hopes that the Euro zone would step up to the table with a big bazooka to put the Euro break up fears to rest were dashed. Mario Draghi is a drag and is making it clear that a Euro bond is highly unlikely. Yet the German consumer confidence is showing that Europe might be more resilient than thought and downgrade fears might not be coming as fast and furious as previously thought .Dow Jones reports that Fitch Ratings says the 'AAA' rating on debt issues of the European Financial Stability Facility (EFSF) largely depends on France and Germany retaining their 'AAA' status.

The revision of the rating outlook on France to negative last Friday implies that the risk of a downgrade of EFSF debt has increased. We affirmed France's 'AAA' status but warned that that there is a slightly greater than 50% chance of a downgrade within the next year or two. This is therefore also the case for the 'AAA' ratings assigned to the EFSF's debt issues, unless additional credit enhancement mechanisms are introduced. The 'AAA' ratings assigned to EFSF debt issues rely on the EUR726bn of irrevocable and unconditional guarantees provided by the euro member states, and on the conservative guidelines the EFSF sets itself regarding debt management and liquidity risk.

Of the guarantees and over guarantees from 'AAA' rated member states, France and Germany provide EUR369.6bn, or over 80%. Although the EFSF could potentially remedy a downgrade of a small 'AAA' guarantor by increasing the size of its cash reserve or through additional credit enhancements, this would be far more challenging if a larger guarantor like France or Germany were downgraded. The primary source of ratings risk for EFSF debt issues is therefore the possibility that one or more of its largest 'AAA' guarantors is downgraded.

Oil may be also getting a boost from the Dow Jones report that, “Saudi King Abdullah is urging neighboring states to join in a formal Gulf union to confront what he called rising threats to their security and stability, as Gulf leaders convened to discuss regional uprisings and growing Arab worries over Iran. You must realize that our security and stability are threatened and we need to live up to our responsibilities," King Abdullah told the leaders of the five other nations of the Gulf Cooperation Council, gathered in Riyadh in their first annual GCC meeting since the Arab uprisings began. "

The Gulf's monarchies, emirates and sheikhdoms risked losing all if they failed to combine their efforts, Abdullah said. "So I ask you to go beyond the stage of cooperation, to a union in a single entity. King Abdullah gave no immediate public details of how he envisioned such a union taking shape, or operating. Gulf officials had said earlier that the two day meeting launched Monday would address greater cooperation in the military realm and others. The GCC comprises Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, Oman and Bahrain.” Stay tuned.


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Crude Oil, Natural Gas and Gold Market Commentary For Monday Evening Dec. 19th

Crude oil closed slightly higher due to short covering on Monday as it bounces off support marked by the 38% retracement level of the October-November rally crossing at 92.68. The high range close sets the stage for a steady to higher opening on Tuesday. 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, the 50% retracement level of the October-November rally crossing at 89.37 is the next downside target. Closes above the 20 day moving average crossing at 98.10 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 98.10. Second resistance is last Tuesday's high crossing at 101.25. First support is the 38% retracement level of the October-November rally crossing at 92.68. Second support is the 50% retracement level of the October-November rally crossing at 89.37.

Gold closed lower on Monday and the low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If February extends this month's decline, September's low crossing at 1543.30 is the next downside target. Closes above the 20 day moving average crossing at 1688.70 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 1695.50. Second resistance is the 20 day moving average crossing at 1688.70. First support is last Thursday's low crossing at 1562.50. Second support is September's low crossing at 1543.30.

Natural gas closed lower on Monday as it extends this year's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If January extends this year's decline, monthly support crossing at 2.409 is the next downside target. Closes above the 20 day moving average crossing at 3.425 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.271. Second resistance is the 20 day moving average crossing at 3.425. First support is today's low crossing at 3.050. Second support is monthly support crossing at 2.409.

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Crude Oil Bears Take a Clear Near Term Advantage

Crude oil was higher due to short covering in overnight trading as it bounces off the 38% retracement level of the October-November rally crossing at 92.68. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near term.

If January extends this week's decline, the 50% retracement level of the October-November rally crossing at 89.37 is the next downside target. Closes above the 20 day moving average crossing at 98.11 are needed confirm that a short term low has been posted.

First resistance is the 20 day moving average crossing at 98.11. Second resistance is last Tuesday's high crossing at 101.25. First support is the 38% retracement level of the October-November rally crossing at 92.68. Second support is the 50% retracement level of the October-November rally crossing at 89.37. Crude oil pivot point for Monday morning is 93.83.

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ONG: Crude Oil Weekly Technical Outlook For Sunday Dec. 18th

Crude oil dropped to as low as 92.52 last week as correction from 103.37 resumed. Further decline is expected this week as long as 95.99 minor resistance holds. Current fall should extend to 138.2% projection of 103.37 to 94.99 from 102.44 at 90.86. On the upside, above 95.99 will indicate that a temporary low is at least formed and should flip bias back to the upside for rebound back to 100 psychological level and above.

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 low 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.

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


Precious Metals, Equities and Crude Oil Long Term Outlook

"Murder Cross" in Silver [SLV] is Starting to Get Some Serious Attention

Silver is not looking good here long term, sure we can get a few bounces upwards but an event occurred two days ago that put the nail in this precious metal coffin for at least a few months and possible a 15% decline, that event is the "Murder Cross".   The murder cross is similar to the "Death Cross" of the 50 ma crossing below the 200 ma but the "Murder Cross" is the 70 ema crossing the 200 ema.  This cross eliminates many of the false signals that the "Death Cross" can give.  Here is a link to a post explaining it more.

SLV or  the Silver ETF has been on a steady decline from its high of 50.  The decline has wiped out almost all of the gains from the 10-11 run up with SLV retracing more the 61.8% of its move and it looks like more of a decline can be instore.  The "Murder Cross" on SLV happened 3 times in the last 20 years in 06, 07 and 08.  In 06 SLV dropped 23% before it bounced, in 07 it dropped 10% and in 08 in dropped 25%.  If we use this historical information it is possible for more of a decline in SLV.   In fact a drop of around 18% or 17% would put SLV right at support and its long term trend line a logical support level. ( see second chart below)

Below is a chart of SLV and it highlights the muder cross.  Right now SLV has been able to find support at the low 28's and high 27's.  This was a crucial level for SLV this level of support lead to the breakout to the high 50's.  The more important support is at 26, this was the swing low before the run up and the last support level for a while.  Resistance for SLV is at 30.06 and 32.50, a retrest of 30 is likely but it will be hard to get above that.   The trendline from 2010 should be the final resting spot for SLV as it would be a price target for the murder cross and is a strong established uptrend for SLV.  SLV is not looking health for a long term buy on a technical level and with the occurrence of the "Murder Cross" there is even more bearish sentiment to this metal.

check out more great post from the Pike Trader at  Pikertrader.com

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EIA: Market Changes Contribute to Growing Marcellus Area Spot Natural Gas Trading

Marcellus-area spot natural gas trading (InterContinentalExchange (ICE) day-ahead transactions) has more than doubled from under 1 billion cubic feet per day (Bcfd) to almost 2 Bcfd on average since 2005 (see chart). The largest gains in Marcellus area trading volumes were at the Tetco M3 trading point, up 178% to 0.5 Bcfd and at the Dominion South trading point, up 168% to 0.7 Bcfd since 2005. Key factors likely contributing to increased natural gas spot trading in the Marcellus area include: rapid increases in Marcellus shale gas production; direct deliveries of Wyoming gas to the Ohio/Pennsylvania border through the Rockies Express Pipeline; and increased use of natural gas for power generation.

Source: U.S. Energy Information Administration, based on Ventyx's Energy Velocity Suite.

Note: New Marcellus in the graph includes the Leidy, TGP 219, TGP 313, and TGP Zone 4 Marcellus trading points. 2011 includes data through November.

 Several factors are likely contributing to increased natural gas spot trading in the Marcellus area:

• Marcellus production gains. Bentek Energy, LLC estimates that Marcellus natural gas production now exceeds 4 Bcfd, up significantly in recent years.
• New trading points. In addition to several new Marcellus production area trading points, the extension of the Rockies Express Pipeline (REX) to Clarington, Ohio led to new natural gas trading points formed to facilitate commercial transactions. REX deliveries to Clarington, Ohio averaged over 1 Bcfd from January through December of 2011.
• Greater reliance on natural gas for electricity generation. Falling natural gas prices coupled with historically high spot coal prices created incentives for generators to use more natural gas to fuel their plants. Pennsylvania is one state that has seen significant growth in natural gas-fired electric generation.

Source: U.S. Energy Information Administration, based on Ventyx's Energy Velocity Suite.