Crude Oil Bulls Take Charge as Iran Cuts Shipments to Europe

Crude oil closed up $1.15 [March contract] a barrel at $101.89 today, close to a five week high. Bolstered by news that Iran has cut oil shipments to Europe and a steep decline in inventory in the U.S. for the first time in 4 weeks. Prices closed nearer the session high today and hit another fresh four week high. Crude oil bulls have the overall near term technical advantage and have gained some upside momentum recently.

Natural gas closed down 9.4 cents [March contract] at $2.438 today. Prices closed nearer the session low today. Bears have the solid overall near term technical advantage. The next upside price breakout objective for the bulls is closing prices above solid technical resistance at $2.844.

Gold futures closed up $11.60 [April contract] an ounce at $1,729.30 today. Prices closed near mid range today as bargain hunters stepped in to buy the recent dip. The key outside markets were mostly bullish for gold today, the U.S. dollar index was steady weaker and crude oil prices were higher. Gold bulls still have the overall near term technical advantage, but need to show more power soon to suggest a near term price uptrend can be restarted.


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Two Short Term Scenarios for the S&P 500 Index

For the first time since the last week of December of 2011, the S&P 500 Index closed lower on the weekly chart. Recently I have been discussing the overbought nature of stocks based on a variety of indicators. However, the real question that should be asked is whether last week was just a short term event or if we see sustained selling in coming weeks.

The issues occurring in Greece spooked the markets somewhat on Friday as Eurozone fears continue to permeate in the mindset of traders. The U.S. Dollar Index is the real driver regarding risk in the near and intermediate term future. If the Dollar is strong, market participants will likely reduce risk. However a weakening Dollar will be a risk-on type of trading event which could lead to an extended rally in equities, precious metals, and oil.

Friday marked an important day for the U.S. Dollar Index futures as for the first time in several weeks the Dollar held higher prices into a daily close. The U.S. Dollar appears to have carved out a daily swing low on the daily chart from Friday. Furthermore, the potential for a weekly swing low at the end of this week remains quite possible. The chart below illustrates how the 100 period simple moving average has offered short term support for the past few weeks.

U.S. Dollar Index Futures Daily Chart

I would also point out that the MACD is starting to converge which is a bullish signal and the full stochastics are also demonstrating a cross on the daily time frame. As long as the 100 period moving average holds price, a rally is likely in the U.S. Dollar Index in coming weeks.

Should that rally play out, it will likely push risk assets lower. My primary target for the S&P 500 would be around the 1,300 – 1,310 price range if the selloff transpires. It is important to note that  headlines coming out of Europe could derail this analysis in short order.

Assuming that a selloff in the S&P 500 occurs it will present a difficult trading environment for market participants. Market participants are going to be in a tough position around the 1,300 price level. A rally from 1,300 could  serve to test the 2011 highs. In contrast, a confirmed breakdown of the 1,300 price level could initiate a more significant selloff towards the 1,250 area.

Should price move towards the 1,300 price level the bulls and bears will be battling it out for intermediate control of price action. This is my preferred scenario for the short term time frame, but I would only give it about a 60% chance of success at this point in time. We simply need more time to see how price action behaves the first few session of the forthcoming week.

S&P 500 Index Bearish Scenario

The alternate scenario which has about a 40% chance of success would be a sharp rally higher which likely would be produced by news coming out of Greece and/or the Eurozone that pushes the Euro higher. Right now risk is high due to the sensitivity of price to headline risk. With that said, the bullish alternative scenario is shown below.

S&P 500 Index Bullish Scenario

At this point we just do not have enough price information to give us clarity regarding the most probable outcome. The price action in the Euro is going to drive price action for the S&P 500 and other risk assets in weeks ahead.

Anything is possible in the short term, but I have to give a slight edge to the bears simply based on the price action Friday and the fact that almost every indicator I follow is screaming that the equities market is severely overbought. The price action this week should be telling. Headline risk is excruciatingly high, trade safely in the coming week!

By: Chris Vermeulen – Get Chris' FREE Weekly ETF Reports & Analysis
Co-Author: JW Jones – Get J.W.s FREE Weekly Options Reports & Analysis

EIA: Natural Gas and Renewable Shares of Electricity Generation to Grow

Over the next 25 years, natural gas and renewable fuels gain a larger share of the United States generating mix of electricity, according to the Annual Energy Outlook 2012 (AEO2012) early release reference case. Coal remains the dominant source of electricity, but its share drops from 45% in 2010 to 39% in 2035.

These results are from the AEO2012 Reference case, which assumes no changes in current laws and regulations. The full report will include additional cases measuring the impacts of alternative policies and different paths for prices and technologies on the electric power sector.

• Annual generation from natural gas increases by 39% from 2010 to 2035. Eighty-five gigawatts of new gas capacity is added through 2035, as stable capital costs and low fuel prices make it the most attractive source of new capacity.
• Renewable energy generation grows 33% from 2010 to 2035. Non-hydro renewables account for a majority of this growth, with wind, solar, biomass, and geothermal generation all significantly larger at the end of the projection horizon.
• Coal's share of the electricity generation mix drops from 45% to 39% between 2010 and 2035. Thirty-three gigawatts of coal capacity are retired and only 14 gigawatts of new coal capacity already under construction are completed. A few factors disadvantage the relative economics of coal-fired capacity: projected low natural gas prices, the continued rise of new coal-fired plants' construction costs, and concerns over potential greenhouse gas emissions policies.
• Annual generation from nuclear power plants grows by 11% from 2010 to 2035, but its share of the generation mix declines. A total of 10 gigawatts of new nuclear capacity are projected through 2035, as well as an increase of 7 gigawatts achieved from uprates to existing nuclear units. About 6 gigawatts of existing nuclear capacity are retired, primarily in the last few years of the projection.

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Crude Oil Bulls Looking to Follow Through on Tuesday, Gain Back Momentum

Crude oil closed higher on Monday [March contract] renewing the rally off this month's low. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 101.39 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, December's low crossing at 92.95 is the next downside target. First resistance is the reaction high crossing at 101.39. Second resistance is the reaction high crossing at 102.24. First support is the 10 day moving average crossing at 98.37. Second support is this month's low crossing at 95.44.

Gold closed lower on Monday [April contract] and the mid range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1714.10 would confirm that a short term top has been posted. If April renews the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.28 is the next upside target. First resistance is the reaction high crossing at 1765.90. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the 20 day moving average crossing at 1714.10. Second support is the reaction low crossing at 1652.20.

Natural gas closed lower on Monday [March contract] and the mid range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If March renews the multi year decline, monthly support crossing at 1.960 is the next downside target. Closes above the reaction high crossing at 2.844 are needed to confirm that a short term low has been posted. First resistance is the reaction high crossing at 2.844. Second resistance is January's high crossing at 3.153. First support is January's low crossing at 2.289. Second support is monthly support crossing at 1.960.

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Elliot Warren: Demand Worries Smack Crude Oil Prices

Elliot Warren, Head Energy Options Trader for Kottke, says weak demand is what's really dragging down oil prices.



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Crude Oil Weekly Technical Outlook For Sunday Feb. 12th

Here is this weeks call on crude oil from the great staff over at ONG........

Crude oil's recovery from 95.44 failed to take out 101.29 and weakened sharply towards the end of the week. Crude oil is staying inside the near term falling channel from 103.74. Thus, choppy fall from there might extend below 95.44. Nonetheless, we'd expect strong support from 92.52 cluster support (38.2% retracement of 74.95 to 103.74 at 92.74). to contain downside and bring rebound. On the upside, break of 101.29 will be the first signal that recent consolidative trading has finished and flip bias back to the upside for a test on 103.74 resistance.

In the bigger picture, the medium term up trend from 33.2 shouldn't be completed yet. Rise from 74.95 is indeed tentatively treated as resumption of such rally. Sustained break of 114.83 will target 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40. On the downside, though, break of 92.52 support will indicate that correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before completion.

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

Is Crude Oil in a Short Term "Regrouping Phase"

We are looking for the crude oil market [April contract now] to be on the defensive for the next couple of days, but then expect it to regroup and start moving higher once again. We are looking for crude oil to make it’s highs probably somewhere in the May period.

Once over $102 a barrel, this market should skyrocket. We want to pay close attention to this market as we believe that the recent market action is reflecting an important cyclic low period for this market. If this is true, this market could be headed substantially higher. With a Score of +55, this market we remain in a trading range.

We remain longer term positive on this market. With our monthly and daily Trade Triangles in a positive mode, we expect we will see further market consolidation in crude oil. Long term traders should be long this market with appropriate money management stops.

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Crude Oil Pulls Back on Renewed European Concerns and Demand

Crude oil fell overnight from the highest level weeks due to profit taking as it consolidates some of this week's rally. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 101.29 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, December's low crossing at 92.95 is the next downside target. First resistance is Thursday's high crossing at 100.18. Second resistance is the reaction high crossing at 101.29. First support is last Thursday's low crossing at 95.44. Second support is December's low crossing at 92.95.

Gold was lower overnight and poised to extend this month's decline. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 1709.00 are needed to confirm that a short term top has been posted. If April renews the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.80 is the next upside target. First resistance is last Friday's high crossing at 1765.90. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the overnight low crossing at 1714.00. Second support is the 20 day moving average crossing at 1709.00.

Natural gas was slightly higher overnight. Stochastics and the RSI are bearish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 2.844 are needed to confirm that a short term low has been posted. If March renews the multi year decline, monthly support crossing at 1.960 is the next downside target. First resistance is last Monday's high crossing at 2.844. Second resistance is January's high crossing at 3.153. First support is January's low crossing at 2.289. Second support is monthly support crossing at 1.960.

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Crude Oil Bulls Get New Strength on Stockpile Report

March crude oil closed higher on Wednesday following Tuesday's key reversal up and after reports of U.S. crude stockpiles increasing less than forecast. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI have turned bullish signaling that a low might be in or is near. Closes above the reaction high crossing at 101.39 are needed to confirm that a short term low has been posted. If March renews January's decline, December's low crossing at 92.95 is the next downside target. First resistance is the reaction high crossing at 101.39. Second resistance is the reaction high crossing at 102.24. First support is last Thursday's low crossing at 95.44. Second support is December's low crossing at 92.95.

March natural gas closed lower on Wednesday and the mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term. Closes above last Monday's high crossing at 2.844 are needed to confirm that a short term low has been posted. If March renews the multi year decline, monthly support crossing at 1.960 is the next downside target. First resistance is last Monday's high crossing at 2.844. Second resistance is January's high crossing at 3.153. First support is January's low crossing at 2.289. Second support is monthly support crossing at 1.960.

April gold closed lower on Wednesday and the low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1701.00 would confirm that a short term top has been posted. If April extends the rally off December's low, the 62% retracement level of the September-December decline crossing at 1772.28 is the next upside target. First resistance is last Friday's high crossing at 1765.90. Second resistance is the 62% retracement level of the September-December decline crossing at 1772.80. First support is the 20 day moving average crossing at 1701.00. Second support is the reaction low crossing at 1652.20.

Was Friday’s Price Action in Gold Signaling a Top in the S&P 500?

Phil Flynn: A Better Future for Price Predictions

The Energy Information Agency came out with their latest Short Term Energy Outlook and I was glad to see that they are using the futures markets to improve their market forecasts. While the EIA has done a phenomenal job in the past providing the industry and traders with valuable information, it seemed that their price projections were always a bit behind the curve. More often than not, especially during the days of the strong bull petroleum market, it seemed that the Energy Information Agency was always playing a bit of catch up.

Of course it wasn't always their fault. You see there was an era of denial about the reasons for the bull market and if the EIA dared come out about the odds for sharply higher prices, they might have been accused of feeding into the bullish frenzy. The EIA really had to be careful about stepping out about a bullish price projection even if deep within the walls of the Department of Energy they felt that higher price were a possibility.

That restraint sometimes led to conservative calls that were meant not to rattle a market that was already looking for an excuse, any excuse, to reflect the reality of increasingly bullish fundamentals.....Read the entire article.

Was Friday’s Price Action in Gold Signaling a Top in the S&P 500?