Crude Oil Closes Below 62% Retracement Causing Severe Chart Damage

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Crude oil closed lower on Wednesday and below the 62% retracement level of the 2011-2012 rally crossing at 90.26 as it renewed the decline off March's high. The low range close sets the stage for a steady to lower opening when Thursday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 94.79 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 91.22. Second resistance is the 20 day moving average crossing at 94.79. First support is today's low crossing at 87.39. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas closed lower on Wednesday as it extended yesterday's breakout below the 20 day moving average crossing at 2.576. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near term. If July extends this week's decline, the reaction low crossing at 2.338 is the next downside target. If July renews the rally off April's low, February's high crossing at 3.104 is the next upside target. First resistance is the reaction high crossing at 2.838. Second resistance is February's high crossing at 3.104. First support is today's low crossing at 2.393. Second support is the reaction low crossing at 2.338.

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Gold closed higher due to short covering on Wednesday. The high range close sets the stage for a steady to higher opening when Thursday's night session begins trading. Stochastics and the RSI are neutral to bullish signaling sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 1591.30 are needed to confirm that a short term low has been posted. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. First resistance is the 20 day moving average crossing at 1586.30. Second resistance is the reaction high crossing at 1599.00. First support is the reaction low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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Let's Compare Notes....ONG Crude Oil Daily Technical Outlook

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If you are a regular reader here you know we like to include trade ideas and opinions from many different sources. Here's is the "Crude Oil Daily Technical Outlook" from the staff at ONG. They really take the emotion out of trading and stick to the facts. And the fact is, the bulls are in trouble here.

Crude oil's decline resumed by taking out 89.28 temporary low and reaches as low as 87.75 so far. 61.8% retracement of 74.95 to 100.55 at 88.55 is broken firmly, suggesting downside momentum is building up again. Deeper decline should be seen to 80 psychological level and then 74.95 support. On the upside, break of 92.21 resistance is needed to signal short term bottoming. Otherwise, near term outlook will remain bearish even in case of recovery.

In the bigger picture, price actions from 114.84 are developing into a three wave consolidation pattern. And, the third leg should have already started at 110.55. Deeper fall should eventually be seen to 74.95 low and possibly below. Though, we'd likely see strong support from 64.23 cluster level, 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise. Hence we'll look for reversal signal below 74.95.

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


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Natural Gas Falls Below 20 Day Moving Average....Gold and Oil Close Lower

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Crude oil [July contract] closed lower on Tuesday but remains above the 62% retracement level of the 2011-2012 rally crossing at 90.26. The low range close sets the stage for a steady to lower opening when Wednesday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 95.74 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 91.91. Second resistance is the 20 day moving average crossing at 95.74. First support is last Wednesday's low crossing at 89.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas [now the July contract] closed lower on Tuesday and below the 20 day moving average crossing at 2.578 confirming that a short term top has been posted. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near term. If July extends today's decline, the reaction low crossing at 2.338 is the next downside target. If July renews the rally off April's low, February's high crossing at 3.104 is the next upside target. First resistance is the reaction high crossing at 2.838. Second resistance is February's high crossing at 3.104. First support is today's low crossing at 2.466. Second support is the reaction low crossing at 2.338.

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Gold closed [still the June contract] lower on Tuesday. The low range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI are neutral to bearish signaling sideways to lower prices are possible near term. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. Closes above the 20 day moving average crossing at 1591.30 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1591.30. Second resistance is this month's high crossing at 1672.30. First support is the reaction low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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Carl Icahn Bought Chesapeake Energy, Should You?

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Last week, it was announced that corporate raider Carl Icahn was up to his usual antics, acquiring a 7.6 percent activist stake in the natural gas E&P giant Chesapeake Energy Corp (NYSE: CHK). In a move that makes him the company’s third largest shareholder, Icahn bought 50 million shares of CHK worth nearly $800 million between April 19th and May 24th. Icahn has pledged to make a host of changes within Chesapeake, beginning with his appointment of four new board members. In the longer term, it is expected that he will look for CHK to shore up its troubled business model, which has led to cash flow shortages, and large declines in shareholder wealth. Over the past year, the company’s stock has lost nearly 50 percent, having recently hit a post recession low below $14 a share. The everyday investor may be wise to consider following Icahn into Chesapeake now, due to stock’s undervaluation, strong earnings growth, and future expansion potential.

One thing that sets this E&P operator, which stands for exploration and production, apart from its competitors is its dominance in the unconventional natural gas arena. In layman’s terms, unconventional natural gas is not extracted from traditional well based platforms; instead, it is gathered in a less economical manner.
 In CHK’s case, it extracts natural gas from six distinct sources.....

(1) gas below 15,000 feet underground
(2) gas trapped in sandstone or limestone
(3) shale deposits
(4) coalbed methane
(5) geopressurized gas
(6) methane hydrates.

 The latter is the newest form of natural gas in Chesapeake’s energy staple. From a macroeconomic standpoint, unconventional natural gas usage has nearly doubled in the past decade, and currently comprises 42 percent of all natural gas production in the U.S. It is estimated that this figure will reach 64 percent by 2020, driven by growth in the shale and coalbed markets.

Looking at its income statement, CHK has seen revenues remain stagnant since the recession, though the industry’s average has actually shrank during this time period, as it has yielded a 3-year average growth rate of -2.8 percent. More notably, competitors like Devon Energy (NYSE: DVN) at -6.2 percent, Anadarko Petroleum (NYSE: APC) at -2.7 percent have also experienced shrinking revenues, though EOG Resources (NYSE: EOG) and Apache Corp (NYSE: APA) have seen positive top line growth. From an earnings standpoint, CHK has been more impressive, generating a 3-year average EPS growth of 35.6 percent, higher than the industry average (-5.4%) and peers DVN, APC, and EOG.

From a valuation standpoint, CHK is undervalued, as it currently sports a P/E ratio (6.4X) below the industry average (16.3X), and it’s own 10-year historical average (13.5X). Moreover, shares of CHK have historically traded at a 20 percent discount relative to the S&P’s average over the past decade. This year, the stock is cheaper than usual, trading at a 58 percent discount. Using the industry average P/E in conjunction with a modest year-ahead EPS forecast of $1.80, we can set a target price of $29.34 by next spring.

It should also be pointed out that Chesapeake has had a host of cash flow problems, reporting negative free cash flows of at least -$3.0 billion since 2007. Interestingly, the company reported recently that it was expecting a positive FCF in 2012, due to sales of assets in its Mississippi Lime, Permian Basin, and Texas Panhandle Granite Wash regions. Icahn and other CHK shareholders are hoping that these sales can offset historic lows in natural gas prices, and it seems that the markets are responding favorably. Since company execs announced these plans on May 14th, shares of CHK have risen nearly 2 percent.

Looking to the hedge fund industry, CHK has a favorite of mega fund managers like Mason Hawkins, Curtis Macnguyen, John Rogers, and Peter Eichler over the past few years. Moreover, this month’s 13F filings show that funds like Millennium Management, Tetrem Capital Management, and Samlyn Capital increased their holdings in CHK in the first quarter of 2012. Whether its Carl Icahn’s promise to restore shareholder value back to this natural gas E&P, or the stock’s attractive valuation, investors may be wise to consider a long position in Chesapeake (CHK).

Posted courtesy of our friends at Insider Monkey.Com. If you aren't following the hedge funds you should be, and you should be doing it at Insider Monkey.Com

Here is the simple truth about trends

SP 500 Update.... U.S. Markets wear the Heavy Crown

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The US market is one of very few trying to maintain a long term uptrend Bull cycle around the world.  Most major world indices are in decline, only Germany and London are also trying to hang in of the major indices.

Will the rest of European problems continue to spillover and weigh down our markets in finally cause a flush?  Or… will the US stay strong and lead higher amidst the turmoil?

The threat of debt repudiation resonates throughout Europe and has major headwinds for the Banking industries and otherwise… and it may be hard for the US market to gain much traction until we find out if there are any resolutions near term.

The Technical picture is mixed.  The drop to 1292 from 1422 highs created a 38% fibonacci retracement of the October lows at 1074 and the March highs of 1422.  This is typical for a 4th wave correction after 3 waves of rally.  In addition, we had Mclellan Oscillators at extreme lows coming into this past week, investor sentiment running at multi month lows not seen since last summer, and many other oversold indicators.

This led to a 36 point bounce early in the week from 1292 to 1328, but it had trouble holding into the end of the week. I was looking for a strong close over 1322 to help confirm the downtrends lows were in place at 1292, but we did not get that just yet.  Near term we have to see a very strong bounce this coming week over 1330 on a closing basis or the market will be at risk of a rising bearish wedge and then another large downleg to new lows since the 1422 highs.  Therefore, Tuesday and Wednesday in my opinion will likely immediately tell us which way this market is about to go.

We have a few outlooks that are valid.  One is that we had an ABC correction from 1422-1292 and we are in the early stages of a Major Wave 5 up bullish pattern.  The  other is we had 3 waves down, this is a 4th wave bounce, and a 5th wave to new lows on the move is next.  Again, early in the week will be key in my opinion.

Here are two charts. One shows the Weekly SP 500 pattern and prior pivot points where downtrends halted and reversed. In each case the candlestick pattern for the week was inside and above the prior weeks lows and closed higher (White Candlesticks).  This also happened this past week, but I again would like to see higher closing levels early in the week to confirm.

The other chart is a daily chart showing the 1330 barrier we would like to see crossed to avoid a rising bearish wedge pattern.

Join us at Market Trend Forecast and sign up for free weekly updates. Alternatively, you can use our 33% discount on that page to subscribe and receive 4-5 updates per week on US Markets, Gold, and Silver!


David Banister

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

CNBC: Crude Oil May Slip Towards Mid $80s on Greece and Spain Worries

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Crude oil prices will likely extend losses for a fifth straight week as fears about a Greek exit from the euro zone and Spain's banking system continue to trigger outflows from riskier assets including commodities and into the relative safety of the U.S. dollar, according to CNBC's weekly survey of oil market sentiment.

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Many traders and strategists polled forecast U.S. crude futures could make a sustained breach below $90 a barrel and test $85 or possibly $84 a barrel this week. Much will depend on the U.S. labor report on Friday. A solid reading may help establish a floor in the oil market while a poor number could compound the woes of the global economy.

The poll showed consensus opinion was overwhelmingly bearish: Ten out of the eleven respondents in the sample group expect prices to fall this week. Phil Flynn of PFGBest, the survey's sole respondent with a bull call, expected a rebound based on technical indicators which suggested markets were oversold and fears that tensions would resurface.

Talks last week between Tehran and world powers did not result in any agreement, with negotiations continuing next month at another meeting in Moscow, Reuters reported. Meanwhile, the U.N.'s International Atomic Energy Agency found uranium particles refined to a higher than expected level than what Iran has disclosed.

"Right now, I continue to expect a general 'risk-off' or 'short the world' attitude," said Tom Weber at Portfolio Managers, Inc. Commodity Futures & Options. "However, I won't underestimate the ability of the political elite to save the day with pronouncements and promises of solidarity. I believe traders have adapted to a 'show me' approach to global markets. The market is going to call the bluff of central bankers regarding QE."

Posted courtesy of CNBC

This should create some controversy, when is the best time of day to profit?

Low Volume Crude Oil Trading Day Ends with a Fractional Gain

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Crude oil [July contract now] closed higher due to short covering on Friday as it bounces off the 62% retracement level of the 2011-2012 rally crossing at 90.26. The mid range close sets the stage for a steady opening when Tuesday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If July extends this month's decline, the 75% retracement level of the 2011-2012 rally crossing at 85.69 is the next downside target. Closes above the 20 day moving average crossing at 96.47 are needed to confirm that a low has been posted. First resistance is the 10 day moving average crossing at 92.35. Second resistance is the 20 day moving average crossing at 96.47. First support is Wednesday's low crossing at 89.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 85.69.

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Natural gas closed lower on Friday and below the 10 day moving average crossing at 2.613 signaling that a short term top might be in or is near. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are overbought and are turning neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 2.492 would signal that a short term top has been posted. If June extends the rally off last week's low, February's high crossing at 3.040 is the next upside target. First resistance is last Friday's high crossing at 2.759. Second resistance is February's high crossing at 3.040. First support is the 20 day moving average crossing at 2.492. Second support is the reaction low crossing at 2.387.

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Gold closed higher due to short covering on Friday. The low range close sets the stage for a steady to higher opening when Tuesday's night session begins trading. Stochastics and the RSI are turning bearish signaling sideways to lower prices are possible near term. If June renews the decline off February's high, the 38% retracement level of the 2008-2011 rally crossing at 1487.50 is the next downside target. Closes above the 20 day moving average crossing at 1597.00 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1597.00. Second resistance is this month's high crossing at 1672.30. First support is last Wednesday's low crossing at 1526.70. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1487.50.

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Billionaire T. Boone Pickens’ Favorite Energy Stock

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By guest blogger Meena Krishnamsetty and our friends at Insider Monkey......

Billionaire T. Boone Pickens’ favorite energy stock is BP Plc (BP). This is the largest position in Pickens’ 13F portfolio which was disclosed to the SEC this afternoon. We think this is an excellent choice. The stock currently trades at $38 and yields 5%. This is a much better choice than long-term Treasuries.

Boone Pickens also like Encana and National Oilwell Varco. Pickens also disclosed a $11 million position in Chesapeake Energy (CHK).

Chesapeake Energy Corporation Releases Letter to Shareholders

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The Board of Directors of Chesapeake Energy Corporation (NYSE:CHK) today released a letter to shareholders addressing certain issues recently raised by the Comptroller of the City of New York, John C. Liu, who oversees New York City pension funds that beneficially own less than 0.25% of Chesapeake’s common shares outstanding. The letter, which outlines numerous recent actions the Board has taken to enhance Chesapeake’s corporate governance and further strengthen its financial position, was issued in advance of the Company’s Annual Meeting of Shareholders to be held Friday, June 8, 2012. The full text of the letter follows:

From May 23, 2012....

Dear Fellow Shareholder:

You may have recently seen a letter from the Comptroller of the City of New York, John C. Liu, who oversees New York City pension funds that beneficially own less than 0.25% of Chesapeake’s common shares outstanding. While the Board of Directors appreciates constructive input from our shareholders, we wish to address issues raised by Mr. Liu and reiterate important steps the Board and Company have been taking as we approach our 2012 Annual Meeting of Shareholders.

CHESAPEAKE’S BOARD HAS IMPLEMENTED SIGNIFICANT COMPENSATION CHANGES AND IMPROVED GOVERNANCE WITH INTENTION TO SEPARATE POSITIONS OF CHAIRMAN AND CEO

Click here to read the entire letter to CHK Shareholders

This should create some controversy, when is the best time of day to profit?