The Euro Zone Wags The Gold and Silver Dog

If Greece defaults and the European situation begins to spin out of control where will money flow? It would not make sense for market participants to buy Euro’s during a default regardless of whether the default it structured or not. In fact, it is more likely that European central banks and businesses would be looking to either hedge their Euro exposure or convert their cash positions to another currency all together.

Some market pundits would argue that gold and silver would likely benefit and I would not necessarily argue with that logic. However, the physical gold and silver markets are not that large and depending on the breadth of the situation, vast sums of money would be looking for a home. The two most logical places for hot money to target in search of safety would be the U.S. Dollar and U.S. Treasury’s.

The U.S. Dollar and U.S. Treasury obligations are both large, liquid markets that could facilitate the kind of demand that would be fostered by an economic event taking place in the Eurozone. My contention is that the U.S. Dollar would rally sharply along with U.S. Treasury’s and risk assets would likely selloff as the flight to safety would be in full swing.

To illustrate the point that the U.S. Dollar will likely rally on a European crisis, the chart below illustrates the price performance of the Euro compared to the U.S. Dollar Index. The chart speaks for itself:



Clearly the chart above supports my thesis that if the Euro begins to falter, the U.S. Dollar Index will rally sharply. In the long run I am not bullish on the U.S. Dollar, however in the case of a major event coming out of the Eurozone the Dollar will be one of the prettiest assets, among the ugly fiat currencies.

The first leg of the rally in the U.S. Dollar occurred back in late August. I alerted members and we took a call ratio spread on UUP that produced an 81% return based on risk. I am starting to see a similar type of situation setting up that could be an early indication that the U.S. Dollar is setting up to rally sharply higher in the weeks ahead. The daily chart of the U.S. Dollar Index is shown below:



As can be seen from the chart above, the U.S. Dollar Index has tested the key support level where the rally that began in late August transpired. When an underlying asset has a huge breakout it is quite common to see price come back and test the key breakout level in following weeks or months. We are seeing that situation play out during intraday trade on Friday.

We are coming into one of the most important weeks of the year. Several cycle analysts are mentioning the importance of the October 26^th – 28^th time frame as a possible turning point. I am not a cycle expert, but what I do know is that we should know more about Europe’s situation during that time frame. It would not shock me to see the U.S. Dollar come under pressure and risk assets rally into the October 26th – 28^th time frame. However, as long as the U.S. Dollar Index can hold above the key breakout area the bulls will not be in complete control.

If I am right about the U.S. Dollar rallying higher, the impact the rally would have on gold and silver could be extreme. While I think gold would show relative strength during that type of economic scenario, I think both metals would be under pressure if the U.S. Dollar started to surge. In fact, if the Dollar really took off to the upside I think both gold and silver could potentially selloff sharply.

As I am keenly aware, anytime I write something negative about gold and silver my inbox fills up with hate mail. However, if my expectations play out there will be some short term pain in the metals, but the selloff may offer the last buying opportunity before gold goes into its final parabolic stage of this bull market. The weekly chart of gold below illustrates the key support levels that may get tested should the Dollar rally.

For quite some time silver has been showing relative weakness to gold. It is important to consider that should the U.S. Dollar rally, silver will likely underperform gold considerably. The weekly chart of silver is illustrated below with key support areas that may get tested should the Dollar rally:



Clearly there is a significant amount of uncertainty surrounding the future of the Eurozone and the Euro currency. While I do not know for sure when the situation in Europe will come to a head, I think the U.S. Dollar will be a great proxy for traders and investors to monitor regarding the ongoing European debacle.

If the Dollar breaks down below the key support level discussed above, gold and silver will likely start the next leg of the precious metals bull market. However, as long as the U.S. Dollar can hold that key level it is quite possible for gold and silver to probe below recent lows.

Both gold and silver have been rallying for quite some time, but the recent pullback is the most severe drawdown so far. It should not be that difficult to surmise that gold and silver may have more downside ahead of them as a function of working off the long term overbought conditions which occurred during the recent precious metals bull market.

Make no mistake, if the Dollar does rally in coming months risk assets will be under significant selling pressure. While the price action will be painful, those prepared and flush with cash will have an amazing buying opportunity in gold, silver, and the mining complex. Right now, risk remains excruciatingly high as the European bureaucrats wag the market’s dog.

Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at Options Trading Signals.com and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

JW Jones

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Crude Oil Closes The Week in Overbought Mode

Crude oil closed higher on Friday and above the May-July downtrend line crossing near 87.33. The mid range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought and are turning neutral to bearish signaling that a short term top might be in or is near. Closes below the 20 day moving average crossing at 83.57 are needed to confirm that a short term top has been posted. If December extends the rally off this month's low, the 38% retracement level of the May-October decline crossing at 90.65 is the next upside target.

The crude oil market continues to mirror the action in the equity markets. The highs seen on Wednesday in the December contract at $89.69 a barrel remains to be taken out if this market is going to move higher. With mixed Trade Triangles and a Chart Analysis Score of +55, there is no clear cut direction for this market at the moment.

Crude oil is very overbought on the Williams % R indicator. We would not rule out a pullback to the $80 a barrel level, which would represent a 61.8% Fibonacci retracement. Our long term Trade Triangle continues to be negative and we expect it will once again dictate the tone of this market. Intermediate term traders should be on the sidelines and long term traders should continue to be short the crude oil market.


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Crude Oil Rises On Hopes of Euro Zone Deal

Crude oil futures rose Friday amid high hopes going into a weekend summit of European leaders working to resolve the sovereign debt crisis, following equities and the euro higher.

Prices jumped as trading opened in New York and were up as much as 3% in midmorning trade before settling back. Light, sweet crude for December delivery ended the day up $1.33, or 1.6%, to $87.40 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange settled 20 cents lower, or 0.2%, to $109.56 a barrel.

Traders and analysts said the market rose on the belief that European leaders will finally put forth a comprehensive settlement to the European credit crunch that has plagued markets on and off for the last year and a half. Government and finance officials were to hold a series of meetings in Brussels this weekend; French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a joint statement saying they would put forth a plan by Wednesday......Read the entire Rigzone article.


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EIA: Libya Resumes Natural Gas Exports to Italy

On October 13, 2011, Libya resumed natural gas exports to Italy via the 340-mile, Greenstream Pipeline (Greenstream), which is jointly owned by the Eni S.p.A. and the National Oil Company of Libya. Natural gas  delivery imports to Sicily, Italy, at the Gela receipt point, are now about 150 million cubic feet per day (MMcf/d).

Source: U.S. Energy Information Administration, based on Bentek Energy, LLC.

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Since February, unrest in Libya resulted in curtailed natural gas exports to Italy. Prior to the February curtailment, Libya supplied Italy with about 900 MMcf/d of natural gas, or 11% of Italy's average daily gas demand in 2010. Italy offset much of the reduced natural gas imports from Libya with increased imports of natural gas from Russia.



After natural gas flows resumed following the disruption, natural gas flowed from the onshore Wafa field about 300 miles southwest of Tripoli to Italy. Natural gas production at Wafa remained open during the crisis  and supplied natural gas to Libyan power plants. Most of Greenstream's natural gas usually comes from the offshore Bahr Essalam field (see map); only those volumes from Wafa in excess of domestic consumption are  available for export via Greenstream.

Crude Oil, Natural Gas and Gold Market Commentary For Friday Oct. 21st

Crude oil opened higher this morning but remains below the May-July downtrend line crossing near 87.23. Stochastics and the RSI are overbought and are turning bearish hinting that a short term top might be in or is near.

If December extends this month's rally, the 38% retracement level of the May-October decline crossing at 90.65 is the next upside target. Closes below the 20 day moving average crossing at 83.52 are needed to confirm that a short term top has been posted.

First resistance is the 38% retracement level of the May-October decline crossing at 90.65 Second resistance is the 50% retracement level of the May-October decline crossing at 95.39

First support is the 10 day moving average crossing at 86.26
Second support is the 20 day moving average crossing at 83.52

Crude oil pivot point for Friday morning is 85.80

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Natural gas was lower overnight as it extends this week's trading range. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.

Closes above Monday's high crossing at 3.777 are needed to confirm that a short term low has been posted. If November renews this year's decline, monthly support crossing at 3.225 is the next downside target.

First resistance is the 25% retracement level of the June-October decline crossing at 3.859 Second resistance is the reaction high crossing at 3.926

First support is last Thursday's low crossing at 3.446
Second support is monthly support crossing at 3.225

Natural gas pivot point for Fridays trading is 3.642

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Gold started the day sharply higher due to short covering overnight as it consolidates some of this week's decline.

Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If December extends this week's decline, September's low crossing at 1535.00 is the next downside target. Closes above Monday's high crossing at 1696.80 are needed to confirm that a short term low has been posted.

First resistance is Monday's high crossing at 1696.80
Second resistance is the 50% retracement level of September's decline crossing at 1729.40

First support is September's low crossing at 1535.00
Second support is the 38% retracement level of the 2008-2011 rally crossing at 1476.20
Gold pivot point for Friday morning is 1621.40

It's a good time to learn "How To Trade Market Sentiment"

SP500 Poised For A Sharp Pullback Near Term says Dr. Copper

Back on October 3^rd I wrote a public article forecasting a major market bottom at around 1088 on the SP 500 index.  I surmised we were about to complete a 5 wave move to the downside that commenced with the Bin Laden highs of 1370 in early May of this year.  The following day we bottomed at 1074 intraday and closed over my 1088 pivot and continued higher as we all know.  That brings us to the recent highs of 1233 intraday this week, a strong 159 point rally off the 1074 lows in just a few weeks.

Markets I contend move based on human behavioral patterns, mostly because the crowd reacts to good or bad news in different ways depending on the collective psychology of the masses.  There are times when seemingly bad news is ignored and the markets keep going higher, and there are times when very good news is also ignored and the markets go lower. This is why I largely ignore the day to day economic headlines and talking heads on CNBC, as they are not much help in forecasting markets at all.

Using my methods, I was able to forecast the top in Gold from 1862-1907 while everyone was screaming to buy.  I was able to forecast the April 2010 top in the SP 500 well in advance, the bottom last summer, and recent pivot tops at 1231 and 1220 amongst others.  All of this is done using crowd behavioral theory and a bit of my own recipes.  

That brings us forward to this recent rally from 1074 to 1233, which as it turns out is not all that random.

The rally to 1233 will have taken place within a 13 Fibonacci trading day window which ends today.  In addition, the rally is leading into the end of Options Expiration week which tends to mark pivot highs and pivot lows nearly every single month.  Also, at 1233 we have a 61% Fibonacci retracement level of the 1010 lows of July 2010 and the 1370 highs of May 2011.  1233 was my “Bear line in the sand” I gave out a few months ago to my subscribers as a likely bull back breaker.  

In essence, the market is having trouble breaking the glass ceiling at 1233 for a reason; it’s a psychological barrier for investors now.

Near term, I expect the market to have another sharp correction to work off the near 160 point SP 500 rally that has taken hold in just over two weeks and again on 13 Fibonacci trading days as of today.  In addition to that, we should follow copper as it tends to be an extremely good indicator for the SP 500 index long and short term.

Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5^th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

In any event, we are due for what I call a “B wave” correction of sentiment in the SP 500 and market indices, which should take the SP 500 to the 1149-1167 ranges minimally, and perhaps set up another entry for a C wave to the upside.  Caution is warranted near term is my point.  If you’d like to receive these types of regular updates during the week covering Gold, Silver, and SP 500 and more, check us out for a coupon or free weekly update at Market Trend Forecast.Com

David Banister

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Oil N' Gold: Crude Oil Daily Technical Outlook For Thursday Oct. 20th

Crude oil's break of 85.55 minor support argues that whole rebound from 74.95 has completed at 89.51, on bearish divergence condition in 4 hours MACD. Intraday bias is back to the downside and break of 83.17 support should confirm this bearish case and target a test on 74.95 low. On the upside, in case of another rise, we'd continue to expect upside to be limited by 90.52 resistance (38.2% retracement of 114.83 to 74.95 at 90.18) and bring resumption of whole decline from 114.83. However, note that decisive break of 90.52 will argue that crude oil has completed a double bottom reversal pattern (75.71, 74.95) and would bring stronger rise through 100.62 resistance.

In the bigger picture, medium term rebound from 33.2 is treated as the second leg of consolidation pattern from 147.24 and should have finished at 114.83 already. Current decline should target next key cluster support at 64.23 (61.8% retracement of 33.2 to 114.83 at 64.38) next. Sustained break will pave the way to retest 33.2 low. On the other hand, note that the fall from 114.83 is note clearly displaying an impulsive structure yet. Break of 90.52 will argue that price actions from 114.83 could merely be forming a sideway consolidation pattern and rise from 33.2 might still extend beyond 114.83 before completion.

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Crude Oil Analysis & How To Trade Oil Report

How to trade oil is not an easy thing to do in today’s headline driven market. Even the best oil analysis which may have been correct will still be wrong at times. This is due to the fact that oil has many factors which play into its price. Things likes like extreme weather conditions, geopolitical events, currency fluctuations, economic conditions and supply and demand.

During any time of the day oil traders and their oil analysis stand a good chance of having one of these factors directly affect the price of crude oil messing up their charts.

But, I am a firm believer that these factors (news events) generally fall in line with the overall larger trend of oil. So understanding how to spot trends in oil is a vital part of the equation.

Another important aspect of trading crude oil along with stocks and commodities is for you to understanding how to trade price and volume at an intraday time frame. If you don’t understand candle sticks, chart patterns and volume will get your head handed to you more times than not.

Let’s take a look at some charts which cover everything you need to know in great detail…...

How to Trade Oil Daily Chart Analysis:

Below you can see clearly how the overall trend is down for oil. You can also see the repeated bearish patterns and key resistance levels. In my oil analysis I focus on finding and trading the trend. You will not find me trying to pick a major top or bottom with my strategy; rather I focus on low risk high probability continuation patterns within a trend.

Once the trend stops and reverses there will likely be one or two losing trades as the investment shakes things up and sentiment slowly comes around and shifts to support the new trend in oil.

Intraday Crude Oil Analysis:

This is a chart of Oct 19^th using a 5 minute interval. The annotations on the chart explain clearly what I saw and was hoping to see for an oil etf trade setup this week.

How To Trade Oil Conclusion:

In short, I have been waiting for this setup to unfold for a few days now. This report goes to show that if you have the patients to site back, watch and wait you will trade with much less risk. By doing this you reduce risk on your overall position because you can time your entry 1-3 days before oil moves in your favour getting you the best possible price. Also the less time you have to keep your money in a trade the better because of the factors (news events) I told you about earlier. Cash is king! Get my bi-weekly reports and videos by joining my free oil newsletter here at The Gold and Oil Guy.Com

Chris Vermeulen

Williams [WMB] to Split Into Two Before Years End

Williams' [ticker WMB] board of directors has approved a revised plan to separate the company's businesses into two stand alone, publicly traded corporations. The revised plan calls for Williams to fully separate its exploration and production business via a tax free spinoff to Williams shareholders by year end 2011. The new independent exploration and production business will be known as WPX Energy, Inc.

The previously proposed plan was to conduct an initial public offering (IPO) of WPX Energy in 2011, followed by a spinoff of Williams' remaining WPX Energy shares in first quarter 2012.

Following the spinoff, Williams shareholders will own common stock in Williams, a premier owner/operator of North American midstream and natural gas pipeline infrastructure assets; and common stock in WPX Energy, a large scale, independent North American diversified exploration and production company with positions in key North American oil shale and gas basins along with additional holdings in South America. WPX Energy's stock will trade on the New York Stock Exchange under the symbol "WPX."

"The continued instability and weakness in equity markets, especially for new issuances, makes the IPO of WPX Energy appear unattractive in the near term," said Alan Armstrong, president and chief executive officer.

"However, the strong growth in cash flows from our energy infrastructure businesses gives us the flexibility to revise our plans and prepare to separate WPX Energy by the end of this year.....Read the entire Rigzone article.

Phil Flynn: A Sad Day For Freedom And The Free Markets

The CFTC took a dangerous step towards damaging the credibility of our nation's energy markets and may have harmed the economy and the average American. The commission's view that speculators are guilty until proven innocent is just another step in the Dodd-Frank regulatory overreach that is freezing our economy and stagnating job growth. This witch hunt against this elusive ghost called "excessive speculation" culminated in a 3 to 2 party line vote that will help drive trading in oil into a less transparent marketplace and will eventually lead to a less liquid and more volatile market.

You think trading is volatile now, well folks you haven't seen anything yet. In fact forget about volatility. I predict that the implantation of these new regulations will create shortages the next time the market is challenged by the type of economic crisis that we saw in 2008.
The spike up in oil to the all time high in 2008 was the catalyst for this damaging regulation and it was based on the false assumption that "excessive speculation" was driving the price of oil to record highs. Of course we now all know that the prices of oil and all other commodities were a relief valve as the market sought safe haven from the greatest economic crisis of modern times. If money was restricted from entering the futures markets at that time, the global economic crisis would have had much more severe consequences. We would have seen hording of supply and the freezing of commodity movement as the big players would have refused to sell to each other because of the lack of real true price discovery. In other words, the global commodity markets would have frozen more than the banks.

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