Precious Metals Charts Point to Higher Prices – Part II

Over the recent couple months the precious metals charts have made some sizable moves. Most investors and traders were caught off guard by the sharp avalanche type sell off and lost a lot of hard earned capital in just a few trading sessions. Gold dropped over 20% and silver a whopping 40%.

The crazy thing about all this is that these types of moves in precious metals can be avoided and even taken advantage of in certain situations. There is no reason for anyone to continue holding on to those positions after they pullback 6% of more because of the type of price and volume action both gold and silver had been displaying in the past few sessions.

I warned investors on August 31^st that precious metals were about to top any day and that protective stops should be tightened or taking profits was also a smart move. It was only 2 trading sessions later that precious metals topped and went into a free fall. You can get my detailed analysis if you read my report “Dollar’s On the Verge of a Relief Rally Look Out!”.

A couple weeks later once precious metals has found support and the uneducated investor’s were licking their wounds wondering what the heck just happened to their trading accounts… I put out another report but this time with a bullish outlook. Silver was currently trading at $29.96 and I had a $35-$36 price target over the next two months. Gold was trading down at $1611 and I saw it heading back up to $1750-$1775 area before finding resistance and pulling back. Both these forecasts were reached over the next two months. You can quickly review the report called “Precious Metals Charts Point to higher Prices” for more info.

With all that said, what exactly are the charts saying right now?

Current Precious Metals Charts Summary:

The past 6 weeks we have been watching both gold and silver struggle to hold up but they have managed to grind their way to my price targets. After reaching those targets a couple weeks ago sellers have stepped back into the precious metals market and put pressure these metals.

Last week gold and silver started to pullback in a big way with rising volume. This could just be the start of something much larger which I will cover in just a moment.

The wild card for precious metals and for every stock and commodity for that matter is Europe. Every other day there seems to be headline news moving the market and most of takes place in overnight trading for those of us living in North America. It’s this wild card which is keeping me from getting aggressive in the market right now.

Let’s take a look at the charts…

Silver Precious Metals Chart:

Silver is currently in a down trend and may be starting another leg down this week. Long term I am bullish but for the next couple months I am remain neutral to bearish for silver until it forms a base to start a new uptrend from.

Precious Metals Charts

 Gold Precious Metals Chart:

Currently I am neutral/bearish on gold. If it can trade sideways for a few weeks then I will become bullish.

Precious-Metals-Charts

 Precious Metals Charts Conclusion:

In short, I feel there is a good chance the US dollar will continue higher and if that happens we should see strong selling in North American equities, commodities and likely on the precious metals charts.

Financial markets around the world are at a tipping point meaning something really big is about to take place. The question is which way will investment move. The only thing we can do is trade with the current trends, price patterns and volume.

At this time I still see a higher dollar and that means lower stocks and commodities. This could change at the drop of a hat depending on the news that comes out of Europe so the key to trading right now is to remain cash rich and taking only small positions in the market.

If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my FREE trading education newsletter and my premium trading alert service here at  The Gold and Oil Guy.com

Chris Vermeulen

ONG: Crude Oil Weekly Technical Outlook

Crude oil rose to as high as 103.37 last week but failed to sustain above 100 psychological level and retreated. A short term top should be formed and initial bias is mildly on the downside for deeper pull back towards 94.65 support. Nevertheless, 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, above 100.15 minor resistance will turn bias neutral and bring consolidations. But break of 103.37 resistance is needed to confirm rally resumption. Otherwise, we'll stay near term neutral and expect more sideway trading first.

In the bigger picture, current development indicates the fall from 114.83 has finished at 74.95. 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 89.16/7 support holds, we'd now favor a break of 114.83 resistance to resume the rally from 33.2. Meanwhile, break of 64.23 support is needed to confirm completion of the whole rise from 33.2. Otherwise, we'll continue to stay bullish in crude oil.

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

One to Three Years Left For Gold’s Run

Gold has a couple more years to outperform the stock market before the end of this leg, if history is any guide.

This week's chart looks at the Dow Jones Industrial Average expressed in terms of the number of ounces of gold it would take to "buy" the DJIA's index value.  This is a popular comparison that a lot of chartists like to show, especially when it gets up to a really high level like it did back in 1999-2000, at the end of the tech bubble.

 

It has been falling since then, as gold prices have gone higher.  Having an ounce of gold become more valuable means that it takes less of it to buy something else.  And the (violently) sideways movement of the stock market over the past decade has allowed gold's price rise to pull this ratio back down toward "normal" levels seen over the past century.

Based on this way of looking at the DJIA, there have been 3 big bubble tops in the DJIA as expressed in ounces of gold.  What I find interesting and relevant just now is that the declines out of those first two took 13 and 14 years respectively.  So if the current decline follows the same course, then we can expect this ratio to bottom out about 13-14 years from the most recent top.

Doing the math on that is a little bit problematic, since the last top was actually 2 tops, in August 1999 and October 2000.  So if we take 13 years from 1999, and 14 years from 2000, that gives us a date range of 2012-2014 for when to expect a bottom for this ratio. 

That tells us about the "when", but it does not tell us about the "how far".  The bottoms for this ratio in the 1930s and 1940s were down below 3.0, and it got all the way down to 1.3 at the low in January 1980 (based on monthly closes).  If the DJIA were to stay around 12,000 for the next few years, then a ratio of 2-3 would mean gold at around $4000 to $6000 an ounce.  Or the ratio could get down below 3 by having gold stay where it is, and the DJIA get cut in half, or some other combination of movements.  That's how the math works. 

It is risky to forecast both the timing and the price for the end of a trend, so I'll refrain from endorsing those numbers.  I just offer them as food for thought.  Nothing mandates that this ratio reach any particular level. 

The more important conclusion to take from this is that the decline in this ratio does not seem to be done, and is not due to be done for a little while longer.  But the end to this decline in the DJIA/gold ratio is going to come someday, probably when the Fed decides to wake up and start fighting inflation again via higher interest rates.  That does not appear to be on their agenda any time soon. 

Tom McClellan
Editor, The McClellan Market Report

Crude Oil Confirms Thursdays Key Reversal Down Day

Crude oil closed lower on Friday confirming yesterday's key reversal down and closed below the 10 day moving average crossing at 98.11 hinting 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 Monday. Stochastics and the RSI are overbought and are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 95.46 are needed to confirm that a short term top has been posted. If December renews the rally off this month'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 20 day moving average crossing at 95.46. Second support is the reaction low crossing at 89.17.

Natural gas closed lower on Friday as it extended 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 December extends this year's decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.669 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.525. Second resistance is the 20 day moving average crossing at 3.669. First support is today's low crossing at 3.285. Second support is monthly support crossing at 3.225.

Gold posted an inside day with a higher close on Friday as it consolidated some of Thursday's decline but remains below the 20 day moving average crossing at 1748.40. The mid range close sets the stage for a steady opening on Monday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If December extends this week's decline, the reaction low crossing at 1681.20 is the next downside target. Closes above Monday's high crossing at 1797.60 are needed to confirm that a short term top has been posted. First resistance is Monday's high crossing at 1797.60. Second resistance is the 75% retracement level of the 2008-2011 rally crossing at 1826.50. First support is Thursday's low crossing at 1711.00. Second support is the reaction low crossing at 1681.20.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Crude Ends Below $98 As Rally Fades

Crude oil futures prices dropped Friday, tipping under $98 a barrel in further retreat from the triple digit levels hit earlier this week. After topping $100 Wednesday following the sale of a key U.S. pipeline, traders have pulled back due to concerns about ripple effects from Europe's debt crisis and worries that crude rallied too high, too fast.

While the sale and planned reversal of the Seaway Pipeline should ameliorate a U.S. supply glut beginning sometime next year, in the short term the effect on the physical crude markets will be minimal. For that reason, the spike in oil futures appeared to be an overreaction for many market participants, who opted to lock in returns.

"It's reached levels where you should be taking profits," said Brian LaRose, an energy analyst at brokerage United-ICAP. "There is the risk here in the short term for a substantial correction." Light, sweet crude for December delivery settled $1.41, or 1.4%, lower at $97.41 a barrel on the New York Mercantile Exchange, after falling as low as $96.64 in earlier trading.....Read the entire Rigzone article.

So Much For One Hundred Dollars Per Barrel

Much was made of WTI crude oil passing the $100.00 mark and many thought that if we closed above $100 a barrel we would be in some type of new era for oil. Well that era is now over and lasted only a day as European debt fears, as well as the realization that the reversal of the seaway pipeline ultimately is more bearish then bullish. A terrible Italian and now Spanish debt auction stirred fears that the Euro zone credit woes are expanding.

Lack of confidence in the EU is causing buyers of Eurozone debt to command post EU record highs. Fear of a EU meltdown is overshadowing the fact that in the US our economy is starting to recover. More evidence yesterday came with a strong jobless claims number, retail sales, housing starts as well as other data that seems to suggest we are starting to move. The dollar and bond rallied in a safe haven bid and commodities started to tumble.

Get ready to party! Natural Gas supply hit a record high! The Energy Information Agency reported working gas in storage was 3,850 Bcf as of Friday, November 11, 2011. This represents a net increase of 19 bcf from the previous week. Stocks were 14 bcf higher than last year at this time and 224 bcf above the 5 year average of 3,626 bcf. In the East region, stocks were 58 bcf above the 5 year average following net injections of 9 bcf.

Stocks in the producing region were 148 bcf above the 5 year average of 1,098 bcf after a net injection of 11 bcf. Stocks in the West region were 18 bcf above the 5 year average after a net drawdown of 1 bcf. At 3,850 bcf, total working gas is above the 5 year historical range. Now the question is whether or not we will end the winter at a record.

Reuters News reports, "U.S. natural gas inventories should end winter at a 21 year peak after starting the heating season at an all time high for a third straight year, creating a buffer for consumers over the summer, according to a Reuters poll of traders and analysts. Without winter temperatures that come close to matching last year's severe cold, brimming inventories next spring could spell more trouble for prices, which hit a two year low this week of $3.11 per mm Btu despite the fast approaching peak heating demand season.

The Reuters storage poll put the consensus forecast for end winter inventories at 1.864 trillion cubic feet, nearly 300 billion cubic feet, or 19 percent, above average and the highest since 1991 when stocks in late March stood at 1.912 tcf. Such high inventories at the start of the spring and summer stock building season give utilities more bargaining power when rebuilding supplies for next winter, and can help lower power costs for consumers during summer when prices can go up as air conditioners come on."

Phil Flynn

Make sure you are getting a trial to Phil's daily trade levels by emailing him at pflynn@pfgbest.com to open your account.

Crude Oil Bulls Lose Ground on Key Reversal Down Day

Crude oil posted a key reversal down on Thursday and below the 62% retracement level of the May-October decline crossing at 100.08 as it consolidated some of the rally off October's low. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If December extends the rally off this month's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below the 20 day moving average crossing at 94.97 are needed to confirm that a short term top has been posted. 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 10 day moving average crossing at 97.83. Second support is the 20 day moving average crossing at 94.97.

Natural gas closed higher due to short covering on Thursday as it consolidated some of 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 December extends this year's decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.695 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.573. Second resistance is the 20 day moving average crossing at 3.695. First support is Wednesday's low crossing at 3.326. Second support is monthly support crossing at 3.225.

Gold closed lower on Thursday and below the 20 day moving average crossing at 1743.90 confirming that a short term top has been posted. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are turning bearish hinting that a short term top might be in or is near. If December extends today's decline, the reaction low crossing at 1681.20 is the next downside target. Closes above Monday's high crossing at 1797.60 are needed to confirm that a short term top has been posted. First resistance is Monday's high crossing at 1797.60. Second resistance is the 75% retracement level of the 2008-2011 rally crossing at 1826.50. First support is today's low crossing at 1711.00. Second support is the reaction low crossing at 1681.20.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Nymex Crude Tips Back Below $100 Per Barrel

U.S. oil futures slid back below $100 a barrel Thursday, reversing the previous day's gains, as doubts surfaced about the economy's ability to stomach high oil prices.

Light, sweet crude for December delivery settled down $3.77, or 3.7%, to $98.82 a barrel on the New York Mercantile Exchange. The December contract is set to expire at the end of trading Friday. The more heavily traded January contract settled down $3.67, or 3.6%, to $98.93 a barrel.

Brent crude on the ICE Futures Europe exchange recently traded down $2.89, or 2.6%, to $108 a barrel.

Nymex futures pushed lower on a wave of selling, as traders thought twice about whether $100 crude was sustainable given the cracks in the global economy. A sinking stock market in the U.S., combined with intensifying worries about Europe's sovereign debt crisis, took the wind out of a price rally that had dominated the oil market for the last several weeks.....Read the entire Rigzonearticle.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Pipeline Reversal Of Fortune

Don't think of it as crude oil prices rallying, think of it as Brent crude prices falling. Oil prices surge above $100 a barrel for the first time since last July as the "broken" global oil market gets fixed in a big way. Conoco Phillips had a big payday by selling its interest in Gulf Coast Seaway pipeline in Cushing, Oklahoma to Enbridge Corporation which will reverse the flow of oil out of instead of into the NYMEX delivery point in Cushing, Oklahoma. This is a big step to ending the bottleneck in Cushing and allow the bonanza of Canadian oil sands crude and shale crude to be sent to Gulf Coast refiners that have too often had to rely on foreign imports of crude.

Followers of crude imports realize the cost of imported crude was rising as evidenced by what became a record differential between the Brent Crude versus West Texas Intermediate spread. West Texas Intermediate (WTI), which historically Brent Crude traded at a premium to, reversed on a host of challenges. In Oklahoma the influx of crude exceeded refiners ability, or at least desire, to run crude at those rates that would use the influx of new sources of oil. In the Gulf Coast where supplies were tight the infrastructure did not exist to transport the oil in sufficient amount. The US pipelines remain the most popular transport option, carrying about two-thirds of U.S. oil.....Read the entire article.


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Crude Oil Pulls Back Overnight, Bulls Maintain the Advantage

Crude oil was lower due to profit taking overnight as it consolidates some of the rally off October's low. Stochastics and the RSI are overbought but remain neutral to bullish signaling that additional short term gains are possible. If December extends the rally off October's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below the 20 day moving average crossing at 95.08 would confirm that a short-term top has been posted. 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 10 day moving average crossing at 98.04. Second support is the 20 day moving average crossing at 95.08.

Natural gas was higher due to short covering overnight as it consolidates some of this week's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If December extends this year's decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.693 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.570. Second resistance is the 20 day moving average crossing at 3.693. First support is the overnight low crossing at 3.325. Second support is monthly support crossing at 3.225.

Gold was sharply lower due to profit taking overnight as it consolidates some of the rally off September's low. Stochastics and the RSI are overbought and are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 1745.20 would confirm that a short term top has been posted while opening the door for additional weakness during November. If December renews the rally off September's low, the 75% retracement level of September's decline crossing at 1826.50 is the next upside target. First resistance is the 75% retracement level of September's decline crossing at 1826.50. Second resistance is the 87% retracement level of September's decline crossing at 1875.10. First support is the 20 day moving average crossing at 1745.20. Second support is the reaction low crossing at 1681.20.


Don't miss our recent post "How to Trade Oil ETFs When $100 Per Barrel is Reached"