Will The Dollar Ruin The Santa Claus Rally in the S&P 500?

Experienced traders recognize that volume typically dries up going into the holiday season. Light volume and the holiday seasonality generally push equity prices higher. The discussion of whether Santa Claus comes to Wall Street has arrived in earnest.

I do not envy Santa as he has the most arduous task of determining if Wall Street was naughty or nice. I suppose it depends on whether he reviews recent performance, or if past performance comes into play. Clearly coal will likely be found in a few stockings soon enough. If I were John Corzine, I would not expect to get a lump coal, but something far worse potentially.

In all seriousness, the bullishness has gotten pervasive in the media and economic data points such as unemployment and consumer credit have improved according to the government. One way to gauge investor sentiment is to look at the weekly advisor sentiment numbers courtesy of Bloomberg and Investor’s Intelligence.

According to this week’s advisor sentiment numbers, advisors who are bullish advanced to 47.4% from 44.2% last week. Bearish advisors dropped to 29.5% from 30.5% from the previous week. The 29.5% bearish data point matches a level that has not been seen in nearly 4 months. Bullishness has clearly become the leading expectation in the marketplace.

Only one asset has the opportunity to be “The Grinch” and ruin Christmas on Wall Street. If the U.S. Dollar rallies sharply, risk assets are certain to get hammered lower. In addition to the bullish tenor of market participants, most market pundits and gold bugs believe strongly that the U.S. Dollar is doomed fated for lower prices.

When I look at the long term momentum of a stock or commodity contract I will look at a monthly chart and plot the 12 month moving average against the price action. While it seems simple, equity and futures positions adhere to the 12 month moving average quite closely in many cases. The analysis is very simple as prices above the 12 month moving average equate to bullishness and prices below the moving average predict lower prices. The monthly chart of the Dollar Index futures is shown below:

As can be seen above, the Dollar Index futures are showing strength currently. The 12 month moving average is starting to flatten out which is also a bullish indicator. When looking at the daily time frame we can see that price action is trading inside a wedge pattern and is bouncing higher off of support:

An additional catalyst that could push the U.S. Dollar higher is the economic tragedy that is Europe. European political leaders need to come up with a series of strong solutions that will stabilize their economic crisis otherwise the Euro will weaken further. A weakening or potentially crashing Euro will push buyers back into the U.S. Dollar. This would in turn place downward pressure on equities and commodities.

S&P 500

On Thursday the S&P 500 flushed over 2% lower by the close as the European Central Bank disappointed investors with an expected 0.25% rate cut and no new bond purchase announcements. The bulls will tell you that the Thursday the week prior to monthly option expiration usually is volatile and price direction is generally in the opposite direction of the primary trend. We will find out next week whether that axiom holds true. The daily chart of the S&P 500 is shown below:

The strength of Thursday’s move is not going to easily be reversed. The European leaders need to shock the market with tangible decisions and launch a major offensive against their growing fiscal issues. If European leaders disappoint investors, the reaction to the news could be a violent selloff that leaves bulls flatfooted next week.

Those who are leaning long in size should consider that their trading capital is being leveraged on the hope that European leaders can come to a groundbreaking agreement. I will be in cash watching the price action in the S&P 500. However, once the dust settles and others have done the heavy lifting, I will likely get involved with a directional trade. Until then, I am just going to ponder if I were Santa, would Wall Street get a present or a lump of coal?

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J.W. Jones

Has AlgaeTec Cracked Algae's Biofuel Pricing Ability to Compete with a Barrel of Oil?

Amidst the relentless promotion of renewable biofuel alternatives to traditional fossil fuel hydrocarbons, the three leading contenders are jatpropha, camelina and algae. But among the many barriers holding back industrial production of biofuels is that no company up to now has yet figured out how to produce a gallon of biofuel at a price that can compete with gasoline.

Apparently until now, if press releases by Algae.Tec are anything to go by. The company, founded only three years ago, has offices in Atlanta, Georgia and Perth, Western Australia.

Algae.Tec founders, Earl McConchie and Roger Stroud, have been involved in the biofuel industry since 1999 and have developed a high yield enclosed algae growth and harvesting system, they labeled the McConchie-Stroud System, which uses low maintenance technologies and an efficient solar system to produce algae in one tenth of the land surface as compared to the current pond methods for producing algae. The McConchie-Stroud System photo-bioreactors produce oils which can be refined into biodiesel, sugar carbohydrates that can be used in the production of ethanol, proteins that can be used as feedstock for farm animals, and protein and carbohydrate biomass that can be combined to produce jet fuel.

Beating the PR drum for his company Stroud said, "Algae technology developed by the company has demonstrated exceptional performance, providing step change improvements in productivity, product yield, carbon dioxide sequestration, plant footprint requirements and substantial capital and cost savings as compared to agricultural crops and other competitive algae processes in the industry."

Most interestingly, for a world increasingly concerned with greenhouse gas emissions (GGEs), the McChoncie-Stroud System technology captures CO2 pollution from power stations and manufacturing facilities, which in turn are used to feed the algae growth system. Algae.Tec currently has 11 patent applications pending for its proprietary technology.

For a relatively new start-up company, Algae.Tec has already signed two Memorandums of Understanding (MOUs), one in China and the other in Australia and in January the company was listed on the Australian Stock Exchange (ASX).

But moving beyond theory, Algae.Tec is now building a full scale prototype plant, having earlier this month signed a collaboration agreement to provide five bioreactor modules to Sri Lankan Holcim Lanka Limited cement and building materials company. The collaborative effort will result in Asia's first algae biofuels production facility designed to reduce carbon dioxide emissions from cement manufacturing.

Holcim Lanka Limited decided to invest in Algae.Tec's technology as it had the dual benefit of reducing the company's carbon footprint by channeling waste carbon dioxide into the bioreactor's algae growth system, which in turn will generate biofuel at below market cost.

Note the phrase, "below market cost."Bringing the five photo-bioreactor modules will enable Holcim Lanka Limited to evaluate the benefits of capturing more waste carbon dioxide in a much larger facility, which in turn could lead to the company purchasing further modules for use at other sites.

Holcim Lanka Limited CEO Stefan Huber said, "the Algae.Tec facility is designed to reduce the cement manufacturing carbon dioxide emissions with an off-take into the algae growth system. We look forward to working with Algae.Tec on this exciting development that is aligned with our focus on sustainability and a commitment to the environment. Algae.Tec has a truly innovative technology backed by an expert international engineering team."

While Sri Lanka seems an exotic locale for such a facility, consider that Holcim Lanka Limited is part of Holcim Group, a global company with market presence in over 70 countries and is currently the second largest cement manufacturer in the world.

Accordingly, the potential for Algae.Tec contract is enormous, and what country has a surfeit of cement?

AlgaeTec is thinking far beyond Sri Lanka, targeted markets for its facilities in Australia, the U.S., China, Brazil and Southern Europe. If its McConchie-Stroud System technology can deliver on both recycling CO2 and provide biofuel at below market prices, then Algae.Tec will have a printing press for money that even the Federal Reserve might envy.

We shall see.

Posted courtesy of Dr. John C.K. Daly at Oilprice.com


Gold’s 4th Wave Consolidation Nears Completion and Breakout

ONG: Crude Oil Weekly Technical Outlook

Crude oil dipped to as low as 97.36 last week but recovered since then. Nonetheless, crude oil remains bounded in range of 94.99/103.37 and near term outlook remains neutral. More choppy sideway consolidation could still be seen. Below 97.36 minor support will flip bias to the downside for 94.99 and possibly below. But in such case, 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, break of 103.37 will confirm resumption of recent rally and should target 114.83 resistance next.

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 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.

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


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Goldman Sachs Issues Sell Rating on RIG....Dan Dicker Says Something Quite Different

Transocean (RIG) is one of the day's largest large cap losers after Goldman Sachs initiates coverage with a Sell rating. The firm notes that while RIG has dominated the ultra deepwater business, its rigs need extensive upgrades to keep them compliant in the post Macondo world which consensus estimates don't fully reflect.

Dan Dicker, president at MercBloc, has a very different take on how to play Transocean. And that is what makes a market. If you are a regular reader here then you know that we here at The Crude Oil Trader have very little respect for any call coming out of Goldman Sachs in the oil patch.

Here what Dan had to say today on CNBC.....



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

Rigzone: Crude Slides 2.1% On European Debt Worries

Crude oil futures fell 2.1% to near $98 a barrel Thursday, posting the biggest decline in three weeks on continued worries about Europe's sovereign debt.

Prices had posted early gains, approaching $102 a barrel, after a larger than expected drop in new claims for U.S. jobless benefits. The Labor Department said benefits filings in the week ended Dec. 3 fell by 23,000 and were at the lowest level in nine months. Economists had expected a 7,000 decline in the week.

But the weight of concerns, as European leaders begin a two day summit meeting, hit equities price and crude tumbled. Oil, like all global markets, has been gripped by concerns in recent months that the crisis in European could trigger a global economic slowdown.

Those concerns were especially evident in the heating oil futures market Thursday, traders said, as prices fell to their lowest level since Nov. 25 on fears of a potential slowdown in U.S. exports of related diesel fuel. Latest U.S. government data show that 42% of record high exports of distillate fuel (diesel/heating oil) in September were bound for Europe.....Read the entire article.


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Phil Flynn: It’s Beginning to Look a Lot Like!

It's beginning to look a lot like rates cuts, everywhere you go. Take a look at the ECB cutting rates again, with oil gains and silver bulls a-glow! It’s beginning to look a lot like rate cuts, maybe even Quantitative easing in store but the prettiest sight to see is the moment that you see oil put in a floor.

It’s all about Europe and the market expects the European Central Bank will cut rates by another quarter-point to 1%. Of course the market already wants more and hopes the ECB will add a little quantitative easing to help stimulate the economy. The market would like to see the Euro zone flush with cash ahead of its "do or die" Brussels summit as the fate of the Euro currency and the credibility of Europe hangs in the balance.

For oil the increasing prospect of a deal is very bullish. Not only will it improve demand it will devalue paper currencies that are abundant and will start too chase some goods including oil. Remember always that bailouts are bullish.

Yet yesterday’s Energy Information Report wasn’t really. The trade was shocked by a surprise build in commercial crude oil inventories which increased by 1.3 million barrels from the previous week. The expectations were that supply would fall as refiners and oil companies began to draw down inventory for year end tax considerations.

The other big story from the report was distillate inventories. The EIA said that distillate fuel inventories increased by 2.5 million barrels last week and are in the lower limit of the average range for this time of year. David Bird, the man that mashes the statistics for Dow Jones, says that, "US output of distillate fuel (diesel/heating oil) rose 4.2% to a record 5.03M barrels/day last week, EIA data show, as weekly demand was 7% above a year ago at 3.92M. Exports have been very strong of late and the EIA estimates distillates averaged a daily record near 950K barrels. The production surge helped push inventories up 2.5M barrels last week and within 2.5% of the 5-year average, the narrowest gap since October.”

Gasoline supply also surged increasing by 5.1 million barrels last week and are in the upper limit of the average range. Gasoline supply builds are the beneficiary of strong diesel demand and record distillate production. Total commercial petroleum inventories increased by 9.5 million barrels last week.

Still the overall outlook for oil is still bullish. The distillate production number indicates that refiners expect continuing strong global demand.

President Obama is still fighting the Keystone pipeline despite angering our neighbors to the North, Canada and despite the fact that the pipeline is favored by the majority of the American People. The President warned Republicans he'll veto an extension of the payroll tax if it includes a measure that forces the approval of the Keystone oil sands pipeline. Once again the President is putting his special interests ahead of US job creation and improving our nation’s energy security.

Hello shale and goodbye to coal! In a must read in Today’s Wall Street Journal it is reported that “naural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner burning energy, according to the latest long term outlook from Exxon Mobil Corporation.

The closely watched study, set to be released Thursday, forecasts that global energy demand will grow about 30% by 2040 as the world population climbs to nine billion from seven billion.

Natural gas will overtake coal as the second largest fuel source overall, ranking behind oil and powering everything from electrical plants to home heating systems. But Exxon said coal use will continue to grow through 2025 around the world, primarily in developing nations such as China and India and the African continent, because economic growth will be fastest in emerging nations.

But thereafter coal use will start to drop, for the first time in history, according to the study, which Exxon uses to help its long range planning. Key drivers in that expected drop in coal use will be growing demand for fuels that produce fewer greenhouse gases and a decline in China's population expected after 2030.

Exxon in recent years has moved to expand its natural gas business, including the $25 billion purchase of U.S. shale gas producer XTO Energy in 2010.” Don’t miss it!

The CME is looking into a new crude contract. The CME is thinking about a possible futures contract that could be physically settled with delivery to the Gulf Coast. Stay tuned!

I hate to say I told you so, but I did tell you that Libya’s oil production would come back much faster than expected. The EIA confirmed that saying that pace of Libya's re entry into world oil markets has exceeded our prior expectations and those of many other outside observers.” {not mine!} While opinions vary significantly on the eventual trajectory for Libyan oil production, nearly all forecasts have steadily shifted upwards as the country's oil sector and related institutions continue to progress.

The EIA says that “Libya’s National Oil Corporation (NOC) claims to be on track to meet its goal of returning to pre-war crude oil production levels of 1.65 million barrels per day (bbl/d) by the end of 2012. Most analysts now expect production to reach anywhere between 1.0 and 1.6 million bbl/d during that timeframe. Based in part on developments in recent weeks (Table 1), the U.S. Energy Information Administration (EIA) expects that Libyan output may ramp up to 1 million bbl/d by the beginning of the second quarter of 2012. Thereafter, EIA expects crude oil production to plateau somewhat, increasing only gradually to about 1.2 million bbl/d by the end of 2012, along an uneven and non linear path.”

EIA gas report today! The street is looking for a 13 withdrawal! I say 3. Get a trial to Phil's daily trade levels by emailing him at pflynn@pfgbest.com


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Musings: Imagining The Future for The Natural Gas Industry

A week ago Monday, the December natural gas futures contract traded on the CME exchange closed out its existence at $3.36 per thousand cubic feet of gas (Mcf), down $0.18 from the closing price of $3.54/Mcf posted the previous trading day, which happened to be the Friday after Thanksgiving and a notoriously light trading day. Natural gas prices had been buoyed in the period immediately before Thanksgiving by expectations that colder than normal weather over large parts of the gas consuming areas of the country would hike demand.

Futures prices were higher despite large and growing natural gas storage volumes. On that last trading day, cold weather prospects had shifted in favor of expectations for warmer than anticipated temperatures and thus depressed gas demand. The price drop, one of the largest daily corrections in a long time, brought further pain to industry participants. But as one private equity investor very active in the upstream oil and gas business put it, "It's got to change!" Yes, it will. The problem is that it could get worse!

The price drop, one of the largest daily corrections in a long time, brought further pain to industry participants

We've been spending considerable time wrestling with trying to define the natural gas industry's outlook as it is very important for this country's economy and for those people who are actively engaged in the business. Could it get worse? Can it get better? Current industry conditions reflect a certain Jekyll and Hyde quality, activity is up and growing but the price for the product is low and falling. What would it take for natural gas prices to recover? Would those actions help or hurt future industry activity?

Beyond those immediate concerns, we are wrestling with what the next phase for the industry might look like? How will the industry change as it transitions from its current state to whatever that next phase is? Will natural gas play an even greater role in our nation's power generation business? Can natural gas power a meaningful segment of our future car and truck fleet? Will the U.S. remain a natural gas importer or become a significant gas exporter?

These and many other questions have been filling our head and dominating our discussions with people in the business. To try to make sense of what is happening now, but more importantly what might happen in the future, we felt we needed to step back and take a very high level perspective of the business and current trends. It meant we needed to get away from the trees that restrict our view of the forest. (It will take several articles to examine these issues and attempt to define how the future might unfold.)

So far this year, it becomes clear we have experienced two distinctly different outlooks for the industry.

When we look at a chart of the price of the near month natural gas futures contract (Exhibit 1) so far this year, it becomes clear we have experienced two distinctly different outlooks for the industry. One was predicated on optimism about a growing economic recovery coupled with anticipation for falling natural gas production. The other view was marked by a weak economy with a potential for it getting worse given global economic and credit market uncertainties, coupled with growing frustration over continuing production growth despite weak natural gas prices.......Read the entire "Musings From The Oil Patch" article


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Gold Bulls Take The Advantage Going Into Thursday

Gold [February contract] closed higher on Wednesday and the high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.

If February extends the rally off November's low, November's high crossing at 1806.60 is the next upside target. Closes below November's low crossing at 1670.50 would renew the decline off November's high.

First resistance is last Friday's high crossing at 1767.10. Second resistance is November's high crossing at 1806.60. First support is November's low crossing at 1670.50. Second support is the reaction low crossing at 1607.30.



Gold’s 4th Wave Consolidation Nears Completion and Breakout

Is this the top for Crude Oil?

Crude oil closed lower on Wednesday as it consolidates some of the rally off the November 25th low. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.

If January renews 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 reaction low crossing at 94.99 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 reaction low crossing at 94.99. Second support is the reaction low crossing at 89.05.


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Gold and Crude Oil Trend Analysis

With a Chart Analysis Score of -50, gold is stuck in a trading range. Despite the move up and pullback in gold last week, it did not change the status of our weekly Trade Triangle. We remain positive on this market longer term and expect we will see it move much higher in 2012 as inflation kicks in around the world. Long term traders should remain positive for this precious metal. Intermediate term traders should be out of this market at the moment and on the sidelines waiting for a buy signal with the weekly Trade Triangle.

BIG PICTURE   Trading Range
Monthly trade triangles for Long term trends = Bullish
weekly trade triangles for intermediate term trends = Bearish
daily trade triangles for short term trends = Bearish
Combined Strength of Trend Score = -50

The $101.75 area basis the January contract appears to be offering resistance for crude oil at the present time. Crude oil remains the shining star of the commodity world and has become the currency of choice. With all of our Trade Triangles green, giving us a +90 Chart analysis score, it would appear as though we are in a strong bullish trend. At the present time all our Trade Triangles remain in a positive mode which is the direction of the major long term trend. Major resistance remains between the $102 and $103 levels. Long term, and intermediate term traders should be long this market with appropriate money management stops.

BIG PICTURE Strong Trend Bullish
Monthly Trade Triangles for Long Term Trends = Bullish
Weekly Trade Triangles for Intermediate Term Trends = Bullish
Daily Trade Triangles for Short Term Trends = Bullish

Combined Strength of Trend Score = +90

HOW TO USE THE MARKETCLUB SCORING SYSTEM
Score: 50 – 65 Trading Range
Score: 70 – 80 Emerging Trend
Score: 85 – 100 Strong Trend


Gold’s 4th Wave Consolidation Nears Completion and Breakout