WTI crude is surging more than 17% in the past month. Is this a breakout in oil prices? Phil Weiss, Argus Research Group, and Raymond Carbone, Paramount Options, discuss.
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Tuesday, October 25, 2011
Phil Flynn: The Dead Spread
The Brent/WTI spread almost became a household word in the conflict between Gaddafi loyalists and the Libyan rebels. Libyan crude is of a very high quality oil that found its nitch in Europe subbing for the production challenged North Sea brent crude. The loss of that crude created a void because European refiners accustomed to a regular flow of light crude failed to have the type of units needed to refine those heavier grades. The loss of that crude caused the Brent/WTI spread to go to a record high. Now coincidentally or not, the spread has come in dramatically since Mr. Gaddafi's demise.
In fact the spread has come in from an all time high of approximately $28.07 to a mere $18.97 as of this writing. With Gaddafi out of the way the hope is that Libyan oil will once again fill that void. Well early on that is even going beyond hope. Yesterday ENI told Dow Jones that the big elephant in the room, or Libya's giant Elephant oil and gas field in Libya, could restart as early as next month and that there was "no big damage". That field accounts for almost 25% of Libya's natural gas output. A resumption of that much oil that soon obviously could ease concerns that it will take "years" to get Libyan oil production back up to normal.
That not to say that there are not some tensions as Dow Jones reports of a strike at Waha Oil Co., Libya's largest oil partnership with foreign companies, is entering its eighth week after a failure to reach an agreement over the dismissal of Gaddafi era managers, staff at the company said. Dow Jones says, "Unrest at Waha, on which U.S. partners Marathon Oil Corp. (MRO), Hess Corp (HES) and ConocoPhillips (COP) have previously declined to comment, is part of broader strife at some oil operations. It underscores the challenges still facing the country's oil industry despite the death of former ruler Moammar Gadhafi last week."
Yet at the same time the WTI has found strength as the US economy looks stronger than Europe and the decline of crude stocks at Cushing, Oklahoma, the delivery point for the Nymex WTI futures. While the world waits for Europe, data seems to suggest that the sparing over Greek haircuts (no, I am not talking about Telly Savalas) and bank rescue funds has zapped the confidence of Europe, increasing the odds of a recession.
It seems that market are also reacting to the spread sending light sweet crude to Europe as opposed to the formally oversupplied US. Gas and Oil Daily says, "Oil stockpiles in Cushing dropped 760,000 barrels to 28.1 million. The Energy Department said last week that Cushing inventories, including floating and fixed tanks, totaled 31.1 million barrels as of October 14th, down 26% from a peak of 41.9 million on April 8th." Bloomberg News says that crude oil inventories in Cushing, Oklahoma, dropped 2.6 percent on Oct. 21 from Oct. 18, according to data compiled by DigitalGlobe Inc.
They say that stockpiles held in floating roof tanks at the hub fell 760,000 barrels to 28.1 million, satellite images taken by the Longmont, Colorado based company show. In other words, the market forces are starting to correct the anomaly between the spread as oil is seeking higher prices. That is reducing Cushing supply and more than likely increasing European supply.
What is also helping is that we are seeing an increase in Nigerian exports as well. Nigeria also has the very desirable light sweet grade of crude oil. Dow Jones says that Nigeria will export 7,950,000-barrel cargos of Bonny Light in December, one more cargo than in November. They report a total of 214,516 barrels a day of QuaIboe crude will be available in December, compared with 157,000 barrels a day in November, the program shows.
This should put more pressure on "The Dead Spread" as well. It also put the WTI market in backwardation for the first time since the financial crisis began. It seems that the market is worried that with all the oil ending up in Europe, supplies may tighten in the US. It is also showing a vote of confidence in the US economic growth outlook or at least a more pessimistic outlook for Europe.
Also with oil on fire yesterday William Dudley of the Fed, fed into the flames talking about QE3D! QE is bullish for oil and with the Dead spread out of whack we could see WTI try to attract supply. While WTI flies gas prices were mute as the Brent crude should help US imports of products. Mr. Dudley is sending a signal to the market that QE is back in play and most likely will be in the form of printing money to buy back mortgage backed securities. Very bullish for WTI oil!
The Energy Information Agency has some good news I suppose. They said that the national average retail price of regular gasoline is down 1.4c to $3.462 a gallon. Yahoo! Now not that I want to ruin that god feeling you had but they also want to remind you that prices are still 64.5c a gallon, or 22.9%, higher than they were a year ago.
Want some news that might warm your heart? Reuters News points out that the average of the first 12 months of New York Mercantile Exchange natural gas futures contracts slid to its lowest in nine years on Monday as growing supplies and moderate weather weighed on the complex. The 12 month futures fell 2.3 cents to settle at $3.923 per million British Thermal Units, the lowest settle since Nov. 15, 2002, when the average closed at $3.926, Reuters data showed. Despite record heat this summer that drove NYMEX front month gas to its 2011 peak near $5, record high gas production, primarily from shale, has been the main factor pressuring price expectations.
Phil Flynn
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Crude Oil Opens Tuesday Trading Higher
Closes below the 20 day moving average crossing at 84.57 are needed to confirm that a short term top has been posted.
First resistance is the 50% retracement level of the May-October decline crossing at 95.32
Second resistance is the 62% retracement level of the May-October decline crossing at 100.08
First support is the 10 day moving average crossing at 87.72
Second support is the 20 day moving average crossing at 84.57
Crude oil pivot point for Tuesday morning is 90.05
Check out "How to Trade Gold and Oil Prices This Coming Week"
Monday, October 24, 2011
Is It Reversal Time For the Markets?
I think you’ll find today’s video interesting as the S&P 500 has made a remarkable recovery. However, it is back at a crucial Fibonacci retracement level which could present major problems for this index.
In our recent survey we asked traders if they were concerned about what is going on in Europe. A remarkable majority, over 75% said they were, and they do watch events in Europe very closely.
At this point, Europe is really the tail that wags the dog and we are not optimistic that things are going to work out in a positive fashion.
They have had a total of 13 summits in a period of 20 months trying to solve this problem. With the likes of Berlusconi, can you imagine telling him what to do? And other players like Nicholas Sarkozy shouting to Brian Cameron of Great Britain to shut up and butt out. And that’s the stuff we hear about!
Imagine the stuff we don’t heard about.
Let's look at the Trend Analysis for crude oil......
The crude oil market moved over resistance at $90 a barrel and it seems ready to test the Fibonacci retracement level of $91.80. Can this market in fact, close over resistance at $90? Our long term Trade Triangles continue to be negative and we expect they 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.
Well, December crude oil did close up $4.24 a barrel at $91.63 today. Prices closed near the session high today and hit a fresh 11 week high. Crude bulls gained good upside near term technical momentum today as prices pushed above what was a well defined sideways trading range on the daily bar chart. The crude market was boosted today by a weaker U.S. dollar index, higher U.S. stock indexes and ideas the EU debt crisis is seeing progress toward getting fixed.
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70
Now, let’s go to todays video and look at the charts of the six markets we publicly cover and see some of those important retracement levels.
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Phil Flynn: A Bullish Start
China's flash PMI, rose to 51.1 showing expansion in the Chinese manufacturing sector for the first time since mid-summer. The first reading on Chinese manufacturing was an improvement from the final September reading of 49. Still some wonder why we have not seen China demand for oil increase.
Reuters News reports, "China's implied oil demand rose a tepid 1 percent over a year earlier in September at about 8.9 million barrels per day, the lowest rate so far this year, according to Reuters calculations based on preliminary official data released on Tuesday. Implied oil demand was calculated using China's refinery crude throughput plus net imports of refined fuel but excluding changes in fuel inventories, which China rarely publishes Fuel demand in the world's second largest oil user has, since June, eased off from the double-digit growth pace seen since late last year, as the Chinese economy grew less rapidly, but China still contributed more than half of the global incremental oil demand.
If China oil demand slows to single digit growth then prices should ease. On top of that the Chinese government has taken steps to try to rein in inflation. That potentially means that demand for oil has peaked or the Chinese are using reserves that will have to be replenished! Stay tuned!
Now the question is whether or not China will buy European bonds. Reuters News reports that French President Nicolas Sarkozy backed down in the face of implacable German opposition to his desire to use unlimited European Central Bank funds to fight the crisis. Instead, the euro zone may turn to emerging economies such as China and Brazil for help in underpinning its sickly bond market. Still the market is optimistic that this time, really this time, the Euro Zone will make a plan that will really work.
You can sign up for a free trial of Phil's daily trade levels by emailing him at pflynn@pfgbest.com.
Sunday, October 23, 2011
How to Trade Gold and Oil Prices This Coming Week
The past couple weeks have been tough for most investors. The recent light volume rallies which have taken place in gold, oil and stocks has been generating mixed signals for technical analysts like myself. In order avoid a large draw down on your trading capital you must focus on the long term intraday charts.
What is a long term intraday chart you ask?
It is simply a 4 or 8 hour candlestick or bar chart. For example the charts below in this report are 4 hour charts. So each candlestick represents 4 hours.
Why should you use these long term intraday charts instead of say a daily chart? There are four main reasons for this:
- If you used a daily chart then this information would be condensed showing you the daily high, low, open and closing prices. While the 4 hour futures chart shows you large multi intraday chart patterns that most traders would never see… Patterns not seen by the average investor have a higher probability of working in your favour. Also these patterns are much larger than just normal intraday patterns which you see on the 5, 10, or 60 minute charts. Remember the larger the pattern the more potential profit there will be.
- These longer time frames allow us to follow gold, silver, oil and stock indexes around the clock 24/7 using futures contracts. Think about it… regular trading hours from 9:30am – 4pm ET only allows you to see 1/3rd of the price action each day. That means you are only seeing parts of larger patterns while the 24/7 contracts show you ALL Price Action.
- The last reason you must use futures charts is for the volume readings. Futures show real volume levels which can be used for trading. So the volume you see on ETFs will not have the proper volume levels for that specific commodity or index. More times than not it almost the opposite…
- My last reason for trading long term intraday futures charts is because the price of the underlying commodity or index moves true while the ETFs which try to shadow these commodities generate false breakouts and breakdowns on a regular basis.
Let’s take a look at the charts.......
Gold Futures Contract – 240 Minute (4 Hour) Chart
Gold finally broke down from the bearish rising wedge which it had been forming through late September until mid October. I know the majority of traders, investors, and financial newsletters have already positioned themselves either long or short the metal as they anticipate the next major move.
I will agree that a large move either up or down is just around the corner but what sets me apart from others is the fact that I don’t bet my hard earned money when the odds are 50/50. I don’t pick tops or bottoms; rather I wait for a clean break out or low risk entry point. Only then will I take action. Until the blue box on the chart has been broken with some type of retest I will continue to observe and analyze the chart of gold.
Crude Oil Futures Contract – 240 Minute (4 Hour) Chart
The past month crude oil trading has been very profitable for subscribers and me. We shorted crude oil using an inverse etf in September which moved over 20% in our favour within a few trading sessions. And just last week we shorted it again for a 7.5% move in less than 24 hours.
Overall I am still bearish on oil but have moved to cash until I see another high probability setup unfolding. The recent price action in crude oil makes the odds about a 50/50 bet as to which way it will break next. This is why I have moved back to cash and pocketed the quick gain.
SP500 Exchange Traded Fund – 240 Minute (4 Hour) Chart
This chart is not the SP500 futures contract. This is just the SPY ETF but what I wanted to show was how the market was showing mixed signals. The past couple weeks price has been broadening and this can be taken two different way.......
More times than not it is seen as a bearish pattern and price generally falls afterwards. But in rare situations which I think we could be experiencing now this broadening price action can be very bullish, meaning much higher prices ahead. So I continue to observe and prepare for a possible trade setup.
Weekend Gold, Oil and Stocks Trend Conclusion:
In short, I feel the market is on the verge of a strong move. The problem is that price action, market sentiment and economic news are all giving mixed signals......…
The best position right now is in cash and if something unfolds this week to our favor, then we will get involved but I am not going to take a 50/50 guess on what the next move is until the odds are in favour to one side or the other.
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 26th – 28th 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 – 28th 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.
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Crude Oil Closes The Week in Overbought Mode
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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Saturday, October 22, 2011
Crude Oil Rises On Hopes of Euro Zone Deal
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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Friday, October 21, 2011
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).
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.
Source: U.S. Energy Information Administration, based on Bentek Energy, LLC.
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
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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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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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"
Thursday, October 20, 2011
SP500 Poised For A Sharp Pullback Near Term says Dr. Copper
Back on October 3rd 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 5th 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
Oil N' Gold: Crude Oil Daily Technical Outlook For Thursday Oct. 20th
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.
Check out Oil N' Gold.Com for the Nymex Crude Oil Continuous Contract 4 Hour, Daily and Monthly Charts
Wednesday, October 19, 2011
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.
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 19th 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
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
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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Tuesday, October 18, 2011
The SP 500, Apple Earnings and Feeding The A.D.D. Monster
The last hour of trading was intense on Tuesday and then all eyes were focused on Apple’s earnings which were released around 4:30 ET. The initial reaction to the earnings release is negative although as I write this AAPL is bouncing sharply higher in after market trading on strong volume.
To put the final hour’s volatility into perspective, at 3 P.M. Eastern Time the S&P 500 Index was trading at 1,217. A mere 12 minutes later the S&P 500 Index pushed 15 handles higher to trade up to 1,232. Then sellers stepped in and pushed the S&P 500 lower by nearly 12 handles in the following 20 minutes.
The price action was like a roller coaster and I was sitting watching the flickering red and green bars in real time with the anticipation of a child. It was the most excitement I have had in quite some time, but please don’t hold that against me. I don’t know whether reading my previous line makes me laugh or cry, but the truth must be heard I suppose.
Enough self deprecation, I want to get down to business with some charts and what is likely to happen in coming sessions. The sell the news event in AAPL has the potential to really change the price action tomorrow. If prices hold at lower levels, the indices could roll over sharply tomorrow. The S&P 500 E-Mini futures contracts are showing signs of significant weakness after the earnings miss by Apple in aftermarket trading.
Some other potentially game changing news items came out of Europe where Reuters reported earlier today that the Eurozone will likely pass legislation that will ban naked CDS ownership on sovereign debt instruments. Additionally, Treasury Secretary Timothy Geithner stated this morning that a forthcoming FHA announcement involving a new housing refinance plan was going to be made public in coming days. The statement regarding the new FHA plan helped the banks and homebuilders show relative strength during intraday trading and likely were behind much of the intraday rally.
I would point out that the S&P 500 Index (SPX) broke out slightly above the August 31 highs before rolling over. The reason that is critical is because the S&P 500 E-Mini futures did not achieve a breakout, but tested to the penny the August 31st highs. I am going to be totally focused on tomorrow’s close as I believe it will leave behind clues about the future price action in the S&P 500 leading up to option expiration where volatility is generally exacerbated. The daily chart of the S&P 500 Index is shown below:
If Wednesday’s close is below the recent highs near 1,230 we could see this correction intensify. The price action on Tuesday helped stop out the bears and if we see a significant reversal tomorrow the intraday rally today will have been nothing more than a bull trap. The price action Tuesday & Wednesday could lead to the perfect storm for market participants where bears were stopped out and bulls are trapped on the potential reversal.
Another interesting pattern worth discussing is the head and shoulders pattern seen on the SPY hourly chart. The strong rally to the upside may have indeed negated the pattern, but if prices don’t follow through to the upside in the near term and the neckline of this pattern is broken to the downside we could see serious downside follow through. The hourly chart of the Spider SPY Trading ETF is shown below:
Ultimately there are two probably scenarios which have different implications going forward. The short-term bullish scenario would likely see prices breakout over recent highs and push higher toward the key resistance area around the 1,260 price level. The 1,260 price level corresponds with the neckline that was broken back in August that led to heavy selling pressure.
Bullish Scenario
If we do breakout to the upside, the longer term ramification may wind up being quite bearish as most indicators would be screaming that price action was massively overbought at those levels and a sharp selloff could transpire into year end. The daily chart of the S&P 500 Index illustrates the bullish scenario below:
Bearish Scenario
The short term bearish scenario would likely involve a break below Monday’s lows that would work down to around the 1,140 level or possibly even lower. If a breakdown took place, a higher low could possibly be carved out on the daily chart which could lead to a multi month rally that would likely see the neckline mentioned above tested around the holiday season. The daily chart of the S&P 500 below shows the bearish scenario:
There are a variety of reasons why either scenario could unfold. Most of the analysis that I look at argues that the bearish scenario is more probable. However, based on what happened in the final hour of trading on Tuesday and the surprise earnings miss from Apple anything could happen.
I will likely wait for a confirmed breakout either to the upside above recent highs or to the downside below the neckline of the head and shoulders pattern illustrated above before accepting any risk. I am of the opinion that risk is exceptionally high in the near term. I am not going to try to be a hero, instead I am just going to wait patiently for a high probability setup to unfold.
Until a convincing breakout in either direction is confirmed, I am going to sit on the sidelines. I am quite content just watching the short-term price action without taking on any new risk. For those that want to be heroes or feel they have to trade, I would trade small and use relatively tight stops to define risk. Risk is excessively high!
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Crude Oil Continues to Mirror Action in the Equity Markets
Our major trend indicators remain negative on the equity markets. We are also looking at the S&P 500 at the top of the Donchian trading channel. I believe that was the reason for yesterday’s sharp move down.
In order for this market to really get going on the upside it needs to clear the highs of 1230 on the S&P 500 in a convincing fashion.
There is so much confusion in the marketplace right now.....Interest rates, mortgage foreclosures, contagion in Europe and the occupation of Wall Street. The markets always have numerous conflicting thoughts, but eventually the market figures it out and goes the way it wants to go. Our job here at MarketClub is to recognize those changes and alert you to what we are witnessing.
Let's look at todays action in crude oil......
The crude oil market continues to mirror the action in the equity markets. The highs seen yesterday in the December contract at $88.40 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 +70, there is no clear cut direction for this market at the moment. Crude oil is very overbought on the Wiliams % R indicator.
We are looking for a pullback to the $80 a barrel level, which would represent a 61.8% Fibonacci retracement. Our long term Trade Triangles continue to be negative and we expect they will once again dictate the tone of this market. Long term traders should continue to be short the crude oil market.
December crude oil closed up $1.88 a barrel at $88.50 today. Prices closed nearer the session high today, hit a fresh four week high and scored a bullish “outside day” up on the daily bar chart. Crude bulls still the overall near term technical advantage and gained fresh upside momentum today.
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70
Now, let’s go to today's video and look at the 6 major markets we track every day.
Adam Hewison
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Insider Monkey: Wilbur Ross Buys More EXCO Resources, Ticker XCO
In the second quarter, twenty nine hedge funds in our tracking list had XCO in their portfolios. Howard Marks’ Oaktree Capital Management had 34.78 million shares, giving a 16.23% stake. Wilbur Ross’s Invesco Private Capital (WL Ross & Co) had 2.10 million shares, or 9.8% stake at that time, after a decrease of 95%. Anand Parekh’s Alyeska Investment Group had 9 million shares, corresponding to a 4.2% stake.
Wilbur Ross is known for restructuring failed companies. He specializes in leveraged buyouts and distressed businesses. He was listed as one of the world’s billionaires with a net personal wealth of $1.9 billion in 2011. His Invesco Private Capital (WL Ross & Co) has a portfolio value of $1.24 billion, with most of the capital invested in Financial, Basic Materials, and other sectors.
EXCO Resources, Inc. is an independent oil and natural gas company. According to Yahoo! Finance, the company “engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays”. The company had proved reserves of approximately 1.5 trillion cubic feet equivalent, and operated 7,276 wells as of December 31, 2010. The company was founded in 1955 and is headquartered in Dallas, Texas.
Posted courtesy of Insider Monkey. Visit our favorite website for tracking the actions of hedge fund managers around the world at Insider Monkey.Com
EIA: Summer 2011 Electricity Prices Were Mostly Down Compared to Summer 2010
Source: U.S. Energy Information Administration, based on data from SNL Energy.
Except for Texas, California, and the Southwest, average on-peak, wholesale electricity prices at trading points across much of the country declined during the summer (May 15 to September 15) of 2011 when compared to the summer of 2010. Wholesale power prices generally mirrored changes in wholesale natural gas prices. One stark exception was in the system operated by the Electric Reliability Council of Texas (ERCOT) where extreme, sustained, widespread heat as well as insufficient capacity resulted in wholesale prices over 100% higher compared to the summer of 2010.
Electric system demand typically increases in the summer months as a result of residential air-conditioning demand. This increased demand usually drives up wholesale electricity prices compared to the spring and fall.
Some key drivers of price changes this summer included:
Weather: Mild temperatures throughout the Northeast and Central United States drove significant declines in average power prices in New England, New York, and the Midwest. The sustained heat wave in Texas resulted in record-breaking load levels. The map below shows the percentage change in cooling degree-days between the summer of 2010 and the summer of 2011, by state. Texas had a 13% increase in cooling degree-days, while Oklahoma and New Mexico had 15% and 13% increases, respectively. August 2011 was the warmest August recorded by the National Oceanic and Atmospheric Administration for New Mexico, Oklahoma, Colorado, Arizona and Louisiana.
Source: U.S. Energy Information Administration, based on data from the National Oceanic and Atmospheric Administration.
Natural Gas Prices: Because natural gas is the marginal fuel for electricity generation in many regions of the country, natural gas prices can have a significant impact on the wholesale price of electricity. Overall, wholesale natural gas prices this summer were little changed compared to prices in the summer of 2010; wholesale natural gas prices at the Henry Hub in Louisiana fell about 1% to $4.30 per million British thermal units. There were some regional changes, however. In the Northeast, wholesale natural gas prices were down between 2% and 15%, reflecting both lower regional demands and growing natural gas production from the Marcellus shale play. Natural gas prices were about 4-7% higher than last summer in the Southwest and California markets and supported modestly higher wholesale power prices in those markets.
Hydroelectric Output: Power prices in the Pacific Northwest were driven down by the availability of inexpensive hydroelectric generation and mild temperatures in the early part of the summer. The average on-peak wholesale electricity price at Mid-Columbia zone (along the Washington/Oregon border) decreased 6% as hydroelectric output increased above five-year highs.
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