Crude Oil and Natural Gas ETF Trading

The past week in gold, silver, oil, natural gas and the broad market wasn’t anything to write home about. We are seeing controlled profit taking which is making the market choppy. Many traders are getting very bearish on the market which is a good thing in my opinion. According to my market internals, sentiment and volume analysis we should get a shake out (sharp dip) which would make traders exit their positions before the market continues higher.

Some trader’s say we are in a bull market, others say we are in a major bear market. Either way the trend is up on the daily and weekly charts and companies are making money. Buying on over sold dips has been very profitable this year. Until I see things drastically change, this is my strategy for the broad market.

Lets take a look......

Crude Oil – USO Exchange Traded Fund
Oil has been making a strong rally after breaking out of is multi month consolidation pattern. We are now looking for some type of pullback or test of breakout for another low risk entry point.


Natural Gas – UNG Exchange Traded Fund
Natural gas is having some trouble breaking out above the multi month resistance trend line. Buying here is a 50/50 bet and I will wait for another entry point before putting our money to work.


Crude Oil and Natural Gas Conclusion:
Overall, the market feels ready for quick snapback to shake traders out of profitable positions. I expect a resumption of the up trend as the market slowly creeps higher at a steady pace digesting each rally with sideways movement.

I know many people are shorting the broad market and that is not something I am willing to do yet. Until I see a drastic change, long positions are my bread and butter. Once the market does reverse, there will be plenty of time to play the short side using the Leveraged ETFs.

Commodities are taking a breather but with our support trend lines nearing I expect some movement this week.

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Dollar Bounces After Slumping Against Euro, Crude Reverses

U.S. crude futures fell on Monday, reversing direction as the dollar bounced off early lows and as Wall Street slumped after opening higher. Sources also said crude's earlier rise above $81 a barrel, which failed to take out the 2009 peak of $82 from last week, and mild U.S. weather provided pressure on heating oil.

The dollar rallied from 14 month lows versus the euro as riskier assets like commodities and U.S. equities fell. The dollar struggled earlier after an opinion piece in a Chinese newspaper said China should increase its holdings of euros and yen in its foreign reserves. U.S. stocks fell, dragged lower by materials and financial shares, erasing earlier gains.

"Crude is trying to consolidate and it's definitely sensitive to swings in the dollar," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut ......Read the entire article.

Crude Oil Falls Below $80 as the Dollar Rebounds Against Euro

Crude oil fell below $80 a barrel as the dollar advanced from a 14 month low against the euro, reducing the appeal of commodities, and U.S. equities declined. Energy and metal futures dropped as much as 1.4 percent after the U.S. currency rebounded. Oil also slipped as the Standard & Poor’s 500 Index slumped on analyst downgrades that dragged banking shares lower.

“The strengthening of the dollar is shifting the landscape under the oil market,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. Crude oil for December delivery fell $1.55, or 1.9 percent, to $78.95 a barrel at 11:58 a.m. on the New York Mercantile Exchange. Futures have gained 77 percent this year. The dollar climbed 0.3 percent to $1.4957 per euro from $1.5008 on Oct. 23. It traded as low as $1.5063 earlier today, the weakest level since.....Read the entire article.

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Weekend Update: UNG - US Natural Gas Fund ETF

Considering how UNG has been trading in the past few months, this weeks trading was "relatively" stable. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally, UNG is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

UNG's MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9day moving average or signal line. This suggests that positive momentum has begun to slow.

On Friday one of our favorite buy/sell indicators, the Parabolic Sar, showed the UNG closing above the trigger point for the Parabolic SAR and is currently registering a bullish signal. The current Significant Point, below which a reversal to the bearish side would occur, is 10.99.

The Stochastic Oscillator is registering a bearish signal as the %K is below the %D. However, UNG is neither overbought nor oversold.

The RSI is currently at 46.56%, just below the critical 50% line which indicates that the stock is neither overbought nor oversold. Keep an eye on the trend of the RSI to see if the internal strength of UNG is improving or weakening.

Smart Scan Chart Analysis of UNG

Our "Smart Scan" technology shows a strong downtrend in place and that downtrend looks to continues negative longer term and for this market to remain weak. If trading this strong Downtrend make sure to use tight money management stops. The triangle Smart Scan is showing indicates the presence of a very strong trend that is being driven by strong forces and insiders.

Based on a pre-defined weighted trend formula for chart analysis, UNG scored -90 on a scale from -100 (strong downtrend) to +100 (strong uptrend):

+10......Last Hour Close Above 5 Hour Moving Average
-15......New 3 Day Low on Thursday
-20......Last Price Below 20 Day Moving Average
-25......New 3 Week Low, Week Ending October 17th
-30......New 3 Month Low in September
-90......Total Score



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Crude Oil Closes Lower on Strength in The U.S. Dollar

Crude oil closed lower [80.50] due to profit taking on Friday as it consolidated some of Wednesday's rally. Stochastics and the RSI are overbought and are turning neutral to bearish 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.

Closes below the 20 day moving average crossing at 74.28 would confirm that a short term top has been posted. If December extends this month's rally, the 38% retracement level of the 2008-2009 decline crossing at 84.64 is the next upside target.

First resistance is Wednesday's high crossing at 82.00
Second resistance is the 38% retracement level at 84.64

First support is the 10 day moving average crossing at 78.29
Second support is the 20 day moving average crossing at 74.28

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Natural gas closed lower [4.787] on Friday and the low range close sets the stage for a steady to lower opening on Monday. Today's decline turned stochastics and the RSI bearish signaling that sideways to lower prices are possible near term. If December extends this week's decline, the reaction low crossing at 5.280 is the next downside target.

First resistance is Wednesday's high crossing at 5.989
Second resistance is June's high crossing at 6.170

First support is today's low crossing at 5.473
Second support is the reaction low crossing at 5.280

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The U.S. Dollar closed higher due to short covering on Friday as it consolidated some of this month's decline. The high range close sets the stage for a steady to higher opening on Monday. 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 73.39 is the next downside target. Closes above the 20 day moving average crossing at 76.28 would confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 75.68
Second resistance is the 20 day moving average crossing at 76.28

First support is Wednesday's low crossing at 75.09
Second resistance is monthly support crossing at 73.39

Are the U.S. Dollar and Crude Oil Joined at the Hip?

It would certainly appear that way, as continued weakness in the U.S. Dollar has sparked a stampede into the Crude Oil market lately. On Wednesday, the lead month December Crude Oil futures soared to yearly highs, nearly touching the $82.00 price level. This was the highest nearby futures price since October of 2008. Among the many reasons behind Oil's price rise are signs of an economic rebound, especially in Asia, and to a lesser extent in the U.S. and Europe. The recovery is expected to increase the demand for Oil worldwide as industrial demand improves. However, looking at near term supply and demand in the U.S., the high prices do not seemed justified. Oil stocks (excluding the SPR) are up 10 % from year ago levels. Gasoline supplies are up 7.5% and Distillate Fuel Oil up 33.2% as of October 16th, according to the Energy Information Administration (EIA). Not only are U.S. Oil inventories higher than last year, but poor refining margins have caused refiners to curtail production.

Wednesday's EIA energy stocks report showed refinery utilization stood at 81.1% last week. This compares to 84.8% in 2008 and the 3 year average of 86.03 during the same time period. So if refiners (who are actual users of Oil) are curtailing their Crude purchases, then who is buying and why? Large speculative traders are holding sizeable net long positions in Crude Oil, Gasoline, and Heating Oil according to the Commitment of Traders report. As of October 13th, large non-commercial traders were net long 151,631 Crude Oil contracts, 40,644 Gasoline contracts, and 35,271 Heating Oil contracts. This was up a cumulative 28,930 contracts for the week and shows that new buying was taking place as prices rose.....Read the entire article and charts.

Crude Oil Futures May Decline on Ample Stockpiles, Survey Shows

Crude oil futures may fall next week on speculation that U.S. inventories are sufficient to meet weakening demand. Eighteen of 36 analysts, or 50 percent, said oil will drop through Oct. 30. Twelve respondents, or 33 percent, forecast that the market will rise and six said prices will be little changed. Last week, analysts were split over whether prices would rise or fall.

“There is significant downside risk for crude oil,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Inventories remain high and demand is still weak.” Crude oil stockpiles rose 1.31 million barrels to 339.1 million last week, the U.S. Energy Department said in a report Oct. 21. The gain left inventories 9.4 percent above the five year average for the period. Supplies of distillate fuel, a category that includes heating oil and diesel, were 30 percent higher than average, the department said.....Read the entire article.

Oil Trades Slightly Lower Overnight on Short Covering in The U.S. Dollar

Crude oil was steady to slightly lower overnight as it consolidates some of Wednesday's rally. Stochastics and the RSI are overbought but are neutral signaling that sideways to higher prices are possible near term.

If December extends this month's rally, weekly resistance crossing at 84.83 is the next upside target. Closes below the 20 day moving average crossing at 74.33 would confirm that a short term top has been posted.

Friday's pivot point, our line in the sand is 80.88

First resistance is Wednesday's high crossing at 82.00
Second resistance is weekly resistance crossing at 84.83

First support is the 10 day moving average crossing at 78.39
Second support is the 20 day moving average crossing at 74.33

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Natural gas was higher due to short covering overnight as it consolidates some of Thursday's decline. Stochastics and the RSI are diverging and are turning bearish hinting that a short term top might be in or is near. Closes below the reaction low crossing at 5.280 are needed to confirm that a short term top has been posted.

If December extends this rally, June's high crossing at 6.170 then the 25% retracement level of the 2008-2009 decline crossing at 6.450 are the next upside targets.

First resistance is Wednesday's high crossing at 5.989.
Second resistance is June's high crossing at 6.170.

First support is Thursday's low crossing at 5.580
Second support is last Thursday's low crossing at 5.280

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The U.S. Dollar was higher due to short covering overnight as it consolidates some of Wednesday'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 73.39 is the next downside target. Closes above the 20 day moving average crossing at 76.27 are needed to confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 75.66
Second resistance is the 20 day moving average crossing at 76.27

First support is Wednesday's low crossing at 75.08
Second support is monthly support crossing at 73.39