Choppy SP500, Gold Stock Meltdown and Dollar Strengthens

From guest blogger Chris Vermeulen....

For the past few weeks I have been expecting the market to correct. By looking at the price action on the weekly and daily charts we can see that there has not been any real pullback since November and that is important to note. Without regular market corrections stocks start to become over bought meaning everyone has/is buying them and no real sellers have jumped off the trend. So when the price in an over bought market starts to slide lower we generally see everyone rush to hit their sell buttons. This is what causes the high volume breakdowns similar to the GLD (Gold) breakdown last December.

Another way of getting a feel for the market to know if it is over bought is to look at market sentiment for bulls vs. bears (buyers vs. sellers). Currently almost everyone is bullish and with this high of a reading we must start protecting our positions by tightening stops and/or get ready to play the coming correction with a short term trading strategy.

We can add another level of analysis to assist our understanding of the market if we look at the 60 minute charts of the SPY & IBM.

The chart below of the SPY (SP500) clearly shows we are in choppy times. With the majority of investors buying up stocks left, right and center because they are bullish on both the economy and individual companies, we have continued to see the index crawl higher. This has been going on for almost 3 months now but the more recent price action in the SPY chart clearly shows there are some BIG sellers unloading positions into this buying pressure. When the big sellers slow their selling we see the price drift back up until selling kicks back in. This is a warning signal for lower prices in the coming days.

The IBM chart shows a perfect example of the ‘Buy on the Rumor – Sell on the News’ saying we all know. The share price of IBM ran up into their earning news as traders know IBM is great for beating estimates. Once the great news came out which actually beat the estimates, the price sold off. This is happening everywhere with stocks.

In short, the market looks top heavy and has also rallied into earning season. These two points really have me on edge for taking a long trade at the moment.



Gold Stocks and the Dollar

The HUI (Gold Stock Index) has been on fire the past 10 months. Both gold and gold stocks have been leading the market higher. But the past month we have seen gold stocks under perform the SP500 and as of today are testing a key support level. Only time will tell if it bounces or breaks, so keep a close eye on your positions.

I use the UUP etf of the US Dollar to show the price action of today’s price move. The US Dollar is now above a key resistance level and has started to move higher. If the Dollar continues higher commodities across the board will have downward pressure. This could trigger a large sell off in the gold and gold stocks which I think are still over bought using a short term time frame.



Gold & Oil Futures Trends

The trend of gold and oil has been down the past few days. Gold broke down in the past 24 hours in overnight trading which triggered a wave of selling when the US market opened.

Gold and oil are currently trading between key support and resistance levels. I am looking for gold to drift back up to the $1130 level where I will look for a short setup as the current price action is not bearish on the intraday charts.

Oil is still bullish so I am not really looking to short it at this time. I will wait for another low risk buy signal.



Commodity Trading Conclusion

I feel the broad market could be ready for a large correction ranging from 5-10%. I am calling it a correction as I want to stay positive thinking. But it could be the start of a major market top. Market tops tend to be a process and take several months to roll over. So let’s focus on protecting our money and wait for a pullback that will allow us to load up with some great positions in the coming weeks.

Patience is how money is made in the market. Waiting for the market to come to you is vital for success. Also having the patience to let winners run by scaling out (selling a portion) of a position when the price reaches a support or resistance level makes it easier to let them run. Each time you sell some of a position you are locking in a profit and lowering your risk for the balance of that trade.

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Crude Oil Bears Take a Clear Near Term Advantage

Crude oil closed lower on Wednesday as it extends last week's decline. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI remain bearish signal that sideways to lower prices are possible near term.

If February extends last week's decline, the 62% retracement level of the 2008 decline crossing at 75.85 is the next downside target. Closes above the 10 day moving average crossing at 80.55 would confirm that a short term low has been posted.

First resistance is the 20 day moving average crossing at 79.39
Second resistance is the 10 day moving average crossing at 80.55

First support is Tuesday's low crossing at 76.76
Second support is the 62% retracement level of the 2008 decline crossing at 75.85

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Natural gas closed lower on Wednesday and the low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are neutral to bearish hinting that additional weakness is possible near term.

If February extends last week's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target. Closes above last Thursday's high crossing at 5.804 would temper the near term bearish outlook in the market.

First resistance is last Thursday's high crossing at 5.804
Second resistance is the reaction high crossing at 6.108

First support is last Tuesday's low crossing at 5.354
Second support is the 50% retracement level of the December-January rally crossing at 5.314

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The U.S. Dollar closed sharply higher on Wednesday and above the 20 day moving average crossing at 77.79 confirming that a low has been posted. The high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

If March extends this week's rally, December's high crossing at 78.77 is the next upside target. Closes below the 10 day moving average crossing at 77.48 would confirm that a short term top has been posted.

First resistance is today's high crossing at 78.64
Second resistance is December's high crossing at 78.77

First support is the 20 day moving average crossing at 77.79
Second support is Tuesday's low crossing at 77.09

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Ready to Break or is it Hit The Brakes?

Can the oil bulls catch a break as the Senate Super Majority is broken? Well maybe they might have if it weren’t for the fact that China is hitting the brakes.

The election in Massachusetts gave oil bulls a thrill but news today out of China may change that bullish mood. The petroleum market reversed course yesterday as the market correctly predicted that Republican Scott Brown would pull off an upset victory in the Massachusetts special Senate campaign to fill Senator Ted Kennedy’s vacant seat. Or as Senate elect Brown would say “The people’s seat”. The man who will block the Democrats super majority and vote against the universal health care bill sent healthcare stocks soaring helping inspire the Dow on to 115.78 point rally turning oil around on its coattails. Yet today we may see the oil market come back down to earth as reports out of China may once again zap that bullish momentum.

Just when the oil bulls thought they might catch a break, China put the squeeze on. Reuter’s News reported that the Chinese government has told several major Chinese banks to hit the brakes by making them increase their reserve requirement ratio by half a percentage point. Not only that they told these lending institutions to stop lending money for the rest of this month.....Read the entire article.

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Oil Tumbles on Dollar Strength, Forecast of U.S. Supply Gain

Crude oil fell the most in a month as a stronger dollar reduced the appeal of commodities and on speculation that U.S. inventories increased. Oil dropped as much as 2.6 percent as the dollar climbed against the euro after China took steps to curb lending and as Greece’s bonds tumbled. Prices also decreased on speculation that a government report tomorrow will show that U.S. stockpiles rose last week. “We continue to be at the mercy of the financial markets,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Investors now treat oil as an asset class.”

Crude oil for February delivery fell $1.85, or 2.3 percent, to $77.17 a barrel at 11:17 a.m. on the New York Mercantile Exchange. Oil is heading for the biggest one day decline since Dec. 9. The February contract expires today. The more active March contract declined $1.78, or 2.2 percent, to $76.54. Chinese regulators asked some of the nation’s banks to limit credit after banks lent a record 9.59 trillion yuan ($1.4 trillion) last year. Cuts in Greece’s credit rating last month fueled investor concern that the country could be forced out of Europe’s single currency. The dollar traded at $1.41 per euro, up 1.3 percent from $1.4288 yesterday. The greenback touched $1.4093, the highest level since Aug. 19. A stronger dollar reduces the appeal of commodities as an alternative investment.....Read the entire article.

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China, B of A News Drives Demand Concerns, Here's Your Numbers

Crude oil was lower overnight but remains above the 50% retracement level of the December-January rally crossing at 77.41. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term.

If February extends this month's decline, the 62% retracement level of the aforementioned rally crossing at 75.85 is the next downside target. Closes above the 10 day moving average crossing at 80.58 are needed to confirm that a short term low has been posted.

Wednesday's pivot point, our line in the sand is 78.62

First resistance is the 20 day moving average crossing at 79.41
Second resistance is the 10 day moving average crossing at 80.58

First support is Tuesday's low crossing at 77.07
Second support is the 62% retracement level of the December-January rally crossing at 75.85

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Natural gas was lower overnight as it extends Tuesday's decline. Stochastics and the RSI are neutral signaling that sideways to lower prices are possible near term. If February renews this month's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target.

Closes above the 20 day moving average crossing at 5.721 would temper the near term bearish outlook in the market.

Natural gas pivot point for Wednesday is 5.563

First resistance is the 10 day moving average crossing at 5.671
Second resistance is the 20 day moving average crossing at 5.721

First support is last Tuesday's low crossing at 5.354
Second support is the 50% retracement level of the December-January rally crossing at 5.314

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The U.S. Dollar was overnight and trading above the 20 day moving average crossing at 77.78. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 77.78 would confirm that a short term low has been posted while opening the door for a test of December's high crossing at 78.77.

If March renews the decline off December's high, the 50% retracement level of the November-December rally crossing at 76.66 is the next downside target.

First resistance is the overnight high crossing at 78.26
Second resistance is December's high crossing at 78.77

First support is Tuesday's low crossing at 77.09
Second support is last Wednesday's low crossing at 76.74

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Crude Oil and Natural Gas Technical Outlook For Wednesday Morning

Nymex Crude Oil (CL)

Crude oil dipped further to 76.76 but recovered strongly since then. Downside momentum remains unconvincing with 4 hours MACD staying above signal line and intraday bias is still neutral. Nevertheless, note that another fall is expected as long as 79.62 minor resistance holds and below 76.76 will target 83.95 towards 61.8% retracement of 68.59 to 83.95 at 74.46. But downside should be contained there and bring rally resumption. On the upside, above 79.26 minor resistance will flip intraday bias back to the upside for retesting 83.95 resistance first. Further break of 83.95 high will target upper trend line resistance at 87/88 level again. However, note that sustained trading below 74.46 fibo support will argue that rise from 68.59 has completed and will turn focus back to this key support level.

In the bigger picture, whole medium term rise from 33.2 is still in progress but after all, there is no change in the view that it's merely a correction to fall from 147.27. Therefore, we'd continue to look for reversal signal in case of another rise and as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. On the downside, however, considering continuous bearish divergence condition in daily MACD, a break of 68.59 support will confirm that a medium term top is in place and will turn outlook bearish for a retest on 33.2 low as correction from 147.27 resumes.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

Nymex Natural Gas (NG)

Natural gas' sideway consolidation is still in progress and intrady bias remains neutral. With 5.850 minor resistance intact, another fall cannot be ruled out. Below 5.354 will bring deeper pull back towards 61.8% retracement of 4.157 to 6.108 at 4.902. On the upside, break of 5.850 minor resistance will indicate that pull back from 6.108 has completed and will flip intraday bias back to the upside for a retest on 6.108 resistance.

In the bigger picture, medium term fall from 13.69 is treated as part of the long term consolidation pattern that started at 15.78 back in 2005 and might have completed at 2.409 already. Rise from 2.409 is still in progress and should target 38.2% retracement of 13.694 to 2.409 at 6.72 and beyond. On the downside, break of 4.157 support is needed to indicate that medium term rise from 2.409 has completed. Otherwise, outlook is neutral at worst even in case of deep pullback.....Nymex Natural Gas Continuous Contract 4 Hours Chart.

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Crude Oil Falls as Dollar Strengthens, U.S. Inventories Forecast to Gain

Crude oil fell in New York on concern China may step up efforts to curb credit growth and on a forecast stockpiles in the U.S. will increase. Oil also pared some of yesterday’s gains as the dollar strengthened against the euro, reducing the appeal of commodities as investments. Chinese regulators asked some of the nation’s banks to limit lending after banks lent a record 9.59 trillion yuan last year and stocks surged. U.S. crude inventories probably climbed for a third week through Jan. 15, according to a Bloomberg News survey before an Energy Department report tomorrow.

“The speculation in stocks spooked the Chinese government, they don’t want to create a bubble,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong. “Oil price will drift between $78 and $82. If the dollar continues to rise, it will have an impact on oil in the second quarter.” Crude oil for February delivery fell as much as 65 cents, or 0.8 percent, to $78.37 a barrel on the New York Mercantile Exchange, and traded at $78.38 at 1:06 p.m. Singapore time. February futures expire today. The more-active March contract declined 63 cents, or 0.8 percent, to $78.69.

Yesterday, the February contract gained $1.02, or 1.3 percent, to settle at $79.02 a barrel. Trades were combined with those from Jan. 18 because of the Martin Luther King Jr. holiday in the U.S. The dollar climbed to $1.4214 per euro as of 1:05 p.m. in Tokyo from $1.4288 yesterday in New York. It earlier strengthened to $1.4188, the highest level since Sept. 1.....Read the entire article.

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You’ve Lost That Bullish Feeling

You lost that bullish feeling, lost the bullish feeling. You’ve lost that bullish feeling now it’s gone, gone, gone.

The petroleum complex lost that bullish feeling failing to build upon that cold weather inspired bullish promise. After starting the year like a bullish gangbuster the oil markets seem to be coming back to earth as the supply side just gets harder to ignore. Crude ended last week on a 5 day losing streak as US inventories increased and the International Energy Agency added to the building bearish momentum and the key area for oil to take out is the 7700 a barrel range. Now the March contract has the bulk of the open interest and the market seems to fail to take out major support point during these roll over periods but the clock seems to be running out on the oil bulls.

Let’s face it, if you are very bullish what are your bullish arguments? The best one is China demand growth. Yet since China seemed to take steps to slow the economy by raising reserve requirements on their banks, that seemed to take some of the sting out of your best bullish argument. Yet overnight the Wall Street Journal reported that the Chinese Premier Wen Jiabao said that the [Chinese] government plans to maintain "reasonable and ample" money and credit supply in the first quarter, signaling it is unlikely to adopt drastic tightening measures before the domestic economy recovers further. Those comments seemed to give oil a bit of a bounce after testing the $77 a barrel range.

Mr. Wen also said Beijing aims to curb speculative property purchases as part of efforts to promote a healthy and stable development of the domestic property market. Wow, why didn’t Barney Frank think of that? He also said that China's government will take steps to ease energy supply bottlenecks in the first quarter and stabilize agricultural product price rises. Agricultural prices rises. Is that not inflation? Oops, I forgot to exclude food and energy.....Read the entire article.

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Where is Crude Oil Headed on Wednesday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.




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Crude Oil Closes Higher But Remains Below 20 Day Moving Average

Crude oil closed higher due to short covering on Tuesday as it consolidated some of last week's decline but remains below the 20 day moving average crossing at 79.24 as it consolidated some of last week's decline. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bearish despite today's rebound signaling that sideways to lower prices are possible near term.

If February extends last week's decline, the 62% retracement level of the 2008-decline crossing at 75.85 is the next downside target. Closes above the 10 day moving average crossing at 80.97 would confirm that a short term low has been posted.

First resistance is the 20 day moving average crossing at 79.24
Second resistance is the 10 day moving average crossing at 80.97

First support is today's low crossing at 76.76
Second support is the 62% retracement level of the 2008 decline crossing at 75.85

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Natural gas closed lower on Tuesday but the mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are turning neutral to bullish hinting that additional short covering is possible near term.

Closes above last Thursday's high crossing at 5.804 would temper the near term bearish outlook in the market. If February extends last week's decline, the 50% retracement level of the December-January rally crossing at 5.314 is the next downside target.

First resistance is last Thursday's high crossing at 5.804
Second resistance is the reaction high crossing at 6.108

First support is last Tuesday's low crossing at 5.354
Second support is the 50% retracement level of the December-January rally crossing at 5.314

Just click here for your FREE trend analysis of UNG

The U.S. Dollar closed higher on Tuesday and above the 10 day moving average crossing at 77.40 signaling that a short term low has been posted. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI have turned bullish signaling that sideways to higher prices are possible near term.

Closes above the 20 day moving average crossing at 77.79 are needed to confirm that a short term low has been posted. If March renews December's decline, the 50% retracement level of the November-December rally crossing at 76.66 is the next downside target.

First resistance is the 20 day moving average crossing at 77.79
Second resistance is the reaction high crossing at 78.44

First support is last Wednesday's low crossing at 76.74
Second support is the 50% retracement level of the November-December rally crossing at 76.66

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