The Crude Oil Trader

Wednesday, November 3, 2010

A Republican Congress Means Buy Natural Gas

Dan Dicker explains his stance that you must buy natural gas if the Republican party takes control and details what plays you need.

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Crude Oil Technical Outlook For Wednesday Morning Nov. 3rd

Crude oil was higher overnight as it extended this week's rally above the 20 day moving average. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

If December extends this week's rally, October's high crossing near 85.08 is the next upside target. Closes below October's low crossing at 79.90 are needed to confirm that a short term top has been posted.

First resistance is the overnight high crossing at 84.74
Second resistance is October's high crossing at 85.08

Crude oil pivot point for Wednesday morning is 83.73

First support is the 10 day moving average crossing at 82.44
Second support is October's low crossing at 79.90

Commodity Corner: Crude Rallies Ahead of Fed's Stimulus Move

Crude futures rallied to a near six month high Tuesday as the dollar fell ahead of the U.S. Federal Reserve's anticipated decision to implement another stimulus plan. Light, sweet crude for December delivery rose 95 cents, settling at $83.90 a barrel. Analysts expect the Fed to announce a plan to purchase $500 billion of long term securities during its meeting this week. The plan is intended to accelerate growth, decrease unemployment, increase inflation, and boost flagging economic recovery. Economic growth or a weaker dollar contributes to an increase in oil prices.

Meanwhile, the ICE Dollar Index, which measures the dollar against six major currencies, slid to its lowest level in two weeks at $76.74. A weaker dollar increases the commodity's appeal, making it cheaper for foreign currencies to purchase. Crude futures fluctuated Tuesday between $82.83 and $84.34.

Due to cooler temperatures, natural gas for December delivery climbed up 3.8 cents to settle at $3.87 per thousand cubic feet. Analysts hope the colder weather will drive demand because U.S. inventory levels are nearing record levels this month. U.S. natural gas stockpiles at the end of last week were at 3.75 trillion cubic feet; the record high was reached in November at 3.84 trillion cubic feet. Natural gas traded between $3.75 and $3.93 Tuesday. Reformulated gasoline blendstock also settled higher, gaining 1.67 cents to reach $2.11 a gallon Tuesday. RBOB gasoline peaked at $2.12 and bottomed out at $2.09.

Courtesy of Rigzone.Com

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Sharon Epperson: Where is Crude Oil and Gold Headed on Wednesday

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

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Stock Market and Commodities Commentary For Tuesday Evening Nov. 2nd

The S&P 500 index closed higher on Tuesday and the high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are diverging but turning neutral to bullish signaling that sideways to higher prices are possible near term. If December extends the rally off August's low, April's high crossing at 1203.00 is the next upside target. Closes below the 20 day moving average crossing at 1173.62 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 1193.00. Second resistance is April's high crossing at 1203.00. First support is the 20 day moving average crossing at 1173.62. Second support is last Wednesday's low crossing at 1167.80.

Crude oil closed higher on Tuesday and the high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Today's close above the reaction high crossing at 83.28 confirms that a low has been posted and opens the door for a test of October's high crossing at 85.08. Closes below the reaction low crossing at 79.90 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 84.34. Second resistance is October's high crossing at 85.08. First support is the reaction low crossing at 79.90. Second support is the August-September uptrend line crossing near 79.01.

Natural gas closed higher on Tuesday as it consolidates some of Monday's decline. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If December extends last week's rally, the reaction high crossing at 4.207 is the next upside target. If December renews this year's decline, weekly support crossing at 3.390 is the next downside target. First resistance is Monday's high crossing at 4.187. Second resistance is the reaction high crossing at 4.207. First support is last Monday's low crossing at 3.500. Second support is weekly support crossing at 3.390.

Gold closed higher on Tuesday and 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 is possible near term. If December extends the rally off last week's low, October's high crossing at 1388.10 is the next upside target. If December renews the decline off October's high, the 25% retracement level of this year's rally crossing at 1303.50 is the next downside target. First resistance is Monday's high crossing at 1366.40. Second resistance is October's high crossing at 1388.10. First support is the reaction low crossing at 1315.60. Second support is the 25% retracement level of this year's rally crossing at 1303.50.

The U.S. Dollar closed lower on Tuesday as it extends the decline off last week's high. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near term. If December renews the decline off August's high, the November 2009 low on the weekly continuation chart crossing at 74.21 is the next downside target. Closes above the reaction high crossing at 78.61 are needed to confirm that a short term low has been posted. First resistance is last Wednesday's high crossing at 78.51. Second resistance is the reaction high crossing at 78.61. First support is last Friday's low crossing at 75.85. Second support is the November 2009 low on the weekly continuation chart crossing at 74.21.

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They Just Don't Get BP!

Marek Fuchs honks and snorts at BP and their ever flowing one time charges.

Crude oil surged to its highest level in six months as the dollar weakened against major currencies on speculation the Federal Reserve will take measures to stimulate the economy. Crude rose 1.2 percent as the dollar’s decline boosted the appeal of commodities as an alternative investment. The Fed will probably start a fresh round of stimulus tomorrow, announcing a plan to purchase at least $500 billion of long term securities, according to economists surveyed by Bloomberg News.

“It’s the weaker dollar and expectations for the stimulus package,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “Half a trillion dollars was supposedly priced in since we rallied from September to October, but people are already anticipating that it could be larger.” Crude for December delivery rose 95 cents to $83.90 a barrel on the New York Mercantile Exchange, the highest settlement price since May 3. Oil has risen 7.4 percent in the past year.

The Fed, meeting in Washington today and tomorrow, is expected to announce a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed by Bloomberg News. The Dollar Index, which tracks the U.S. currency against six major peers, slid 0.7 percent to 76.738 at 3:25 p.m. in New York, the lowest level in two weeks on a closing basis......Read the entire article.

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Phil Flynn: Giving OPEC Too Much Credit

When Ali Naimi speaks the markets listen but should they? Some gave credit to yesterday’s big rally in oil to comments by the “Alan Greenspan” of oil, the de facto leader of the OPEC cartel, Ali Naimi, who said that oil was in a comfortable range between $70 and $90. Some took that to mean that Mr. Naimi was hoping for 90 barrel oil. Or could it be that oil rallied because China’s data was stronger than expected. Or could it have been the the Federal Reserve and their major money printing binge. The truth is that oil popped on the data and gained more strength on the reports of the bomb going off in Athens, Greece.

OPEC is not the driving force in the oil market. In fact the man that the oil market listens to is Ben Bernanke and not Ali. Mr. Naimi's impact, like Greenspan's, is in the past not the present. Oil of course also listens to the Forex market. Overnight the Aussies shook up the global markets by a “pre-emptive” 25 basis point rate hike 4.75% its first rate increase since May. Natural gas prices lost ground. The main reason was that oil was higher.

The natural gas versus crude spread was very evident. Of course the fact that we have a global glut of gas may have weighed on market sentiment as well. Reuter’s News reported that according to the International Energy Agency the globe has a natural gas glut that could last for a decade. Reuters says that, “An existing natural gas glut could run for as much as 10 years, Nobuo Tanaka, executive director of the International Energy Agency (IEA) said on Monday.

”If we assume the current level, the gas glut may go on for as long as 10 years, but there is uncertainty about how strong demand will be from China, so it could be much shorter," Tanaka told reporters in Singapore, where he is attending an industry meeting. Qatar, the world's largest exporter of liquefied natural gas (LNG), said earlier it expected the global gas glut to end......Read the entire article.

How To Trade Market Sentiment

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Crude Oil Stochastics and RSI are Turning Bullish, Higher Prices Likely

Crude oil was higher overnight as it extended Monday's rally above the 20 day moving average. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term.

Closes above last Monday's high crossing at 83.28 are needed to confirm that a short term low has been posted. If December renews last month's decline, trendline support drawn off the August-September lows crossing near 79.00 is the next downside target.

First resistance is Monday's high crossing at 83.86
Second resistance is the reaction high crossing at 84.80

Crude oil pivot point for Tuesday morning is 82.71

First support is the reaction low crossing at 79.90
Second support is the uptrend line drawn off the August-September lows crossing near 79.00

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Understanding Market Sentiment and Herd Mentality

In this report we are going to teach you how to read market sentiment so you can day trade and swing trade consistently to earn 3-5% per month trading ETFs. I remember always hearing the pro’s say “if you want to make money, you need to trade against the herd (masses)”. This sounds easy but just how do we go about doing that? I am about to show you…

In short, you must start looking at the market completely backwards. I focus on buying into heavy volume sell offs (panic) and selling position into heavy volume breakouts (greed). This was a very tough transition for me to make and its best to paper trade it for while until you are comfortable with buying into fear and selling into greed. It will feel completely wrong at the beginning but the profits speak for themselves!

The Four Charts I Follow Closely
The 4 main tools need to make money from trading against the herd. While this is only one of my trading strategies it is my favorite. I trade the ES futures contract and some sometimes the SDS and SSO exchange traded funds. This may seem basic at first glance but when you combine them you end up with a highly effective trading strategy.

SP500 - 5 Minute Chart
Here is a 5 minute chart of the SP500 showing where I went short. It is important to know that over the past 2 years the SP500 has provided a 1.25% profit on average each time one of these extreme sentiment readings occur on the charts.

The red indicator on the chart is a simple volume based indicator which measures fear and greed in the market and is very powerful for picking market tops and bottoms. It’s calculated by taking the NYSE up volume and dividing it by the down volume. In short, when you see this indicator start to rise it tells us the majority of traders (the herd) are buying and we should start to look at taking a short position.

Let me show you how to find the trade using the market sentiment....

The NYSE advance/ decline line
Is the most easy to understand. How I use this is simple, when there are 1500+ stocks trading up on the day then the market is getting overbought meaning too many stocks have moved up in a short period of time and traders will most likely start taking profits or exit their positions. I also look at the intraday chart for topping patterns or resistance levels then wait for the other two indicators to confirm Selling Volume on the chart above and the put/call ratio before going short the market.

The last indicator I follow is the put/call ratio
This indicator can be a little tougher to use at times because when the market is trending down the ratio tends to fluctuate near the top or bottom of its range during up or down trends. In a down trend is stays near the top which the chart below shows.

When the broad market bounces and we see the put/call ratio drop into the lower band it’s telling me the majority of traders have finally become bullish. This tends to happen once a previous high is broken as it triggers short covering and breakout traders start to buy.

Trading Market Sentiment Conclusion:
All you need to use these indicators, focus on the 15 minute charts, trade only with trend, and take profits at 1%, 2% and keep a small position open for much larger gains.

It is critical that once you take partial profits once you reach a 1% gain then you must start moving your protective stop into the money to lock in a profit for the balance of the position. All three indicators need to reach the extreme levels at the same time for a trade to be triggered. I have seen the market trend in the extreme levels for several weeks continuing to move up day after day and you will get stuck in that situation if you jump the gun entering a trade before each indicator signals an extreme level.

Final thoughts, his strategy works just as well in a bull market but there are some minor changes required on each of the indicators. Also I use inter market analysis following the US Dollar, Gold, Bonds and the Volatility Index for other trading strategies which I incorporate using the market sentiment.

If you would like to get Chris Vermeulen's ETF Trade Alerts for Low Risk Setups checkout his service at The Gold And Oil Guy.com