Dollar’s On the Verge of a Relief Rally...... Look Out!

From Chris Vermeulen of The Gold and Oil Guy.Com........

Let’s talk about the dollar for a moment… The US Dollar has been stuck in a very large trading range during the past 4 months. But when the dollar actually breaks out of this pattern in either direction we should see some big price movements across the board in stocks and commodities.

From July through mid-August I was bearish on the dollar. But over the past 2 weeks the price action has become more neutral/bullish in my opinion. Its clear there is still indecision with the dollar value because every surge in price either up or down is quickly followed by a surge in the opposite direction. The key here is that the support level down at the 73.50 area has held more than three times and now I think the downward momentum is about to shift. The UUP bullish dollar etf is a good option.

Dollar Index Chart

Gold Chart:
Looking at the gold chart I see potential for another sharp drop to the low $1600’s. While I like the look of this chart for lower prices there is still a wild card which is the Euro-Land issues… I’m not willing to bet on lower prices because we could wake up any day to some poor news which instantly sends gold higher. Rather I am waiting for things to unfold then look to buy again for another 10-20% gain on the next rally.

Crude Oil Chart:
This chart is straight forward… The trend is down and at this time all bounces are to be looked at as shorting opportunities.

SP500 Index:
The equities market has broken down sharply over the past couple months and now we are seeing a rebound and small cap stocks are making big gains. With the dollar looking bullish and stocks trading up at resistance I have a feeling we may see another downward move within the next week or so to test the lows or make a new low before putting in a real bottom.

Mid-Week Trend Trading Conclusion:

In short, I feel the market overall is leaning towards lower prices in the coming week or two. After that we will have to re-analyze because it may be a fantastic buying opportunity for stocks and commodities. Consider joining me at The Gold And Oil Guy for ETF trade ideas on the SP500, Oil, Gold, and Silver with great accuracy. 

Commodity Corner: Crude Oil Edges Lower on Government Data

Crude oil futures reversed yesterday's upward move on government reports indicating a rise in oil stockpiles. Light, sweet crude ended a four day winning streak Wednesday, settling 9 cents lower at $88.81 a barrel. Meanwhile, its European counterpart gained 83 cents to settle at $114.85 a barrel.

The U.S. Department of Energy reported an increase in oil inventories by 5.3 million barrels and a 2.8 million barrel drop in gasoline stockpiles. The build in oil inventories was outweighed by the draw in gasoline stockpiles, stifling the drop in crude prices.

In a choppy trading session, crude traded within a range of $87.67 to $89.54 while Brent crude fluctuated between $113.68 and $115.14. Traders remain wary of Tropical Storm Katia, located in the Caribbean Sea. The National Hurricane Center said Katia has a 30 percent chance of becoming a hurricane later Wednesday.

Front month natural gas passed the $4 mark for the first time Wednesday since Aug. 15. Natural gas advanced 14.5 cents to end the trading session at $4.05 per thousand cubic feet. Prices received a boost Wednesday as the Destin Pipeline, a major pipeline that transports gas from offshore wells in the Gulf of Mexico to processing facilities in Mississippi, was shut down. Owner BP did not say how long the pipeline would remain offline.

September gasoline gained 4 cents, or 1.2 percent, settling at $3.03 a gallon at expiration. The intraday range for gasoline prices was $3.002 to $3.057.

Posted courtesy of  Rigzone.Com

Oil N Gold: Crude Oil Technical Outlook For Wednesday Morning

Crude oil's choppy recovery extends further by taking out 89.00 resistance and reaches as high as 89.21 so far. Intraday bias is back on the upside and further rise could be seen. Focus is now on 89.61 support turned resistance We'll stay bearish as long as this resistance holds and expect reversal soon. Below 82.95 will flip bias back to the downside for 75.71 support first. Break will resume whole decline from 114.83 towards 70 psychological level. However, sustained trading above 89.61 will argue that the near term trend in crude oil might have reversed and will bring stronger rebound towards 100.62 resistance instead.

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. However, break of 100.62 resistance will indicate that fall from 114.83 has completed after meeting missing 100% projection target. The corrective structure of such decline in turn argues that rise from 33.2 is still in progress for another high above 114.83.

Nymex Crude Oil Continuous Contract 4 Hours Chart at Oil N Gold.Com

Sharon Epperson: Where is Gold and Commodities Headed on Wednesday

CNBC's Sharon Epperson discusses the day's activity in the commodities markets and looks at where oil and precious metals are likely headed tomorrow.

Adam Hewison: Is The Market Ready For A Rally?

The equity markets put in a very strong performance yesterday, pushing to their best levels since August 5th. We would not be surprised to see this very overbought market possibly rally to the 1230 area and 1250 zone.

The gold market once again bounced over the $1,800 an ounce hurdle and is currently trading at $1,822. This market needs to regroup further if it is going to challenge the $2000 level. The trend is in a positive mode despite the recent $200 pullback.

Crude oil is now very much overbought and approaching the upper levels of the Donchian trading channel. We expect that this channel and the fact that this market is overbought will provide enough resistance to any halt any further upside action.

The dollar index continues to bounce off the support level of 73.50 which we have outlined on numerous occasions. Currently this market is trading at 74.00. The CRB index has rallied quite dramatically after making a low on August 9th. This market is largely reflective of the move in crude oil.

Now, let’s go to the 6 major markets we track every day and see how we can create and maintain your wealth in 2011.

S&P 500
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

The S&P 500 index rallied to its best levels since August 5th. However, this market is heavily overbought and we still view the longer term trend, based on our monthly Trade Triangle, as negative for this market. We would not rule out a potential rally to the 1230 level or even the 1259 level, both of which represent Fibonacci retracements. You may remember that the 1250 area was key support in this index. It would not be unusual for the market to go back up and test this level now as resistance.

SILVER
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trend = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The silver market is definitely the stepchild of the metals market and would appear to be regrouping around the $41.00 level. Both of our intermediate and long term indicators are friendly to the silver market and we would not rule out further strength in the near term. The Williams % R indicator is trading around –50 and it is neither oversold nor overbought at this time.

GOLD
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The gold market appears to be settling down around the $1,800 an ounce level and with our intermediate and longer term indicators still positive, we must remain in the bullish camp for now. It would appear as though the $1,770 level should provide some support on any pullbacks in this market.

The goal market is in the mid range of its major oscillator, the Williams % R, and therefore is not giving us any clues as to its next swing direction. We would imagine a move over $1,850 will be a very positive indicator for gold. Both intermediate and long term traders should maintain long positions with money management stops in place.

CRUDE OIL
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 65

Please note that our comments are based on the October contract. The 89.19 level we mentioned yesterday was enough to stop the current rally today. The crude oil October contract is very close to the top of the Donchian trading channel. On top of that, the market is extremely overbought and we would not be surprised to see a pullback from current levels. At the present time our long term indicator is negative and our short term weekly Trade Triangle is positive, sending a mixed picture for crude oil. However, the longer term monthly Trade Triangle must be given more weight then the two shorter term ones.

DOLLAR INDEX
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 60

Once again the dollar index bounced from the support level at 73.50. The market traded over the 74 level after finding support at 73.50. With a Chart Analysis Score of –60 we would want to trade this market using our Donchian Trading Channels and our Williams %R indicator. The index remains below its 200 day moving average while our longer term Trade Triangle remains positive.

REUTERS/JEFFERIES CRB COMMODITY INDEX
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 = + 60

This index has put in a good performance largely through the move up in crude oil and other commodity type markets. At the moment our indicators are mixed, indicating the absence of a strong trend in either direction. The CRB index is overbought and also at the top of the Donchian trading channel.

We would not be surprised to see some profit taking coming in to this market and a pullback from current levels. Our bias is towards inflation in the future, but I’m expecting to see more of a two way market in this index in the next week or so. Intermediate and short term traders should be out of the market and on the sidelines at the present time.

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Federal Reserve Statements Give Bulls the Upside Momentum

Crude oil closed up $1.49 a barrel at $88.76 today. Prices closed near the session high today and hit a fresh three week high as the bulls gained some more upside technical momentum today. Prices have been trending higher for three weeks. Today, the crude market got a boost when a U.S. Federal Reserve governor hinted at more quantitative easing, which would be bullish for commodities.

Natural gas closed up 8.4 cents at $3.914 today. Prices closed near the session high today and did hit another fresh contract low early on. Short covering in a bear market was featured. Bears still have the solid near term technical advantage. The next upside price breakout objective for the bulls is closing prices above solid technical resistance at last week's high of $4.024.

Gold futures closed up $37.40 an ounce at $1,829.00 today. Prices closed nearer the session high today and saw bargain hunting and some fresh safe haven buying interest after a U.S. Federal Reserve Board governor said he wanted aggressive easing of monetary policy by the Fed and was worried about the U.S. economic recovery.

The gold bulls have made a strong recovery from last week's spike low on the daily chart, to suggest last week's low will become a "reaction low" on the daily bar chart. If prices can continue to work sideways to higher in the near term, then bulls would gain confidence the uptrend on the daily chart has been restarted.

Don Hodges: Despite Fall in Oil Prices, Buy Haliburton, Devon and Sandridge

Don Hodges, portfolio manager for the Hodges Fund, says energy plays like Halliburton, Devon and SandRidge are still moneymakers despite the drop in oil prices.

Positive Consumer Spending Report Lifts Oil and Equities

Crude oil closed higher on Monday as it extends last week's rally on positive consumer spending reports. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

Closes above the reaction high crossing at 89.19 are needed to confirm that a low has been posted. If crude oil renews this summer's decline, the 75% retracement level of the 2009-2011 rally crossing at 71.72 is the next downside target.

First resistance is the reaction high crossing at 89.19. Second resistance is the May-July downtrend line crossing near 95.01. First support is the reaction low crossing at 79.38. Second support is August's low crossing at 76.15.

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

CNBC's Sharon Epperson discusses the day's activity in the commodities markets and looks at where oil and precious metals are likely headed tomorrow.

What is Next For Gold and the SP 500

Two of our partners, J.W. Jones and Chris Vermeulen, have partnered to give us special insight on how they are trading this market and how price action in coming weeks will offer clues about what lies ahead for U.S. equity markets......

Now that Mr. Bernanke’s speech is old news, what was the financial media thinking exactly? A significant number of financial writers have been anticipating discussion of QE III or QE III Lite which clearly were never even on the Fed Chief’s radar this week. The focus of the Jackson Hole Summit was how to achieve long run growth, not conduct discussion of monetary policy.

QE III will not be discussed openly until the next FOMC meeting in September, which noticeably was extended to two days. Besides the extension and the Fed Chairman’s prediction of growth in the back half of the year, the remainder of Mr. Bernanke’s speech was nothing more than a brief synopsis of what he has already said in the recent past.

While Chairman Bernanke focuses on the U.S. economy, I have been more inclined to monitor the action across the pond. Price action in Europe is having a major impact on financial markets here in the United States. Traders are monitoring credit default swap (CDS) spreads on European sovereign debt as well as on domestic and European banks.

Recently U.S. banks have seen the CDS swaps on their debt rising indicating that the marketplace believes their debt is a greater risk to investors. While the price action is nowhere near the 2008 & 2009 levels, current prices are relatively consistent with what was seen during the correction in the late spring of 2010. While there is no reason to panic at this point, this is a trend that I will be monitoring closely going forward.

For now, I continue to believe that equity markets will rally in coming weeks as conditions are extremely oversold. The price action so far today makes sense as the wild price swings helped flush out weak hands that were long. Consequently, the snap back rally pushed shorts into stop levels as well.

A significant move lower does not seem likely at this point, but a retest of the recent lows is possible, if not probable. I would remind readers that stock market crashes generally happen within the context of an oversold market. While the likelihood of a crash is remote, it is still possible and tight risk definition in this environment is warranted regardless of which side of the tape a trader is playing.

One price chart that I have been watching closely is the German DAX. The German DAX is presently a thermometer for traders to monitor the situation in Europe. The reason the German stock market index is so important is due to the financial strength of Germany within the Eurozone. Without Germany, the Eurozone would crumble in on itself and the Euro currency would be in trouble. Recently Germany’s equity markets have been crushed and the daily chart below illustrates the recent carnage:

Another metric I monitor regularly is market momentum. The chart below illustrates the number of domestic stocks trading above their 200 period moving averages. As can be seen below, the U.S. equity market has not been this “oversold” since back in 2009. Chart courtesy of Barchart.com.

In my previous article posted back on August 18th, I discussed the likelihood for stocks to pullback and put in some form of a basing pattern. I wrote the following statement in that article:

“It is entirely plausible that Mr. Market thrusts lower from here to shake out longs. If that scenario plays out it could potentially carve out a double bottom or another basing pattern which would give active traders another entry point to get long.”

Since August 18th, we have seen the S&P 500 push lower and there is a double bottom on the daily chart which is capturing quite a bit of attention in the trading community. I would also draw your attention to the wedge pattern that is also present. A breakout higher or lower out of this wedge pattern will be the clue that will indicate Mr. Market’s short term price direction. I continue to believe we will see a breakout higher, but a retest of the lows is always a possibility. The daily chart of the S&P 500 Index is shown below:

In the short to intermediate term, I believe we will see higher prices and a test of the key S&P 1,220 area or possibly a re-test of the key S&P 1,250 price level which corresponds with the March 2011 pivot lows. Additional resistance would come in around the 1,260 – 1.270 area which marks the neckline of the recent head and shoulders pattern which triggered the selloff in the S&P 500. The daily chart of the SPX below illustrates the key resistance areas:

Gold Analysis
My most recent article argued that gold prices were going parabolic and that a pullback was likely. We have seen a major pullback in gold prices. Admittedly, I was about $200 an ounce early on my call, but members of my service were able to capitalize on an option trade that captured 32% based on maximum risk through the use of a double calendar spread. While my timing was not precise, the juiced volatility in the GLD options allowed me to roll contracts forward and make additional adjustments to produce a strong gain for the service.

Some traders argue that gold prices are going to rally back sharply in short order, which I find hard to believe. Instead, I am of the opinion that we could see additional downside in the weeks/months ahead in gold prices. There is an ominous pattern starting to form on the gold daily chart which if it is carved out and triggered, it could produce the next leg of this selloff. The daily chart of gold is shown below:

While it is far too early to determine if a head and shoulders pattern will be carved out or if lower prices take place, I am of the opinion that this selloff will offer an attractive entry point for longer term investors. At this point it is a bit too early to get involved, but if my analysis is accurate the next leg of the gold bull market will be potentially extreme.

While I believe stocks will rally in the short to intermediate term, I am of the opinion that we have officially entered the next phase of the bear market. The next wave lower in stocks is going to be just as severe as the likely rally in gold.

The reason I believe gold will rally is primarily due to future weakness in Europe. If European banks have a credit crisis, a sovereign nation unexpectedly defaults, Germany leaves the Eurozone, or a currency crisis transpires gold prices should soar while U.S. equity prices tank.

While it is far too early to make that determination, if the S&P 500 puts in a lower high on this next advance higher and consequently takes out the recent lows on a selloff, the bear will be in full swing and gold prices should take off. The chart below illustrates my expectations for the S&P 500 in the future:

The next few weeks are going to be very telling about the future in domestic markets. Is this just a correction that pushes stocks higher by the end of the year, or is this the beginning of something far worse?

For now I am going with the latter, but price action in coming weeks will offer clues about what lies ahead for U.S. equity markets. Right now this is nothing more than speculation, but the next few months should be very interesting. Risk remains exceedingly high.

Check out J.W. Jones site at  Options Trading Signals.Com for a 24 hour 66% off coupon. And sign up for Chris Vermeulens unique services at The Gold and Oil Guy.Com