How Gold & Stocks are About to Repeat the 2010 Bottom

In May of 2010, immediately following the flash crash many investors started to become bearish (nervous) regarding their position in gold and equities. Once the general public became aware that the stock market could fall 10% in a matter of minutes, investors became very cautious. Suddenly protecting their capital and current positions was at the forefront of their investment process.

A couple days later the market recovered most of its value, but it became clear that investors were going to sell their long positions if the market showed signs of weakness. It was this fear which pulled the market back down to the May lows and beyond over the next couple months which caused investors to panic and sell the majority of their positions. It is this strong wave of panic selling that triggers gold and stock prices to form intermediate bottoms. Emotional retail traders always seem to buy near the top and sell at the bottom which leads to further pain.

Now, fast forward to today........

This past August we saw another selloff similar to the “Flash Crash” in May of 2010. I warned followers that gold was on the edge of topping and that stocks would take some time for form a base and bottom. Over the past couple months gold, silver, and stocks have been trying to bottom but have yet to do so.

Just a couple weeks ago we saw gold, silver, and equities make new multi month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).

This strong bounce or rally which ever you would like to call it may be the beginning stages of a major bull leg higher which could last several months. Before that could happen, I am anticipating a market pullback which is highlighted with red arrows on the chart below.

Chart of SP500, Gold and Dollar Index Looking Back 18 Months

Reasons for gold and stocks to pullback:

• Stocks are overbought and generally retracements of 50% or 61% are common following large rallies.
• The dollar index looks ready to bounce which typically means lower gold and stock prices.
• Gold continues to hold a bearish chart pattern pointing to lower prices still.

Weekly Trend Trading Ideas

A few weeks ago I warned my followers that stocks and gold are forming a bottom and that we should be on the lookout for further confirmation signs. I also mentioned that I was not trying to pick a bottom, rather that I was looking to go long once the odds were more in my favor.

This is a potentially very large opportunity unfolding and there will be several different ways to play this. However, right now I continue to wait for more confirming indicators and for more time to pass before getting subscribers and my own money involved.

From August until now (October 17) the SP500 is down -6.3% and gold is down -8.1%. Subscribers of my newsletter have pocketed over 35% in total gains using my simple low risk ETF trading alerts.

I can email you my bi-weekly reports and videos by joining my free newsletter here at The Gold and Oil Guy.com

Chris Vermeulen

Is The SP 500 Putting in a Top?

The past few months have been very difficult to navigate for retail investors and institutional money managers. The huge week to week price swings and increased volatility have made the current market conditions exceptionally difficult to maneuver. Day traders are about the only group of market participants that outperform during periods such as we have seen since the beginning of August.

Before I jump into the analysis, I would like to point out to readers that the S&P 500 Index (SPX) has rallied from 1,075 on October 4^th to 1224.50 on October 14^th. The S&P 500 has rallied almost 150 handles or 14% from the lows to Friday’s close in 10 calendar days. As an options trader and a market participant, I trade the market that I see, not the market that I want. With that said, ask yourself this question: Does a healthy financial construct rally 14% in 10 calendar days?

To put the recent price action into perspective, since the beginning of the year 2000 the S&P 500 would have had a poor track record on an annualized basis when compared to the past 10 calendar days’ trough to peak performance. Only in the years 2003, 2006, 2009, & 2010 would an investor have been able to best the previous 10 calendar days’ performance (Performance data courtesy of Wikipedia). The most amazing thing about the recent price action is that the S&P 500 Index is still underwater for the year even after rallying roughly 14%.

At this point two scenarios are likely to play out. One scenario involves a rally on the S&P 500 towards the key 1,250 – 1,270 resistance zone which is outlined on the chart below. The recent price action in the S&P 500 has been volatile and at this point it has gone nearly parabolic. The daily chart of the S&P 500 Index is shown below:

The resistance level shown in the chart above outlines the key 1,250 – 1,270 resistance zone that will be tested if the S&P 500 can breakout above the 1,230 resistance level. However, it is critical for traders to recognize that probabilities are starting to favor the short side. Let me explain.

If the S&P 500 is able to rally into the 1,250 – 1,270 level it would represent a gain of less than 4%. The bears will vigorously defend the S&P 1,250 – 1,270 resistance zone and it is unlikely that price action will be able to take out that resistance zone on the first breakout attempt.

With only 4% upside, the odds of some sort of correction are favorable at this point in time. Whether the correction begins early next week or whether we have to wait until the key resistance zone is tested, sellers will step back into the driver’s seat in the not so distant future.

McClellan Oscillator

A few data points that exemplify the overbought status of the S&P 500 are shown below. The first indicator is the McClellan Oscillator that my trading buddy Chris Vermeulen pointed out to me.

50 Period Moving Average Momentum Chart

The momentum chart shown below courtesy of www.barchart.com illustrates the number of domestic equities trading above their key 50 period moving averages:

Both charts above are warning signs that this rally is starting to get a bit overheated. I would point out that the past two times the McClellan Oscillator and the momentum chart peaked a nasty selloff occurred shortly thereafter. The one point that I would like to make clear to readers is that each time both indicators peaked prices eventually went much lower.

The evidence would lead astute traders to believe a top was near. The more arduous details about the future of the S&P 500’s price action revolve around where the topping formation will be. Will the S&P 500 find resistance on a second test of the key 1,230 resistance level?

The other scenario would involve higher prices next week that eventually reach the key 1,260 – 1,270 area on the S&P 500. Will price work roughly 4% higher before confirming a top at the key breakdown level that initiated the selloff back in August?

Conclusion

I am of the opinion that a topping formation or pattern is likely near, but the location of the top is unknown to me presently. More importantly the forthcoming selloff resolution will be very telling about the current trend of the marketplace.

The most constructive price action that we could see would be a selloff that results in a higher low on the daily chart. If that type of price action plays out a new bullish run could begin. However, if we form a top and price action breaks down below recent lows it would not be surprising to see another lower low form which would put the trend squarely in favor of the bears.

The most important aspect of coming weeks will not necessarily be where a top forms, but if and when a selloff begins. Ultimately the depth, momentum, and ferocity of the selloff are more important than where the topping pattern begins.

At this point I have no purely directional trades on the books, but I am developing a laundry list of shorts that make sense. After all, volatility has declined quite a bit and puts are starting to get a whole lot cheaper!

In closing, a top is likely in the cards in the near future. However, the strength and momentum of the forthcoming selloff will tell the real story about the future direction of stock prices. The next few weeks should be quite interesting!

Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at Options Trading Signals.com and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

JW Jones

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Adam Hewison: Is This Rally For Real?

What is behind this market’s rally? The market has been going higher on light volume and admittedly to an area that has presented problems for the S&P 500 in the past, the 1220 area. It is an important policy to respect market action, as we believe that trumps everything in the long run. The market is at some very crucial levels.

Looking back at the past two months, you can see we have just been in a very broad trading range. I believe that professional traders will be shorting the S&P 500 against the highs that were seen just recently. The risk is maybe 10 or 15 points and the downside is maybe 200 points. So the risk reward ratio is really quite attractive from a trading standpoint.

There are “two flies in the ointment” we see right now. First, the S&P 500 is heavily overbought on the Williams% R indicator and at resistance. Secondly, our monthly Trade Triangle continues to be negative for this market. I believe that this combination will begin to put this market on the defensive, perhaps even later today and next week.

It has been an interesting week and it would appear that all of the markets we track are closing against the major trends. This is not to say the markets have reversed course, rather we are seeing a counter trend rally against the bigger trends.

Now let's look at the crude oil market......

The crude oil market continues to mirror the action in the equity markets. Providing the equity markets keep going higher, we should see oil go higher. Conversely, if we see the equity markets heading lower, we will see oil heading lower. At the moment, we believe the latter course is going to be the direction for this market in the next few weeks even though crude closed the week strong at 86.80. Both our long term and intermediate term Trade Triangles continue to be negative.

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 = – 55



Here's our week ending video covering the 6 major markets we track every day.

Rigzone: Crude Oil and Natural Gas Rally

Thanks in part to encouraging retail sales figures from the U.S. Government, light sweet crude oil for November delivery gained more than three percent Friday.

The WTI settled at $86.80 a barrel after peaking at $87.42 and bottoming out at $83.77.

Friday morning the U.S. Commerce Department reported that U.S. retail and food service sales for September rose by 1.1 percent (±0.5 percent) from the previous month. The advance monthly estimate of $395.5 billion is 7.9 percent higher than the comparable figure for September 2010, according to the agency.

The Commerce Department added that September gasoline stations sales gained 20.3 percent (±1.7 percent) year on year.

Also providing a boost for crude oil was optimism that a meeting of G 20 finance ministers in Paris over the weekend will advance a resolution to the euro zone debt crisis. As a result, the euro strengthened against the dollar and crude oil became a better value for investors holding currencies other than the greenback.

The Brent contract price gained 3.2 percent to end the day at $114.68 a barrel. It fluctuated from $113.80 to $114.74 during Friday's trading.

Posting a more impressive day on day percentage gain than crude oil was November natural gas, which rose nearly five percent to settle at $3.70 per thousand cubic feet. Gas futures, which recently hit their lowest levels for 2011, recovered as investors seized a buying opportunity as they prepare for anticipated growing demand for heating.

The front month contract for natural gas traded within a range from $3.51 to $3.74. November gasoline also ended the day higher, settling at $2.82 a gallon. The intraday range for gasoline was $2.75 to $2.83.

Posted courtesy of Rigzone.Com

Bloomberg: Crude Oil Climbs to Three Week High on G-20 Discussions and Retail Sales

Crude oil rose to a three week high as the Group of 20 began discussions in Paris on a solution to Europe’s debt crisis and U.S. retail sales climbed.

Futures increased 3.1 percent after G 20 and International Monetary Fund officials said the IMF may bolster its lending resources to help stem the crisis. U.S. retail sales advanced 1.1 percent last month, the Commerce Department said today. Brent oil in London traded at a record premium to West Texas Intermediate, the U.S. benchmark, for the second straight day.

“The debt crisis is far from over but it appears that they are making progress, which is bullish for oil,” said Michael Wittner, the head of oil market research at Societe Generale SA in New York. “Economic data, especially in the U.S., has improved recently. It’s now mixed, rather than negative.”

Crude oil for November delivery rose $2.57 to $86.80 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 20. Prices climbed 4.6 percent this week and have dropped 5 percent in 2011.....Read the entire Bloomberg article.


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Phil Flynn: Triple Crown Slowdown

Well the Department of Energy made is official as all three reporting agencies are seeing a slowdown in energy. First OPEC then the International Energy Agency and now the Energy Information Agency arm of our own Department of Energy! Yet what be a bit more unnerving to the oil market may be some slow data and ominous words out of China.

A report on China exports showed a 17.1 percent increase that was way below market expectations and from August reading of 24.5 percent growth. The reading was so disappointing that it came with a warning from the Chinese Custom Agency to be prepared for severe challenges going forward. Sprinkle on top more concerns coming out of the Euro zone and recent oil price surge might be coming under pressure.

The mood shift in the market has really been evident in the Brent WTI spread. The spread exploded again as the Slovakian vote seemed to suggest that Europe might not implode. At the same time we're rolling over with strength in the Brent as well as the market putting on a risk trade because of the rising tensions over the Iranian assassination attempt allegations.

The Energy Information Agency says the expected pace of global oil consumption growth for 2011 is slightly lower in this month's Outlook, while projected total supply in 2011 is higher, resulting in some easing of oil market tightness. Despite this easing, EIA continues to expect markets to rely on inventories to meet some consumption growth in 2011 and 2012.

Crude oil consumption growth from countries outside of the Organization for Economic Cooperation and Development (OECD) is projected to outpace the growth in supply from producers that are not members of the Organization of the Petroleum Exporting Countries (OPEC), implying a need for OPEC producers to increase their output to balance the market in 2011 and 2012.

Oil prices continue to face upward price pressure due to supply uncertainty and downward price pressure because of lowering expectations of economic growth. Upside uncertainty to the crude oil price outlook remains as a result of ongoing unrest in oil producing regions. Heightened turmoil in Syria, which produced an average 400 thousand bbl/d in 2010, and the potential for more sanctions on the country's energy sector is one source of risk to non OPEC supply.

At the same time, downside demand risks predominate, as fears persist about the rate of global economic recovery, contagion effects of the debt crisis in the European Union, and other fiscal issues facing national governments. On the supply side, there may be downward price pressure if Libya is able to ramp up oil production and exports sooner than anticipated.


Catch Phil every weekday on the Fox Business Network. You can also sign up for a trial of Phil's trade levels by emailing him at pflynn@pfgbest.com

Adam Hewison: Here’s the Bottom Line, Nothing Has Really Changed

The light volume rally that exceeded everyone’s expectations in the equity markets has finally come to an end. We were surprised, like many traders, just how far this rally extended. The major trends always win out in the end, and the major trend for the equity markets, the oil market, the silver market, and the Reuters Jefferies CRB index are all still negative longer term. The long term trends came into play and proved how important they are in the scope of trading.

This morning I saw that Wall Street insider Raj Rayaratnam was sentenced to 11 years in prison for his insider trading. I’m all for putting people behind bars that break the security laws of the United States. The security markets have no place for individuals like this.

I’m also for putting incompetent politicians who waste our money behind bars. There should be consequences for their actions. When you have Senator Dick Durbin go on the Senate floor and say to everybody to pull their money out of Bank of America, it is an irresponsible statement and very dangerous for our fragile economy.

The reason Senator Durbin said what he did on the Senate floor, is because he cannot be prosecuted. Had he made that statement in a town hall meeting or any kind of public meeting, Bank of America could and should sue him. You can’t have politicians denigrating businesses who are elected officials. Unfortunately, most of these officials have zero shame and certainly would not resign over something like this.

Here’s the bottom line, nothing has really changed, the country and the world is in a heap of trouble and that just can’t be swept under the rug and forgotten about.

Let's look at the crude oil action for Thursday.....

The action in crude oil today signifies that we have more than likely put in an interim top for this market. A close in the December contract below $84 a barrel would be viewed as negative, indicating a move back down to the $80 a barrel level. Last Friday, December crude oil closed at $82.97. Let’s see how it closes this week. Intermediate and Long term traders should continue to be short the crude oil market.

November crude oil closed down $1.16 a barrel at $84.41 today. Prices closed near mid range today and profit taking from recent gains was seen. Bulls still have some upside technical momentum. The bulls have the slight overall near term technical advantage.

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 = – 55

Please note that we are switching to the December contract for crude oil.

Musings: NPC Is Extremely Optimistic About Natural Gas....If...

The National Petroleum Council [NPC] produced a draft report in mid September about the potential of North America's energy markets. The report titled: 'Prudent Development: Realizing the Potential of North America's Abundant Natural Gas and Oil Resources' highlights the prolific oil and gas resources available that may dramatically change the trend in domestic energy markets.

Although the report has not been officially reviewed by the NPC, which reserves the right to make significant changes to the draft report's conclusions (something we are not aware the NPC has ever done with previous reports), the message is that North America could become energy self sufficient, and possibly even an exporter of natural gas.

The message is that North America could become energy self sufficient, and possibly even an exporter of natural gas.

The report contained four conclusions about natural gas and oil and their impact on America's energy future. The conclusions were:

1) "the potential supply of North American natural gas is far bigger than was thought even a few years ago;"

2) "perhaps surprising to many – America's oil resources are also proving to be much larger than previously thought;"

3) "we need these natural gas and oil resources even as efficiency reduces energy demand and alternatives become more economically available on a large scale;" and

4) "realizing the benefits of natural gas and oil depends on environmentally responsible development." It is this latter conclusion that becomes the big "IF" in how America's and North America's energy market evolves.

Read the entire article at "Musings: NPC Is Extremely Optimistic About Natural Gas, If..."

Gold, Silver and Stock Prices at their Tipping Points

Over the past year we have been learning more about the financial situations across the pond in Europe. With international issues on the rise, investors are panicking trying to find a safest haven for their capital. This money has been bouncing from one investment to another trying to avoid the next major crash in stocks, bonds, currencies and commodities. It seems every 6 months there is a new headline news issue at hand forcing the smart money to withdraw from one investment class too another hoping to avoid the next meltdown.

To make a long story short, I feel the market (stocks, bonds, currencies and commodities) are about to see another major shift that will either make you a boat load of money or you lose a lot of money if you are not positioned properly.

So the big question is “Which direction will these investments move?”

Let’s take a look at the charts…...

Gold Weekly Chart – Long Term Outlook

Gold has just finished seeing a strong wave of selling this summer so it’s early to give any real forecast for what is next. That being said this long term chart may be telling us that gold’s rally could be nearing an end or a 12+ month pause could take place. If you have followed the market long enough then you realize that when everyone is in the same trade/position the market has a way of re-distributing the wealth to those who are savvy investors. Over the next 4-6 weeks there should be more price action which will allow me to get a better read for what is going to happen next.

Silver Weekly Chart – Long Term Outlook

Silver has been showing strong signs of distribution selling. Meaning the big money is moving out of this industrial and highly speculative metal. The interesting part here is that silver topped out much sooner than gold. Many times in the past silver has topped and or bottomed before the rest of the market reverses direction. So it is important to keep an eye on silver as we go forward in time because it tends to lead the market 1-2 months in advance some times.

SP500 Weekly Chart – Long Term Outlook

Stocks in general are still looking ripe for another major bull market rally. But if we do not get some follow through in the coming 1-2 months then this almost 3 year bull market could be coming an end.

Mid-Week Trend Trading Conclusion:

In short, the market as a whole is trying to recover from a strong bout of selling over the past few months. In my opinion the market is ripe for another leg higher. The reason I see higher stock prices is because decisions are being made across the pond to deal with their issues. Looking back it is similar to what the United States did in late 2008 – early 2009 just before the market bottomed.

Everyone right now seems to be saying Europe is screwed and that they are going about things in the wrong way, but if you think back that is exactly what took place in America not that long ago. And back then it was all over the news that the resolutions to fix the US would not work…. In the end, life continued, businesses continued to operate. Soon after decisions were made the stock market and commodities rallied and are still holding strong today.

Over the next week or two I am anticipating the market will provide some solid trade setups which I plan on taking advantage of using leveraged ETFS. During the volatile sideways market in August through till now I have navigated my subscribers using both bull and bear funds pocketing over 35% return in two months. If you would like to receive my pre-market morning videos, intraday updates and trade alerts visit my newsletter at: The Gold and Oil Guy.com

Chris Vermeulen

Adam Hewison: Harrisburg, PA. Seeks Bankruptcy..... Is America Next in Line?

It’s not difficult to believe that Harrisburg Pennsylvania is filing for bankruptcy with overwhelming debt of almost half $1 billion. It shows once again that politicians have no clue when it comes to spending money, particularly when it’s someone else’s money.

The question we must all ask ourselves is what’s next? In our home state of Maryland we have $20 billion unfunded liability for entitlements. I’m sure it’s the same across the country. We have had reckless politicians spending too much money and not being held responsible for when things go wrong. It was interesting to see what was happening in the Ukraine, where they’re jailing their former prime minister, Yulia Tymoshenko, to a seven year jail term for abuse of power during term as prime minister.

Just imagine how that would play out in other countries, including the United States. It certainly would make politicians think before committing and spending money that we don’t have. At the moment, no one is held responsible.

It also looks like the politicians in the Euro Zone have kicked the can down the road. This just moves the financial disaster to future generations. No one politician wants to assume responsibility for the incredible amount of future debt they are creating. What does this all have to do with the markets?

We will rely on our Trade Triangle technology to keep us in the loop and in the markets at the right time.

Let's check out the action in the crude oil markets today.....

With both weekly and monthly Trade Triangles in place, we see little enthusiasm to go long this market at the present time. Presently this market is overbought and we expect to see a pullback from current levels. As you know this market has been closely tied in to the movements of the S&P 500. Overall we still view the trend in this market as negative. Intermediate and Long term traders should continue to be short the crude oil market. Please note that we are switching to the December contract for 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

November crude oil posted an inside day with a slightly lower close on Wednesday as it consolidated some of the rebound off last week's low. The mid range close sets the stage for a steady opening on Thursday. Stochastics and the RSI remain bullish signaling that sideways to lower prices are possible near term. If November extends the rally off last week's low, September's high crossing at 90.69 is the next upside target. Closes below the 10 day moving average crossing at 81.64 would temper the near term friendly outlook.

First resistance is September's high crossing at 90.69.
Second support is July's high crossing at 101.39.

First support is the 20 day moving average crossing at 82.95.
Second support is the 10 day moving average crossing at 81.65.

Just click here to watch todays video that covers the 6 major markets we track every day and see how we can create and maintain your wealth in 2011.


Here is a preview of our MarketClub Trade Triangle Chart Analysis and Smart Scan technology

Will The S&P 500 and Gold Make up Theirs Minds Already

A lot of eyes were watching the Slovakian Parliament around the closing bell today as they voted on the European Financial Stability Fund (EFSF). The first vote failed to pass the pending legislation, but members of the opposition party have indicated that they will vote for the bill in a second scheduled vote. The S&P 500 E-Mini futures contract has not sold off sharply on the news, but the trap door risk for equity traders is that the second vote comes up short and the legislation fails unexpectedly.

The marketplace is expecting the second vote to pass without issue and if a different scenario plays out selling pressure could become extreme potentially. With earnings season now upon us, there is plenty of headline risk to go around and this Slovakian situation just adds more complexity to the news flow.
We have seen the S&P 500 Index rally more than 10% in five trading sessions which could potentially mean we have more downside work to accomplish before probing higher.

The flip side of that argument is that prices continue to rally and push towards key resistance levels overhead. At this point in time, I do not have an edge for a directional trade so I am sitting on the sidelines presently. I do have a few time decay based trades in place, but they do not have a directional bias so my book is flat here.

The S&P 500 is a tough buy after a 10% rally in such a short period of time, but the strength and momentum are tough to short. The buyers seem to be higher and the sellers appear to be lower which complicates a potential entry even further. Presently there appears to be two possible scenarios:

Bullish Scenario
The daily chart of the S&P 500 Index is shown below with key overhead resistance levels illustrated on the chart and the potential price action in coming days.......




Bearish Scenario


The daily chart of the S&P 500 Index is shown below with key support levels and the potential price action if price works lower.....





Overall, I do not have a real edge on the S&P 500 at this point. A pullback makes some sense here, but defined risk metrics and a trading plan must be used to reduce risk. Regardless of the price direction traders are considering, this is a situation where proper position sizing and stop orders can allow a trader to take on a defined risk that he/she is comfortable with.

This market has been tough to trade for several weeks. The price action has been choppy and volatility levels have been elevated since the early part of August. This type of market environment chops up a lot of traders and it sucks bulls and bears into the price action late in the game opening the door for potentially devastating losses if risk is not properly defined. 

My Trading partner Chris Vermeulen pocketed over 38% gain during these choppy times using bull and bear ETFs with his subscribers.

As an option trader familiar with a variety of spreads, recently I have been utilizing the elevated volatility levels to sell option premium and use the passage of time as a primary profit engine for my open positions. Currently I have 3 open positions which are all taking advantage of the passage of time as a profit engine.

Back on 9/26 I entered a $DIA Iron Condor Spread to take advantage of heightened volatility and capitalize on time decay leading up to the October monthly option expiration. On 10/06 I was able to close the $DIA position to lock in 15% based on maximum risk. Even though price action was excessively volatile during the past several weeks, my $DIA trade was never a major concern in terms of price action. No adjustments were necessary and members and I pocketed some relatively quick money watching the days pass by.

Gold Analysis
The recent price action in gold has been equally as tough to trade as the S&P 500 Index. After rallying sharply into early September, gold prices plummeted and price action has been consolidating ever since. Similar to the price action in the S&P 500, gold prices have just chopped around for several weeks. Gold is currently trading in a bear flag formation which if triggered could result in additional downside.



In the short-term more downside is always possible, but in the longer term I think higher prices are probable for both gold and silver as this money printing binge will one day end and inflationary pressures may present themselves at that time. The weekly chart of gold futures is shown below......


As can be seen above, gold has traded in a long term rising channel for over a year. Back in August and September gold prices broke out to the upside of the rising channel and went parabolic. In the beginning of September, gold prices sold off sharply back down into the previous rising channel. As it stands right now, gold prices remain near the upper resistance level of that channel and have not tested the lower support line since February.

If gold prices do begin to rollover in the days and weeks ahead, a logical entry point would be a test of the lower channel. The price level I would be watching for would be around $1,500 an ounce. If we get to that area, I would not be shocked to see an overthrow of that support level and a test of the 1,480 price level before reversing to the upside.

The other side of this story is that the U.S. Dollar Index falls out of favor again and its price gets crushed. If the U.S. Dollar gets hammered lower, it would make sense that U.S. domestic equities would rally along with other risk assets such as gold, silver, and oil. Right now I do not have a clear short term bias, but in the intermediate to longer term cycles I remain quite bullish. If the gold price does work back down to that support level, I will be looking to get long. Another possible long entry would present itself on a breakout to the upside back out of the upward sloping channel.

Gold is quite volatile and is impacted by a litany of outside forces such as foreign currency and the U.S. Dollar. For right now the short term bias could be to the downside, but when this period of malaise in the yellow metal ends the next bullish phase of this move higher is going to be quite strong.

As I have said many times, sometimes the best trade is no trade at all. Right now I do not have an edge in either the S&P 500 or gold so I am just going to sit and watch price action patiently while looking for high probability, low risk setups to emerge.

Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at Options Trading Signals.com and take advantage of our free occasional trade ideas and our free options trading strategy book.

Adam Hewison: This Little European Country Holds the Key to Our Economic Future

It would appear that this little country in Europe holds the key to either economic disaster or economic enslavement. The entire country of Slovakia has a population of a little over four million people and a workforce of maybe two million people. These two million people are now being asked to shoulder the debt burden of $5 billion as their share of the European recovery program. That does not seem fair to me.

This tiny country has a better GDP growth rate than the United States. It also has a population that is 99% literate. And I heard this morning, their tax rate is 19% for individuals and 19% for corporations, and the country is thriving in relative terms. Maybe we can all learn something from how this country is run.

GDP (2010 est.): $88.4 billion.
GDP growth rate (2010): 4.0%.
Nominal GDP per capita (2010): $16,288 (ING Bank).
Unemployment (2010): 13.5%.
Consumer price inflation (2010): 1% (Ministry of Finance).
Public deficit (2010): 7.8% GDP.

Now let’s see what our Trade Triangle technology is saying about crude oil......

Please note that we are switching to the December contract for crude oil. Presently this market is overbought and we expect to see a pullback from current levels. We are not totally convinced that this market has made a reversal to the upside and expect it to once again reverse back down and test the $80 level. As you know this market has been closely tied in to the movements of the S&P 500. Overall we still view the trend in this market as negative. Intermediate and Long term traders should continue to be short the crude oil market.

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 = – 55

November crude oil closed up $0.65 a barrel at $86.05 today. Prices closed nearer the session high again today and hit another fresh three week high. Bulls have gained solid upside technical momentum just recently. Prices have rallied around $10.00 a barrel from last week's low. The bulls have the near term technical advantage.

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John Woods: Crude Oil Prices Not Trading on Fundamentals

John Woods of JJ Woods & Associates explains why oil prices are not taking into account supply and demand fundamentals but are being dominated by traders.



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Phil Flynn: The Good, The Bad And The Bullish And Bearish

It was easy to get caught up in all of the exhilaration as oil rallied strong in the glow of a global bailout frenzy. Promises of re-capitalization of European banks by the French and the Germans and word that a Chinese sovereign wealth fund was buying shares of faltering Chinese banks, eased the markets darkest fears causing a run out of the safe haven dollar and a run in to the euro.

The oil of course dutifully rallied as the risk appetite came back and the VIX fear index fell. Yet despite the fact that it was bailout mania that drove most of the commodity complex, we would be remiss not to point out other bullish factors that were at play in a marvelously bullish day.

For oil there was a lot of bullish news and bullish speculation surrounding Saudi Arabian production. Private forecasters are reporting that Saudi production is falling perhaps by as much as 4% as they seek to take back that extra oil they pumped to replace lost Libyan crude. Also were reports that the Saudis have put on hold their plans to expand production capacity and that was also a potential long term supportive story the crude complex.

What is more OPEC just lowered their global demand forecast by 180,000 barrels per day and at the same time, is warming they are staying alert to market imbalance risk. In other words, if oil prices fall too hard they will take steps to cut production even further. Ah, yes the OPEC boys doing their part to screw up the global recovery.

Even sugar for the ethanol traders had a big news. Floods in Thailand, one major sugar producer and worries about the smaller than expected Brazilian crop shot sugar back above 30. Dow Jones said that strong ethanol demand in Brazil could reignite a rally in sugar futures before the front-month contract expires next March. That is of curse assuming the Europe does not fall on its face again.

Copper soared again on the hope for an improving economic outlook but also as reports of violence at the world's third largest copper mine in Indonesia. Freeport McMoran Copper & Gold Inc says that is continuing to produce and ship copper concentrates at reduced levels from its Indonesian mine while violence broke out and at least one death was reported. In the meantime copper traders are looking for a surge in copper demand from China as they expect that they will be looking to replenish stockpiles. Of course if the economy slows it might not happen.

Jean Claude Trichet in Brussels EU is warning of large scale systemic risk that could impact even the larger countries in the EU! Wow, who knew? Those concerns of course are another reason why the market is wondering whether all of that exuberance was justified. Earnings season begins today and the world is waiting on Slovakia to pass its partipation in the larger EU bailout fund. That's right, Slovakia. The market is worried that a "no" vote could crash the global markets.

In the mean time, mergers and acquisitions in the oil patch could be exploding. Yesterday China raised eyebrows with a major accusation play in the Canadian oil sands. Chinese owned Sinopec signed an agreement to purchase Canadian oil and gas exploration and production company Daylight Energy. Now the question is whether or not the Canadians will approve the deal. Stay tuned!


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Crude Oil, Natural Gas and Gold Market Commentary For Tuesday Morning Oct. 11th

Crude oil started the trading day lower as it consolidates some of the rally off last Monday's low. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If November extends the aforementioned rally, September's high crossing at 90.60 is the next upside target. Closes below the 10 day moving average crossing at 81.13 are needed to confirm that a short term top has been posted. First resistance is the reaction high crossing at 87.99. Second resistance is September's high crossing at 90.60. First support is the 20 day moving average crossing at 83.08. Second support is the 10 day moving average crossing at 81.12. Crude oil pivot point for Tuesday morning is 84.75.

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Natural gas was slightly lower at the open as it remains entrenched in the decline, which began in June. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If November extends the aforementioned decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.755 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.618. Second resistance is the 20 day moving average crossing at 3.755. First support is Monday's low crossing at 3.455. Second support is monthly support crossing at 3.225. Natural gas pivot point for Tuesday morning is 3.521.

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Gold was lower in overnight trading as it extends the trading range of the past ten days. Stochastics and the RSI are bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 1692.20 are needed to confirm that a short term low has been posted. If December renews the decline off September's, the 38% retracement level of the 2008-2011 rally crossing at 1476.20 is the next downside target. First resistance is the overnight high crossing at 1686.70. Second resistance is the 20 day moving average crossing at 1692.20. 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. Golds pivot point for Tuesday morning is 1663.50.

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Adam Hewison: If Slovakia Votes No, Crude Oil Tanks on Tuesday

This morning I was reading that there are approximately 3.2 million job openings here in the United States. With more than 14 million people out of work in this country, how can we possibly have 3.2 million job openings still not filled?

These are job openings that the private sector needs to fill. I know from our own experience here at our company, finding competent people it extremely difficult. Part of the problem, in my opinion, is that many job applicants have no skills.

The CEO of Cummings, Tim Selso said he can’t find skilled workers for his manufacturing plants. This is a common complaint that many CEOs share.

According to economists, the average worker contributes about $45,000 a year to GDP. If we could just fill 1/3 of those jobs, it would have a huge impact on the economy.

Like many traders today, we were surprised at the velocity of the rally which is based on a potential agreement coming into place in Europe. At the moment no one knows what the deal is, and nobody in a position of authority is indicating what the deal is. The vote from Slovakia has the potential to torpedo any recovery and is a big hurdle approaching tomorrow. If that tiny country votes “no” to this proposed agreement, it could send stocks, and in particular bank stocks, to the cellar!

That leaves us with just one option.....What are the Trade Triangles saying?

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 = - 55

The November crude oil market has rallied back to an area that was previous support and should present some fairly serious resistance. We were somewhat surprised at today’s action however, our Trade Triangles remain in a sideways mode indicating a trading range.

We are not totally convinced that this market has turned around and we expected to once again reverse and test the $80 level. As you know, this market has been closely tied in to the movements of the S&P 500. Overall we still view the trend in this market as negative. Intermediate and Long term traders should continue to be short the crude oil market.

November crude oil closed up $2.40 a barrel at $85.38 today. Prices closed nearer the session high again today and hit a fresh three week high. Bulls have gained solid upside technical momentum just recently. Prices have rallied around $10.00 a barrel from last week's low. Higher U.S. stock indexes and a sharply lower U.S. dollar index helped to boost the crude oil market again today. The bulls have the near term technical advantage.


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Crude Oil Rallies on Euro Zone Pledge

Trading was light on the holiday that commemorates Christopher Columbus' arrival in the New World, but news from the other side of the Atlantic helped crude oil start the week with a rally.

Light sweet crude oil for November delivery gained nearly three percent Monday, settling at $85.41 a barrel, after the leaders of France and Germany reported progress in developing a comprehensive plan to stabilize the euro zone's economy. The Brent contract price rose at a similar rate, ending the day at $108.95 a barrel.

Presenting a united front during a Sunday press conference in Berlin, French President Nicolas Sarkozy and German Chancellor Angela Merkel pledged to unveil by month's end a complete plan to recapitalize ailing banks, bolster the euro zone's bailout fund and provide financial aid to Greece. Although the announcement was short on specifics, it prompted rallies in equity markets and helped the euro to strengthen against the U.S. dollar. Because crude oil is priced in dollars, a weaker greenback tends to be bullish for oil and other commodities.

The WTI traded within a range from $82.75 to $86.09 while the Brent fluctuated from $105.78 to $109.20.

November natural gas also finished the day higher, gaining 1.7 percent to settle at $3.54 per thousand cubic feet. Natural gas peaked at $3.56 and bottomed out just under $3.46.

Reformulated gasoline for November delivery rose by nearly two percent, settling at $2.70 a gallon after fluctuating from $2.65 to $2.72.


Posted courtesy of Rigzone.Com


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Crude Oil, Natural Gas and Gold Market Commentary For Monday Oct. 10th

Crude oil moved higher this morning along with equities as it extends the rally off last Monday's low. Stochastics and RSI are bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 83.31 are needed to confirm that a short term low has been posted. If November renews this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 72.20 is the next downside target. First resistance is the 20 day moving average crossing at 83.31. Second resistance is the reaction high crossing at 84.77. First support is last Monday's low crossing at 74.95. Second support is the 75% retracement level of the 2009-2011 rally crossing at 72.20. Crude oil pivot point for Monday morning trading is 82.78.

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Natural gas extends it's decline off June's high. Stochastics and RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If November extends the aforementioned decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.778 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 3.645. Second resistance is the 20 day moving average crossing at 3.778. First support is the overnight low crossing at 3.455. Second support is monthly support crossing at 3.225. Natural gas pivot point for Monday trading is 3.517.

Just click here for your FREE trend analysis of UNG, the Natural Gas ETF

Gold extends the trading range of the past nine days. Stochastics and RSI are bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 1700.20 are needed to confirm that a short term low has been posted. If December renews the decline off September's, the 38% retracement level of the 2008-2011 rally crossing at 1476.20 is the next downside target. First resistance is last Monday's high crossing at 1681.50. Second resistance is the 20 day moving average crossing at 1700.20. 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 Monday morning trading is 1643.80.

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Phil Flynn: Bail Out Bonanza

Another day, another bailout and yes, bailouts are bullish! Another plan to save Europe and rising expectations of the US economy has oil back on an upward track. Oil got an initial bounce off of a jobs report that seemed to suggest that we are not in a recession. Yet after a surprise downgrade of Italy and Spain, oil took a late drop. Holy Fitch! Yet over the weekend German Chancellor Angel Merkel said that Germany and Spain have a plan to bail out European banks. Well at the very least they have a plan to make a plan and the details will be forthcoming. Huh? Well no matter, enjoy the ride!

Plus there are reports that the French-Belgian bank Dexia agreed to the nationalization of its Belgian banking division and secured 90 billion euros or $121 billion dollars in state guarantees. Now it appears that other banks in Europe will be backed by the governments in an effort to forestall an economic collapse. Bloomberg News reported that Angela Merkel and Nicolas Sarkozy turned their crisis fighting focus to banks, promising a recapitalization blueprint this month that will overtake a 12 week old rescue plan that has yet to be put into place. “We will recapitalize the banks,” the French president said in Berlin yesterday at a joint briefing with the German chancellor without providing details. “We’ll do it in complete agreement with our German friends because the economy needs it, to assure growth and financing.”

Of course the recent drop in crude oil price may cause some to change their long term demand forecasts and their outlook for future production capacity as well! The Saudis announced that they have put on hold their expansion of oil production capacity. The Saudis had planned to add another 2.5 million barrels of day of capacity to meet growing global demand. That would have the Saudi's production capacity at around 15 million barrels per day. The Wall Street Journal reported that Saudi Aramco Chief Executive Khalid Al Falih said, "There is no reason for Saudi Aramco to pursue 15 million barrels (of output capacity),"It is difficult to see (an increase in capacity) because there are too many variables happening," he said. "You've got too many announcements about massive capacity expansions coming out of countries like Brazil, coming out of countries like Iraq.

The market demand is addressed by others." He went on to say, "Our objective is not to grow our production for the sake of growing our production," Falih said, "but to be there for the market if the market needs it, and we are waiting to see what happens on the supply side as well as how demand stabilizes. Our planning horizons are in the decades and most of our investments are investments that will do very well at the end of an economic recession so we will pursue them ... regardless of what happens in Europe or in the U.S.," he said.

Now some peak freaks will claim the real reason is because the Saudis can't raise production because they are running out of oil. Yet the truth is that they are worried that an increase in capacity will put downward pressure on price at a time when global demand is faltering.


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OPEC Likely to Agree to Keep Output Target Unchanged

OPEC’s members are likely to decide to keep their output target for oil unchanged when they meet in December, Iran’s representative to the Organization of Petroleum Exporting Countries said.

Producers and consumers are satisfied with the current price level for crude, Iran’s Governor to OPEC Mohammad Ali Khatibi said, according to Shana, the Iranian Oil Ministry’s news website. “The situation is such that most OPEC members are expected to agree with maintaining the current level of oil production,” Khatibi said.

OPEC is responsible for 40 percent of global oil output, and the group’s 12 members are to meet Dec. 14 in Vienna to review output policy. Iran is OPEC’s second largest producer after Saudi Arabia. When the group last gathered on June 8, Iran and five other members rejected a Saudi proposal to raise output by 1.5 million barrels a day, and the meeting ended without agreement for the first time in at least 20 years.

The average price for OPEC’s main crude oil grades fell below $100 a barrel last week for the first time since Feb. 18, before rising back above that level on Oct. 6. The price for the so called OPEC basket of crudes advanced to $101.63 from $99.90 on Oct. 5, according to OPEC’s website. The basket price is calculated using one key export blend from each of the organization’s members and weighting each according to production.

Before last week, the OPEC price had exceeded $100 since the beginning of 2011. “Prices aren’t expected to fluctuate much,” Khatibi said.


Posted courtesy of Bloomberg News