Looks like the copper market is signaling a top in the SP 500

The past 5 – 6 weeks have seen equity prices move considerably higher amid growing concerns regarding the European debt crisis, the instability of the Middle East, and ultimately the potential for a major economic slowdown in the United States.

U.S. equity indexes have continued to climb the proverbial “Wall of Worry” since the first week of June and have put on an incredible run. This past Friday saw the S&P 500 Index (SPX) post the highest weekly close of 2012. The perma bears have been calling for a top and continue to run scared as light volume and volatility have given the bulls an edge during August.

The next key overhead resistance level for the S&P 500 Index to hurdle is the 1,440 resistance zone lingering slightly overhead. I try to refrain from calling tops or bottoms as I feel its a fool’s game that ultimately humbles most market prognosticators. If calling tops and bottoms was easy, investors and traders alike would be able to produce monster gains all the time with uncanny precision.

Instead of trying to predict where the S&P 500 Index will find resistance or create an intermediate to longer term top, I will simply posit some technical and macro-economic data that indicates we are likely closing in on a major top.

As stated above, the recent rally we have seen has taken place on relatively light volume and plunging volatility as measured by the Volatility Index (VIX).

Volatility Index (VIX) Weekly Chart

Volatility Index (VIX) Weekly Chart

As can be seen above, Friday’s weekly close for the VIX was the lowest in 2012 and ultimately one of the lowest closing price levels in several years. While the VIX is trading at a major intermediate low, there remains a lower support level going back to late 2006 and the early part of 2007 around the 10 price level.

The perma bulls would argue that we could see those 2006 – 2007 lows tested, but based on September monthly VIX options the option market seemingly is arguing that we are approaching an intermediate low in the Volatility Index. The chart below illustrates the September VIX option chain based on Friday’s closing prices.

Volatility Index (VIX) September Monthly Option Chain

Volatility Index (VIX) September Monthly Option Chain

Price action is never wrong, but many times a great deal of information can be acquired by simply reviewing option prices. As can be seen above, the VIX closed on Friday at 13.45, a new 2012 low. However, when we consider the prices in the VIX September option chain shown above I would point out that the VIX September 13 Puts are 0 bid.

What this essentially means is that the VIX options market is saying that the Volatility Index is unlikely to move below 13 in September. For readers unfamiliar with options, selling a naked put or using a put credit spread are two trading structures that are bullish regarding the underlying asset which in this case is the VIX.
The VIX September 13 puts are offered at 0.05 on the ask, but are at 0 on the bid.

This means that the VIX market makers are not expecting to see the VIX move below 13. Clearly this is not a guarantee as there is never a sure thing in financial markets. However, this pricing situation for the September 13 VIX Puts is favorable for the equity bears in September.

In layman’s terms, the VIX needs to move higher in the next 3 weeks based on the fact that the September VIX 13 Puts are 0 bid. This is one of several clues that we could be nearing a major top in the S&P 500 Index in the very near future.

When we look at a weekly chart of the S&P 500 Index (SPX) it is obvious that we have a major longer term breakout which occurred this past week. However, there remains additional resistance overhead in the 1,440 – 1,450 price range.

S&P 500 Index (SPX) Weekly Chart

While 1,440 might be a major area where a significant top could form, a rally above this level cannot be ruled out entirely. However, the chart above gives traders and investors a context for where possible tops could form.

A reversal could play out almost immediately at the current levels or we could move considerably higher before finding major resistance that holds. For now, we do not have enough evidence based on the S&P 500 Index price chart to proclaim that a top has formed or will form in the near future.

Another underlying asset that I monitor closely is copper futures. Generally speaking, if copper futures are rallying economic conditions tend to be strong. The opposite can be said when copper futures are under selling pressure. Recently copper futures prices have been trading in a relatively tight trading range, but the longer term weekly chart shown below demonstrates that should prices start to sell off, a major sell off could transpire.

Copper Futures Weekly Chart

As shown above, there is a monstrously large head and shoulders pattern (bearish) that goes back to early 2010 that has formed on the weekly chart. Should the neckline of this pattern get taken out on a weekly close the selling pressure that could transpire could be devastating regarding the price of copper.

However, a major selloff in copper would also indicate that economic conditions were weakening globally. If copper triggers this bearish pattern, it would likely not be long before other risk assets followed suit.
In addition to the possibility that major selling pressure could await copper should that pattern trigger, another macroeconomic data point would argue that economic conditions are already starting to contract.

The chart shown below, courtesy of Bloomberg, illustrates the amount of waste hauled by railroad cars and the implicit correlation to U.S. gross domestic product (GDP).

Waste Railcar Loads Versus GDP Chart

Waste Railcar Loads Versus GDP Chart

Recently Zerohedge.com posited an article that featured this chart and a link to that article is found HERE. The article and the accompanying chart demonstrate that as more products are produced, additional waste can be expected. As shown above, the amount of waste being produced and hauled by railcar has fallen off a cliff and should longer-term correlations remain intact a contraction in U.S. GDP is likely not far away.
There are a multitude of other topping triggers that I follow that are all screaming that a major intermediate and possibly even a longer-term top is nearby. However, at the moment the price action in the S&P 500 Index (SPX) is arguing otherwise.
Picking tops and bottoms in advance is extremely difficult and generally foolhardy, however when multiple triggers are going off regarding a possible type I pay close attention to price action. While I will not go as far as to say where specifically a top in the S&P 500 Index will form, I believe that a top is forthcoming and could even occur in the next 2 – 3 weeks.

Price is never wrong, and eventually I suspect that price will tell us what we wish to know. For now, I am going into the next few weeks with caution regarding the upside in risk assets. However, it is important to point out that I am not looking to get short risk assets either.

My research indicates that a major inflection point is coming and it could coincide with the Federal Reserve’s Jackson Hole summit. It could coincide with an event that we are unaware of as well. At the moment risk in either direction seems high and caution regardless of directional bias should be exercised. The next few weeks should tell the ultimate tale.

Happy Trading!

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Predicting the Next Bull Cycle

By Paul Gabrail and EconMatters.....

The last twelve years has seen the S&P 500 go from a high of 1552 in March of 2000 to a current level of 1404, as of this writing. Yes, if you factor in dividends, the stock market has made money over the past twelve years, but to see negative nominal growth is still frustrating. To have this happen for such a long period of time makes us all realize that we are in a secular bear market, which is a long term downward or horizontal movement in the market. If you put inflation into the equation, your money in 2000 was worth considerably more than it is today, which is a double whammy after getting no nominal growth in that time period.

This is one of the many things we discuss at MGO with our Chief Investment Officer, Michael Moskal. It is a constant topic of conversation due to the fact that we manage about $500MM in total assets and we always have clients anywhere from factory workers to CEOs wondering how their 401(k) and managed accounts are doing.

Of course, many financial planners and wealth managers will argue that we have made it through the crap of 2008 and that we are on our way to new highs. Well, apart from the fact that if they didn't say that, they may lose clients, this is somewhat erroneous based on history. While that MAY be true, history has proven to show otherwise. Let's first discuss the non-data related information.

The average secular bear or bull market lasts 17 years. Since 1877, here are the secular highs and lows (adjusted for inflation) to show the kind of returns we have seen.....Here's the entire article with Charts

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ONG: Crude Oil Weekly Technical Outlook for Saturday August 18th

It's Saturday and as always we like to check in with the great staff at Oil N'Gold to get their call on where crude oil is headed.....

Crude oil's rally continued last week and reached as high as 96.28 so far. Further rally is expected to continue to 61.8% retracement of 110.55 to 77.28 at 97.84. Though, note that rise from 77.28 could be the fourth leg inside the triangle pattern from 114.83. Hence, we'll be cautious on topping between 100 and 110. On the downside, below 92.68 minor support is needed to indicate short term topping. Otherwise, we'll stay bullish even in case of retreat.

In the bigger picture, price actions from 114.83 are viewed either a three wave consolidation pattern that's completed at 77.28, or a five wave triangle pattern that's still unfolding. In case, break of 110.55 resistance will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Bloomberg: Crude Oil Rises as U.S. Consumer Confidence Improves

Crude oil rose for a fourth day on reports as U.S. consumer confidence improved, signaling the economy is recovering, and rising tension in the Middle East. Futures capped a third weekly gain as the Thomson Reuters/University of Michigan consumer sentiment index beat expectations and the Conference Board’s leading economic indicators climbed more than forecast. Prices also gained as Hezbollah threatened to retaliate if Israel attacked Iran and security concern grew in Syria and Lebanon.

“The economic data are getting better,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “You have a lot of tension ratcheting up in the Middle East and oil’s been having a rally”....Read the entire Bloomberg article.

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Crude Oil Bulls Take New Momemtun into Fridays Trading Session

Crude oil closed higher on Thursday and above the 50% retracement level of this year's decline crossing at 94.28 as it renewed the rally off June's low. The high range close sets the stage for a steady to higher opening when Friday's night session begins.

Stochastics and the RSI are diverging but remain neutral to bullish signaling that sideways to higher prices are possible near term. If September extends the rally off June's low, the 62% retracement level of this year's decline crossing at 98.20 is the next upside target. Closes below the 20 day moving average crossing at 91.17 would confirm that a short term top has been posted while opening the door for a larger degree decline near term.

First resistance is today's high crossing at 95.75. Second resistance is the 62% retracement level of this year's decline crossing at 98.20. First support is the 10 day moving average crossing at 93.26. Second support is the 20 day moving average crossing at 91.17.

20 Survival Skills for the Trader

Natural gas closed lower on Thursday as it renewed the decline off July's high. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.

If September extends the decline off July's high, the 62% retracement level of the April-July rally crossing at 2.626 is the next downside target. Closes above the 20 day moving average crossing at 2.973 would temper the near term bearish outlook.

First resistance is the 10 day moving average crossing at 2.842. Second resistance is the 20 day moving average crossing at 2.973. First support is today's low crossing at 2.685. Second support is the 62% retracement level of the April-July rally crossing at 2.626.

Today’s Stock Market Club Trading Triangles

Gold closed higher on Thursday as it extends this summer's trading range. The high range close sets the stage for a steady to higher opening when Friday's night session begins trading. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term.

If October renews the decline off July's high, the reaction low crossing at 1564.50 is the next downside target. Closes above the reaction high crossing at 1644.00 are needed to confirm an upside breakout of this summer's trading range.

First resistance is July's high crossing at 1626.90. Second resistance is the reaction high crossing at 1644.00. First support is the reaction low crossing at 1584.20. Second support is the reaction low crossing at 1564.50.

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North Dakota Crude Oil Production Continues to Rise

North Dakota's oil production averaged 660 thousand barrels per day (bbl/d) in June 2012, up 3% from the previous month and 71% over June 2011 volumes. Driving production gains is output from the Bakken formation in the Williston Basin, which averaged 594 thousand bbl/d in June 2012, an increase of 85% over the June 2011 average. The Bakken now accounts for 90% of North Dakota's total oil production.

Production gains in the Bakken formation are the result of accelerated development activity, primarily horizontal drilling combined with hydraulic fracturing. According to the North Dakota Department of Mineral Resources, there were a total of 4,141 producing wells in the North Dakota Bakken in June 2012, up 4% from May 2012 and up 68% from the number of producing wells in June 2011.



Increasing oil rig counts underscore the quickening pace of drilling in the region. Data from Baker Hughes show that in the Williston Basin, the average weekly count of actively drilling horizontal rigs totaled 209 in June 2012, essentially unchanged from the May 2012 average but 26% above the June 2011 average (see below). Most of these rigs are positioned in the Bakken.



The transportation system oil pipelines, truck deliveries, and rail to move crude oil out of the area is being affected by constraints due to growth in crude oil production from the Bakken formation. As a result of these bottlenecks, the difference between spot prices for Bakken crude oil and West Texas Intermediate (WTI) crude oil expanded through much of the first quarter of 2012. The spread has generally narrowed in recent weeks, however, reflecting the addition of rail transport facilities and increased refinery capacity in the Bakken area.



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SP 500 “E Wave” ready to rally to Bull Market Highs

From guest analyst David Banister at Market Trends Forecast.com.......

In recent updates I have been projecting a series of ABCDE waves to take the Bull market to post March 2009 highs in the 1425-1445 ranges. The recent pullback was expected as what I was calling a “D wave” pullback, with an E wave to come. These final 5th waves or E waves can be extension waves or relatively benign, hence causing difficulty in forecasting the upper ranges.

In the case of the SP 500 index, we have had a strong rally from the 1267 lows in early June to 1409 highs so far (The C wave highs) and recently a pullback into the 1390’s (The D wave). This next leg up should carry the market indices towards the 1440 2008 interim highs which begat the last 5 wave down leg of the Bear cycle that ended at 666 on the SP 500. A case of down the mountain and up the mountain if you will since the 2008 highs to current pricing conditions at 1404.

Once this E wave completes in the 1425-1445 ranges (With an outside shot at an extension blast to 1495) we should expect a fairly significant correction of the entire move from March of 2009. This final rally leg could top anytime between Aug 13th and August 22nd as I last updated, with potential to spill over into early September.

A close over 1409 will confirm the “E wave” has begun in earnest and you may want to buckle up, as it could be the final blast before some rains begin to pour in the fall.

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Gold Mining Stocks Continue to Disappoint ......But Not For Long

 From Chris Vermeulen....The Gold & Oil Guy

It is an endless debate for investors interested in gold. Should they buy a direct play on the gold price, either gold bullion itself or even so called paper gold with an ETF such as the SPDR Gold Shares (NYSE: GLD)? Or should they invest into gold equities, particularly the larger, higher quality gold mining companies?

Recent history suggests the answer is gold itself. According to Citigroup, physical gold has outperformed global gold equities 120% percent of the time over the past 5 years. Stocks of the bigger gold mining firms seem to react adversely to bad news (which is normal), but the problem is they react with no more than a yawn to good news. These type of stocks are contained in the Market Vectors Gold Miners ETF (NYSE: GDX).

Evidence of this trend can been seen in the latest news to hit the industry…the slowdown in expansion as recently signaled by the world’s largest gold producer, Barrick Gold (NYSE: ABX). The company’s stock has fallen by more than 30 percent over the last year due to cost overruns at major projects. The latest blowup in costs of up to $3 billion occurred in its estimate for development of its flagship Pascua-Lama project on the border of Chile and Argentina. The project may now cost up to $8 billion.

In addition, Barrick decided to shelve the $6 billion Cerro Casale in Chile and the $6.7 billion Donlin Gold project in Alaska. Barrick is not alone in its thinking among the major gold producers. The CEO of Agnico-Eagle Mines (NYSE: AEM), Sean Boyd, recently said “The era of gold mega projects may be fading. The industry is moving into an era of cash flow generation, yields and capital discipline.”

Fair enough. But are gold mining companies’ management walking the walk about yields or just talking the talk? Last year, many of the larger miners made major announcements that they would be focusing on boosting their dividends to shareholders in attempt to attract new stockholders away from exchange traded vehicles such as GLD, which have siphoned demand away from gold equities. Barrick, for example, did boost its dividend payout by a quarter from the previous level. Newmont Mining (NYSE: NEM), which has also cut back on expansion plans, has pledged to link its dividend payout to the price of gold bullion.

So in effect, the managements at the bigger gold mining companies (which are having difficulties growing) are trying to move away from attracting growth-only investors to enticing investors that may be interested in high dividend yields. This is a logical move.

But rising costs at mining projects may put a crimp into the plans of gold mining companies’ as they may not have the cash to raise dividends much. And they have done a poor job of raising dividends for their shareholders to date. In 2011 the dividend yields for gold producers globally was less than half the average for the mining sector as a whole at a mere 1.3 percent. Their yields are below that of the base metal mining sector and the energy sector.

It seems like management for these precious metal companies have the similar emotional response shareholders have when they are in a winning position. When the investor’s brain has experienced a winning streak and is happy it automatically goes into preservation/protection mode. What does this mean? It means management is going to tight up their spending to stay cash rich as they do not want to give back the gains during a time of increased uncertainty. Smaller bets/investments are what the investor’s brain is hard wired to do which is not always the right thing to do…

Looks like there is still a lot work to be done by gold mining companies’ to improve returns to their shareholders. But with all that set aside it is important to realize that when physical gold truly starts another major rally. These gold stocks will outperform the price of gold bullion drastically for first few months.

Gold Miner Trading Conclusion:

In short, it seems gold has been forming a major launch pad for higher prices over the past year. Gold bullion has held up well while gold miner stocks have given up over 30% of their gains. If/when gold starts another rally I do feel gold miner stocks will be the main play for quick big gains during the first month or two of a breakout. The increased price in gold could and value of the mining companies reserves could be enough to get management to start paying their investors a decent dividend which in turn would fuel gold miner shares higher.

Both gold and silver bullion prices remain in a down trend on the daily chart but are trying to form a base to rally from which may start any day now. Keep your eye on precious metals going into year end.

If you would like to get my weekly analysis on precious metals and the board market be sure to join my free newsletter at The Gold & Oil Guy.com

Chris Vermeulen

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Brent Crude Oil Trades $115...Where are commodities headed on Tuesday?

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

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Natural Gas Moving into a Downtrend

Natural Gas prices have made a decided turn to the downside over the last two weeks as has the short term temperature outlook and the nuclear power outage situation... all now more biased to the bearish side than they were in July. The spot natural gas futures price peaked at about $3.28/mmbtu on July 31 and has been continuing to slide ever since. In the last eight trading sessions the spot natural gas contract has lost $0.507/mmbtu or 15.5% since hitting the high of the uptrend.

Currently the market looks like it is trying to settle into a technical trading range of around $2.70/mmbtu to about $3.17/mmbtu. If the $2.70/mmbtu level is breached the next stopping point could be down to the $2.50/mmbtu level. The Nat Gas market has had a good recovery run rising from around $1.90/mmbtu back during the second week of April to the $3.28/mmbtu high previously highlighted.

The majority of the support for the rally has come from the consistent underperformance of weekly injections throughout the entire injection season so far. In fact weekly injections have averaged around 67% of last year which has resulted in the overhang in inventory continuing to narrow throughout the season. However, even with an underperformance of around 33% so far this season there is still a considerably large amount of gas in inventory versus last year at the moment......Read the entire CME Group article.

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ONG: Crude Oil Weekly Technical Outlook For Sunday August 12th

As always we like to check in with the great staff at Oil N'Gold for their call on where crude oil is headed this week.....

Crude oil resumed the rally from 77.28 by taking out 92.94 and reached as high as 94.72 before making a temporary top there. Initial bias is neutral this week for some consolidations. But we'll stay bullish as long as 86.92 support holds. As noted before, decline from 110.55 should have finished at 77.28 already. Current rebound from there should extend and above 94.72 will target 61.8% retracement of 110.55 to 77.28 at 97.84 and above.

In the bigger picture, price actions from 114.84 are viewed as a three wave consolidation pattern with fall from 110.55 as the third leg. Such decline could have finished earlier than we expected at 77.28. Sustained trading above 90 psychological level will bring stronger rally towards 114.83 resistance level. And break there will resumption whole up trend from 33.2. On the downside, another fall cannot be ruled out yet. But even in that case, strong support should be seen below 74.95 and above 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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The Spike in Oil Prices on QE3 Expectations Should be a Warning to the Fed

Crude Oil prices for WTI were just $78 dollars in July, a month later they are $93.40 with supplies well above their five year average range, China decelerating at a rate not seen since the financial crisis, and US gasoline demand down 4.2 percent year on year and distillates down 2.8 percent.

So what the heck is going on in the Oil Markets? Well, just look at the S&P for your answer: Capital has flowed into assets based upon the expectation that Bernanke and his cohorts at the Federal Reserve will print some more money out of thin air in the form of some monetary easing initiative falling under the heading of QE3.....See Chart and complete article

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Penn West Announces 2nd Quarter 2012 Earnings Report

Penn West Petroleum [NYSE: PWE] is pleased to announce its results for the second quarter ended June 30, 2012

The broad deployment of horizontal multi stage fracture technology into primary development, secondary recovery, and exploration gives Penn West one of the largest inventories of low risk, light oil projects in North America. Through active portfolio management, we continue to position the company to drive this asset base forward. We anticipate Canadian crude oil prices strengthening over the next 12 months as slow and steady demand increases are amplified by improvements in North American pipeline infrastructure pushing Canadian crude into closer alignment with world oil pricing.

Capital programs during the first half of 2012 continued the evolution of Penn West into a leading light oil exploration and development company. At the beginning of 2010, less than two percent of production came from horizontal wells while our base vertical wells accounted for 98 percent of our production. We anticipate that by the end of this year, 30 percent of Penn West's production will come from multi stage fracture wells.

HIGHLIGHTS

Average production in the second quarter of 2012 was 163,181 boe (1) per day compared to 156,107 in the second quarter of 2011. During the second quarter of 2012, we completed significant turnaround and maintenance activities which resulted in up to 10,000 boe per day being off-line for portions of the quarter.

We drilled 208 net wells in the first six months of 2012.

Capital expenditures for the second quarter of 2012 net of property dispositions, totalled $310 million compared to $240 million for the second quarter of 2011. Second quarter activities were primarily focused on completions, tie-ins and facilities construction.

Capital expenditures in the first six months of 2012, net of property dispositions, were $648 million compared to $676 million for the first six months of 2011.

Funds flow (2) for the second quarter of 2012 was $272 million ($0.57 per share-basic (2) compared to $396 million ($0.85 per share-basic) reported in the second quarter of 2011 due to reduced commodity price realizations.

Net income for the second quarter of 2012 was $235 million ($0.50 per share-basic) compared to $271 million ($0.58 per share-basic) in the second quarter of 2011.....Read the entire earnings report.

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Abraxas Announces $11 Million Second Quarter Profit Despite Lower Oil Prices

Abraxas Petroleum Corporation (NASDAQ:AXAS) reported financial and operating results for the three and six months ended June 30, 2012 and provided an operational update.

Financial and Operating Results

Including Abraxas' equity interest in Blue Eagle's production, the three months ended June 30, 2012 resulted in:

* Production of 388.7 MBoe (4,272 Boepd), up 12% over Q1 2012, of which 54% was oil or natural gas liquids.

The three months ended June 30, 2012 resulted in:

* Production of 358.5 MBoe (3,940 Boepd), excluding Abraxas' equity interest in Blue Eagle's production, a 10% increase over Q1 2012;

* Revenue of $15.9 million

* EBITDA(a) of $8.9 million

* Discretionary cash flow(a) of $7.1 million

* Net income of $10.9 million, or $0.12 per share

* Adjusted net income(a) of $1.9 million, or $0.02 per share

* Debt Covenant Metrics:

Working Capital 1.09:1.0 (min 1.0:1.0)

Debt to EBITDA 2.85:1.0 (max 4.0:1.0)

Interest Coverage 7.38:1.0 (min 2.5:1.0)

(a) See reconciliation of non GAAP financial measures below.

Net income for the quarter ended June 30, 2012 was $10.9 million, or $0.12 per share, compared to a net income of $8.9 million, or $0.10 per share, for the same period in 2011.

Adjusted net income, excluding certain non-cash items, for the quarter ended June 30, 2012 was $1.9 million or $0.02 per share, compared to adjusted net income, excluding certain non cash items, of $1.0 million or $0.01 per share for the same period in 2011. For the quarters ended June 30, 2012 and 2011, adjusted net income excludes the unrealized gain on derivative contracts of $10.3 million and $8.0 million respectively. Also excluded is a full cost impairment on Canadian assets of $1.3 million for the quarter ended June 30, 2012.

Unrealized gains or losses on derivative contracts are based on "mark to market" valuations which are non cash in nature and may fluctuate drastically period to period. As commodity prices fluctuate, these derivative contracts are valued against current market prices at the end of each reporting period in accordance with Accounting Standards Codification 815, "Derivatives and Hedging," as amended and interpreted, and require Abraxas to record an unrealized gain or loss based on the calculated value difference from the previous period end valuation.

For example, NYMEX oil prices on June 30, 2012 were $84.96 per barrel compared to $103.02 on March 31, 2012......Read the entire earnings report.

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EIA: Low U.S. Injections Reflect Already High Natural Gas Storage Inventories

The increase in U.S. working natural gas inventories nearly half way through the 2012 injection season the period from April through October when most natural gas is stored underground to help meet heating demand during the upcoming winter was the lowest in 12 years. The slow start to the injection season reflects record high inventories at the end of this winter, leaving less space to be filled, and a large increase in natural gas use by the U.S. electric sector for power generation. EIA estimates that, by November, working natural gas inventories will hit a record high, exceeding 3,900 billion cubic feet (Bcf). U.S. dry natural gas production was up almost 7% from January through May of 2012 compared to the same period in 2011, so natural gas injections have not shifted lower due to a downturn in domestic natural gas production.

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The amount of working natural gas in underground storage increased 625 Bcf during April-June 2012, according to EIA's Weekly Natural Gas Storage Report. That is the smallest build since adding 564 Bcf, on a net basis, during the same period in 2000 (see chart above). While the increase in inventories is low, the amount of total gas in underground storage facilities is at a record high for this time of year, after topping 3,000 Bcf for the first time ever during any June month.

Here is the EIA injection and usage charts

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Are Oil Inflation Pains Here to Stay?

Discussing whether oil inflation is here to stay, with Addison Armstrong, Tradition Energy, and Dennis Gartman, The Gartman Letter.

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Crude Oil Pulls Back on Negative Economic Data out of China

Is Gold Close to Confirming a Breakout to All Time Highs

Oil prices have been struggling to sustain the price rally which began about a week ago as the majority of data points continue to point to the slowing of the global economy and thus the view that oil demand growth is also likely to slow (see latest IEA highlights below). Overnight China's oil import data came in at 21.6 million tons (about 5 million barrels) according to the Chinese Customs Agency. This is the lowest level of crude oil imports since December of 2011. One can question the transparency of the various macroeconomic data points out of China but the fact that oil imports are declining is very supportive of the view that the main economic growth engine of the world is actually slowing.

China's July exports of all good increased by just 1% compared to year earlier levels but a significant downturn versus the 11.3% increase in the month of June. In addition industrial output is also slowing as new lending levels dropped significantly in July from 919.8 billion Yuan to 540.1 billion Yuan. Sales to China's number one customer... the EU declined by 16.2% last month while sales to the US declined by 0.6%.....Read Dominik Chirihellas entire article.

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Is Gold Close to Confirming a Breakout to All Time Highs

Is late summer or fall of 2012 going to be remembered for gold making a run to all time highs. Today David Banister gives us his take on where this gold market is headed in the near future......

Back in the fall of 2011 I was warning my subscribers and the public via articles to prepare for a large correction in the price of GOLD. The metal had experienced a primary wave 3 rally from $681 per ounce in the fall of 2008 to the upper $1800’s at the time of my warnings in the fall of 2011. A 34 Fibonacci month rally was sure to be followed by an 8-13 month consolidation period, or what I would term a Primary wave 4 correction pattern.

We have seen GOLD drop at low as the $1520’s during this expected 8-13 month window, but at this time it looks to me like a break over $1630 on a closing basis will put the nail in the wave 4 coffin. I expect GOLD to rally for about 8-13 months into at least June of 2013 and our longstanding target has been in the $2300 per ounce arena in US Dollar terms. Some pundits have much higher targets in the $3,500 per ounce or higher area but I am using my low end targets for reasonable accuracy.

This 5th wave up can be difficult to project because 5th waves in stock or metals markets can be what are called “Extension” waves. This means they can have a potentially much larger percentage movement relative to the prior waves 1 and 3 of the primary bull market since 2001. You can end up with a parabolic move at the end of wave 5, where those $3000 plus targets are possible. I expect the 5th wave to be about 61% of the amplitude of wave 3, which ran from 681 to 1923, or about $1242 per ounce. If we were to apply that math, we come up with $767 per ounce of rally off the wave 4 lows. $1520 plus $767 puts us at $2287 per ounce, or roughly $2300 an ounce low end target.

In summary, crowd behavior is crucial to the next coming movement in GOLD and it could be a sharp rally that catches many off guard, much like the downdraft last fall did the same to the Bulls. Be prepared to go long GOLD once over $1630 per ounce and buy dips along the way up to $2300 into the summer of 2013.

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Do You Agree.... The SP 500 Nearing a Cyclical High

One of our favorite traders to follow is David Banister [make sure to sign up for his calls] and he just sent over this great post on his thoughts on the SP 500 nearing a cyclical high in the coming two weeks of trade. And here's what he is thinking.......

The SP 500 has rallied to a post June 4th high of 1409 this week, about 13 points shy of the Bull Market cycle highs of 1422 earlier this year.

The rally has overlapped along the way, forming a series of “3′s” which are sometimes found in impulsive bullish moves, but usually found at the end of bull cycles whether they be short term or long term cycles.

To wit, the first 11 trading days off the 1267 SP 500 lows saw a 97 point rally, again in only 11 trading days.

The last 34 trading days we have only been able to move up about 44 further points, indicating the rally is getting long in the tooth and a bit tired at that.

So 11 days, 97 points… 34 more days, only 44 further points.

Another 10 trading days would mark a 55 fibonacci trading day cycle, so we should be alert to potential rally highs between August 13th and August 22nd as a window for a top.

A few days ago I discussed we may see a continual sloppy drift up to 1425-1445 ranges, with 1434 a key pivot line to watch.

Although the count doesnt really fit for me, if this rally from the June lows is a 5th and final wave up… then a 5th wave rally to complete a larger cycle often is characterized by a series of 3′s.

To summarize:

The first leg of the rally was a 3 wave rally to 1363, about 97 points in 11 days. We have continued with overlapping 3′s. This final stage of the rally is likely going to be 5 waves or ABCDE in nature to complete the entire cycle up from 1267

That cycle high should come within the Aug 13th-22nd window and in the 1425-1445 ranges.

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Is Natural Gas Hitting Upper Resistance levels

Natural Gas was able to add value again as prices moved back toward the upper resistance level of $3/mmbtu. Weather related demand is continuing to become less of a bullish factor from both the short term temperature forecasts to the tropics. The latest NOAA six to ten day temperature forecast is projecting the smallest area of above normal temperature so far this summer which is certainly not very supportive for Nat Gas prices. The eight to fourteen day forecast is a bit more bullish in that it is projecting a larger area of above normal temperatures. Overall both forecasts will not nearly result in as much Nat Gas related cooling demand as what was experienced during the first half of the summer. The net result net injections will continue to creep higher over the next several weeks.

In addition the tropics are not threatening to Nat Gas production in the Gulf of Mexico as Ernesto is heading into Mexico and the two other tropical weather patterns out in the Atlantic are still low grade tropical weather event and it is much too early to project whether or not they will strengthen into something more impacting. Overall I do see any short term fundamental support for the current level of prices. I would expect that the market will run into difficulty in breaking through the technical resistance level of around $3/mmbtu.

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Today the EIA released their latest STEO report. Following are the main highlights relate to Nat Gas from the report.

EIA expects that natural gas consumption will average 69.8 billion cubic feet per day (Bcf/d) in 2012, an increase of 3.2 Bcf/d (4.8 percent) from 2011. Large gains in electric power use in 2012 will more than offset declines in residential and commercial use. Projected consumption of natural gas in the electric power sector averages 25.4 Bcf/d in 2012, 22 percent higher than in 2011, primarily driven by the improved relative cost advantages of natural gas over coal for power generation in some regions.

Consumption in the electric power sector during 2012 peaks at 31.6 Bcf/d in the third quarter, when electricity demand for air conditioning is highest. As a result of the extreme heat last month, estimated electric power sector natural gas consumption during July 2012 averaged 34.8 Bcf/d, 1.8 Bcf/d higher than projected in last month's Outlook......Read Dominik Chirihella' entire article.

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