Posts Tagged ‘oil’
The bull market is picking up speed. There are highly bullish chart patterns on various asset classes indicating that this market can move a lot higher. With the Fed and ECB pumping money into the system it should provide plenty of fuel for further market advances.
IWM the small cap index has formed a massive inverse head and shoulders pattern that spans from May 2011 until now. The neckline of the pattern has just been broken to the upside. The projected price target is $116 with the next major resistance on the weekly charts at 98.32.
Gold has formed a large cup since February 2012 and has been on a rip for the last 4 weeks. The projected price target based upon the cup and triangle breakout patterns is roughty $2,000. with the next major resistance on the monthly chart at $1889.30. There’s a good chance gold could go much higher than $2,000. in this leg up.
Gold miners as evidenced by GDX have already broken through the neckline of an inverse head and shoulders pattern. The projected price target is $56. but I expect the index to move much higher.
Oil has been consolidating for 4 weeks just above it’s 50 day ma on the monthly charts and it looks like it is ready for another leg up. A price target of $110-$115 does not seem unreasonable. If Iran is attacked then it could go much higher.
If we take a look at SLB (Schlumberger) we can see that it also has formed an inverse head and shoulders pattern since March and the neckline has just been penetrated to the upside. The target price is $90. which corresponds to monthly resistance at $89.65.
Conclusion: Don’t fight the Fed, the ECB or the trend. The bull is charging so either ride it or get out of the way.
The U.S. stock market is breaking down below critical support levels at the same time the VIX is starting to surge. As I mentioned in my entry of May 13, there was an inverse head and shoulders pattern on the VIX with the neckline at 21.64. The VIX has now closed above the neckline for 2 days in a row and the S&P 500 has closed below 1340 for 2 days in row. This is a strong indication that the market is heading lower. So far panic selling has not set in but the surge in the VIX indicates that it is probably just around the corner.
The S&P has a quasi head and shoulders pattern on it with a projected downside target of 1260.
In the late afternoon word came down that a run on Greek banks is underway. While the ECB claims there is a firewall around Greek banks, viruses have a nasty way of penetrating firewalls. At this point in time it is unclear as to which banks are exposed to European debt and how far things could spread. We know that MF Global made some bad bets on Europe and now JP Morgan is being investigated for trading losses. While we don’t know exactly what led to JPM’s trading losses, there’s a good chance it involved European debt.
It also looks like the really bad news may just be starting. Greece could not form a government and will require a new election in June. A run on Spanish and Italian banks could start at anytime if the citizens of those countries start to panic because of what is happening in Greece.
The U.S. Dollar has been on a rip and has broken through both short and longer term downtrend resistance. While there are horizontal resistance points at 82, 83 and 86, the multi-year downtrend resistance stands at just under 88. If the dollar were to surge that high the S&P would probably drop to about 1000. The question is will Ben Bernanke allow that to happen.
Since this is an election year the incumbents will probably do everything in their power to prop up the markets. It’s unclear at what point the Fed will step in with further easing but I doubt they will allow the markets to drop that far before the election.
Gold as evidenced by the chart of GLD may be approaching a double bottom. GLD is almost at the December, 2011 low and I would think that traders are waiting for it to get there before hopping in. While there will probably be some sort of bounce off that level, it is unclear if it will just be a blip in a larger downtrend of if a new rally will start.
Oil as evidenced by the chart of WTIC may also be approaching a double bottom. Oil broke down from a rising head and shoulders pattern and the pattern looks like it is near completion. An interesting scenario would be if the Fed announces a new round of QE just as the S&P, Gold and Oil hit their projected downside targets.
Conclusion: It looks like the stock market is heading lower. At some point the Fed and ECB will probably step in with further QE.
Last week was a roller coaster ride for gold and miners as they both got off to a strong start but then pulled back and finally ended the week on a high note. We now have specific chart patterns and price targets that can be traded for the anticipated rally.
Gold is now trading in a wide uptrend channel and the second point in the bottom trend line has been defined. The 200 day EMA was re-tested and held. I would expect gold to move to the top of the upper channel as it did between January and February. This would give gold a technical target of 1825-1850. The technical target of the inverse head and shoulders pattern outlined in my entry of March 24 is 2,100 so there is a chance gold could break out to new highs in this run.
Gold miners as evidenced by GDX recovered from what looked like a break down below critical support levels. GDX is now trading within a wide sideways trend channel. The target on GDX is 58 or the top of the utrend channel.
Bearish sentiment on gold and miners is now unwinding and should provide fuel for this rally. The fact that oil has broken down from a flag formation is another positive sign as lower oil prices are positive for miners.
Oil has sold off because the U.S. and Europe have stated that they may tap into their strategic oil reserves in an attempt to keep oil prices down. This is a band aid approach that may help in the short term but in the long run it will not have a major effect on the price of oil. Oil is going up in the longer term but it may take a quick drop to it’s 200 day EMA at 98. Then again this could be a false break down and when the news wears off oil will be back in the 105-110 trading range.
I mentioned in my entry of March 24 that TLT bonds were having a counter trend rally and would hit resistance at the 115-116 area. Well TLT didn’t make it that far as it got hammered at 114. Friday’s action formed a bearish outside candlestick that encompassed the prior 3.5 days worth of gains. TLT may find some short term support at it’s 200 day EMA of 111.01 and the March 19th low of just under 110. but this looks like a broken trade. There is longer term uptrend support at about 95 and that is where TLT looks like it is headed.
My guess is that the 30 year bull market in treasury bonds is officially over. One way to play rising interest rates would be to buy TBT. While there can be pricing problems with double inverse ETF’s this particular one has formed a rounding bottom and with interest rates coming off almost 0 it looks like the only direction this ETF can go from here is up.
The dollar has not been exhibiting any great strength lately as many analysts had been anticipating. The Euro has in fact been slowly rising as the perception is that Europe has at least temporarily solved it’s debt crisis while the U.S. has a potentially larger one looming in the future. There are countries like Russia, China, India and Brazil that are actively working to undermine the dollar as the universl currency of exchange.
If a sovereign debt crisis were to hit the U.S. it seems unlikely that the dollar and treasuries would be the main beneficiaries of it as the entire fiscal system of the U.S would be under fire. I would anticipate that gold, silver and other hard commodities would be the primary asset classes that capital would flow into.
Conclusion: It looks like the rally in gold, silver and miners is underway. In any event some gold and silver should be a long term holding in any portfolio.
A few weeks ago the U.S. Dollar appeared to have bottomed and the talking heads were claiming that it was the beginning of a new bull market for the dollar. At the same time the Euro looked like it was heading into the trash can because of recurring European debt problems. Now however both fundamentally and technically it looks like the currencies have reversed course.
First the dollar broke down through long term support at 22. It then rallied back up to it’s 20 day EMA and hit massive resistance there as evidenced by the large red bar that looks like an outside bearish reversal candle stick. UUP couldn’t even make it to the downtrend line drawn on the chart. While UUP is trading in a massive descending wedge which normally breaks out to the upside, the wedge is wide and the dollar can sink a lot lower within the pattern. The MACD is also below 0 indicating a severe downtrend.
The Euro however is in a wide slightly wedge shaped uptrend channel. It stuck it’s neck below it’s 20 day EMA but then reversed course and is now trading above it. The MACD is well above 0 indicating a strong uptrend.
What is causing this reversal of fortune is a combination of fundamental factors:
1) China is dumping U.S. treasuries and is buying European debt.
2) U.S. economic data looks weak in the short term.
3) U.S. government debt problems are starting to come to the forefront of economic news.
Even if the dollar manages to head back up, there is now massive resistance at 22.
Conclusion: Commodities such as gold, silver and oil appear to have bottomed and are heading higher. As the dollar sinks further the commodity bull run should continue. Goldman Sachs now says that oil is headed higher and everytime Goldman speaks the market moves in the direction they predict. I see no reason why this time around should be different.
The U.S. stock market has broken through the neckline of the inverse head and shoulders pattern that I outlined in my entry of April 21, 2011. It would be nice to see a re-test of the S&P 1340-1350 level as that would give traders confidence that the neckline will hold as support. Since the 1250 level was never re-tested, it’s possible this market may just keep heading higher. Any pull back should be viewed as a buying opportunity.
GLD has broken out to new all time highs. The nice thing about GLD is that there is no overhead resistance as no one has ever paid a higher price for it. GLD has moved into the next upper parallel channel as outlined in the above chart. A move to the top of that channel would bring it to about 153 which is the projected price target of the inverse head and shoulders breakout that I outlined in my entry of April 12, 2011. Any pullback in GLD should be viewed as a buying opportunity.
Gold miners have been lagging the price of gold but are in the process of catching up. One would think that with the price of gold soaring the miners would also be heading straight up. One factor that may be dampening their price action is the fact that oil has also been moving up, as oil is a critical component of ore extraction operations.
In spite of that GDX has formed a bullish cup and handle formation indicating that the gold miners are about to break out to the upside. The projected price target of this formation is about $76. A break of the downtrend line on the handle is a clear-cut buy signal.
Fed Chairman Ben Bernanke spoke today. While he did say that QE2 would end in June, he also said the Fed would continue to reinvest maturing debt. In any event interest rates will continue to stay low and some sort of quantitative easing will remain in place. All this bodes well for the stock market.
In my entry of March, 16 we discussed how observing the VIX might give us a clue as to how low the market may go in this correction. We can take another view of the market by looking at how the S&P has travelled since the March 2009 bottom.
The S&P has rallied within the above 2 non-parallell trend channels. We can also see that there is a well defined uptrend line at the bottom that has provided support for this rally. The S&P has traded substantially above this uptrend line for most of the rally.
The rally started in the lower channel, quickly moved into the upper channel where it stayed until the April, 2010 correction. It then moved into the lower channel and rallied to the top of it where it met resistance that started the current correction.
The bull market will be fully intact even if the S&P were to pull back to the uptrend line that has defined this rally. We can also see that there is some horizontal support that meets the uptrend line at about 1180. A violation of this uptrend line without a quick bounce back above it might signify the end of this bull run and the beginning of a new bear market phase.
I do not see that happening at the present time unless a series of major events occur: 1) The nuclear situation in Japan goes out of control 2) Oil spikes much higher due to mid east and Japanese concerns 3) It becomes clear that the global economic growth story is losing steam 4) Another major catasrophe occurs.
With all the uncertainties that are still playing out, it seems unlikely that the market is just going to break out to new highs from this point. We should at least expect a re-test of the 1249 correction low. If that fails there is plenty of support in the 1200-1225 area. And finally 1180 looks like solid support.
As I mentioned in my previous entry, the market appeared ready for a breakout barring a major catastrophe over the weekend. While there wasn’t a major catastrophe there was a minor one. The market was in fact heading higher today until Wells Fargo downgraded the semiconductor sector from Overweight to Marketweight. The market promptly sold off but did not close at the lows of the day.
While the major trend is solidly up, the short term trend is news driven. Problems with Libya’s oil supply primarily affect Europe and Europeans are already used to paying high prices for gasoline. It therefore appears that if oil prices settle down the stock market should rally.
The major averages are consolidating in similar bullish triangular patterns. Today the Q’s fell all the way down to their 10 day EMA on the 3 month chart but did not hit the uptrend line nor close at it’s lows. While the averages could continue to gyrate within this pattern for a while longer, the market should breakout to the upside. A violation of the lower uptrend line however would be bearish and a possible indication of an intermediate trend reversal.
At this point in time it is unclear how long the problems in the middle east may continue and to what degree they will affect oil prices but it does not appear that the situation there will be resolved quickly. I do not agree with some of the talking heads on CNBC that are saying $100. a barrel is not sustainable.
Libya provides 75% of the oil to Europe and theirs is of the highest quality. Saudi Arabia has stated that they would move in to fill the gap but Saudi oil is of inferior quality and it is fairly well established that they have been exaggerating their quantity of oil supplies for years. In any event there may not be enough refining capacity to correct the problem in a timely manner as Saudi oil requires a lot more refinement than does Libyan oil.
When you throw China and India’s voracious appetite for oil into the mix we should expect higher oil prices regardless of what happens in the middle east. So far it does not appear that current oil prices will affect the U.S. economic recovery. The situation should be closely monitored, however, because we know from 2007-2008 that if oil spikes to $150. a barrel it is definitely going to affect the U.S. economy and in a negative way.
With oil prices almost certainly heading higher, alternative fuels such as natural gas and coal will become more important at least in the short term. A stock you may wish to look at purchasing is Console Energy, symbol CNX. This company has both natural gas and coal assets.
The chart pattern on the stock looks extremely bullish as it has formed a 1 year cup and handle and appears to be breaking out of the handle right now. There was a large volume purchase at $45., the bottom of the handle, and this appears to be the pre-cursor of higher prices. March or April near the money call options should also be considered.
Technically the stock could hit $78. based upon the chart pattern but a quick spike to $55. or $60. does not seem unreasonable. A trailing stop should be placed at $45. or just under it and should be moved up if the stock moves up.
It might also pay to purchase either USO or USO call options (United States Oil Fund) in order to capture a profit on the rise in oil prices.