Technicals

Crude Oil Rises for the First Time in Six Days on Thin Liquidity

North American Commodity Update

Commodities – Energy

Crude Oil Rises for the First Time in Six Days on Thin Liquidity

Crude Oil (LS NYMEX) -  $78.25  //  $0.25 //  0.32%

Constrained liquidity helped crude traders snuff out a burgeoning bear trend Monday. With the US market offline for a bank holiday, the benchmark oil contract was able to post its first bullish close in electronic trading in the past six trading days. However, it is because of this limited speculative interest that we have to take this opening move with a grain of salt. Nonetheless, there were fundamental considerations to work with for those that were still trying to make trades in the thin market conditions. First and foremost, for those that are monitoring inter-market correlations; modest dollar weakness through the day encouraged a tempered strength from the speculative asset. On the other hand, it bears mention that the benchmark currency has not defined a clear direction for itself in nearly a month. Considering the greenback’s association to underlying sentiment and its role as the primary pricing instrument for commodities, it is worthwhile to await a clear bearing on this instrument before marking a definitive trend on oil.

Through more mundane and definable channels, supply-and-demand fundamental would also be in play Monday. In the early trading ours, China Oil, Gas & Petrochemicals issued forecasts for Chinese imports to increase up to 15 percent through 2010 as the nation enters the second phase of its plan to build strategic reserves. Perhaps more influential however were remarks from the Qatar Energy Minister who speculated the Organization of the Petroleum Exporting Countries (OPEC) would not raise output through the year, as current supply levels would be sufficient. However, looking through the rest of the week, output and consumption considerations may not work in bulls’ favor. This past week the Department of Energy reported a 3.699 million barrel increase in crude inventories despite frigid temperatures that would have theoretically boosted demand. Should this week’s stockpile report (due Thursday) issue another increase in holdings, it would be a sign that excess capacity can easily fill in should a temporary spike in demand present itself. The level of true fundamental demand is important to set against speculative interest as well. This past week, the CFTC’s Commitment of Traders update reported speculative long positions hit their highest levels since 1983 (at 135,669). Is this a leading indicator or simply a lagging reaction to the aggressive run up through the opening week of January?

Commodities – Metals

Gold Gears Up for Possible Breakout as Liquidity Fills out and Speculation Recovers

Spot Gold  -  $1,133.60   //  $2.68 //  0.24%

Though there was plenty of activity in speculative markets through the Asian and European sessions, gold as little moved through Monday’s session. Considering the terminal congestion pattern the commodity has worked its way into over the past few weeks, it comes as little surprise that traders would defer a decision on market direction for when US liquidity is back on line. As for background fundamentals, there was plenty for traders to contemplate through today’s restrained session. At the front of traders’ minds was the modest decline in the US dollar. As for speculative interests, there were moderate trends developing amongst the larger indices in the world’s more liquid markets – though they would essentially offset each other. Asian equities would tumble on the day with the Nikkei leading the way with a 1.2 percent slump through the opening day. In contrast, European indexes were on the rise with a 0.72 percent advance from the FTSE 100.  Looking ahead to deeper and more active markets for Tuesday, we may actually see the metal’s function as an inflation hedge come into play. This morning, Australian consumer and UK housing sector inflation figures boosted price pressures. Tomorrow, UK and New Zealand CPI indicators will add to the mix. However, everything considered, speculative interests hold the greatest potential for volatility.

Spot Silver  -  $18.64 //  $0.23  //  1.25%

Silver would work its way even further into a congestion pattern Monday with thin trading discouraging a clear bias on price action. That being said, the return of market depth Tuesday could encourage a rebound in volatility. If there is in fact an increase in activity, there is little room for this metal to move before spot threatens a potential breakout. Speculative traders will be particularly sensitive to volatility through the first full trading day of the week and will look to key market benchmarks (like The Dow and US dollar) for guidance.

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Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

A Drop in Crude Inventories Pushes Oil to the Brink of a Breakout but Hesitation Persists

North American Commodity Update

Commodities – Energy

A Drop in Crude Inventories Pushes Oil to the Brink of a Breakout but Hesitation Persists

Crude Oil (WTI) -  $79.54  //  $0.40 //  0.51%

As expected, the steady build in inventories was temporarily halted last week owing to the disruption by Hurricane Ida (the first significant storm to pass through the Gulf of Mexico). However, it seems market participants were prepared for the bullish supply-side data because oil has so far been unable to capitalize on the announcement to catalyze a meaningful break from its month-long, descending congestion pattern. Top news this morning was the US Department of Energy’s stockpile figures for the week ending November 13th. The headline figures were exactly what bulls needed to mount an assault on the steady, falling trend that has developed since the late-October high. Expected to rise a modest 300,000 barrels following the previous week’s 1.762 million increase; crude inventories actually dropped 887,000 barrels. Gasoline stores dropped 1.755 million barrels against a forecast of a 25,000 decrease while distillate inventories fell less than expected by 328,000 barrels. Historically, these are relatively modest contractions and surprises; but the data’s impact was rendered even more impotent by yesterday’s API numbers. According to the industry group’s measurements, crude inventories plunged 4.37 million barrels. In fact, the typically less-market-moving report would further outshine its government counterpart by showing crude output levels at its highest levels in four years through October while gas deliveries (a sign of demand) fell for the first time since May. Consumption through the first 10 months is down 4.5 percent from the same period a year ago.

What will be the lasting effect of this week’s DoE and API reports? These two reports showed exactly what was expected considering imports through the Gulf of Mexico dropped 16 percent due to the storm. And, just as surely as inventories contracted in response to the weather, stockpiles will rebound as things return to normal. Demand is the primary concern at this point in the game as the world’s major energy producers have indicated that they were comfortable with current levels of output as they try to offset the drop in prices on revenue by bolstering output. Taking a look at speculative trends for the day, we could have seen a very different outcome if risk appetite had advanced with any significant momentum. However, both the Dow Jones Industrial Average and US dollar would carve a path for tepid risk aversion. Considering the 20-day moving average (approximately a month) for volume is near a record high – surpassing activity through the peak in 2008 – a trend revival or reversal will likely be a major event.

Commodities – Metals

Gold Hits another Record High above $1,150 before Risk Appetite Stalls

Spot Gold  -  $1,143.70  //  $2.40  //  0.21%

Volatility would ease slightly for gold Wednesday and the session would essentially lack a defined sense of direction; but momentum would nonetheless sweep the precious metal to a new record high on an intra-day basis and through the close. However, despite the relatively stable pace for the commodity, fundamental interest actually received a boost through the session. A report released by the World Gold Council said investment in gold-based ETFs rose 68 percent in the year through the end of the third quarter to $55.5 billion. This could still be a construed largely speculative interest that has already been over-extended. Yet, today hedge fund manager John Paulson announced he plans to launch a new gold fund on January 1st with $250 million – meaning there is still speculative interest to push the market even higher.  Besides its role as a speculative asset, the metals value as an inflation hedge was bolstered by an ongoing recovery in the US consumer-based inflation data. The annual pace is now showing a modest 0.2 percent contraction – a substantial improvement from the near, six-decade low set only this past July.

Spot Silver  -  $18.52  //  $0.10  //  0.53%

Silver, keeping with the strength of its more expensive counterpart, showed considerable resiliency Wednesday to the late-session pull-back in sentiment. The commodity rose to a high of $18.84 – its highest level since July 17th last year – before retracing nearly three-fourths of its gains to close the day. For specific asset demand, ETF Securities reported its silver holdings rose another 0.1 percent to a record 22.535 million ounces.

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Oil and Gold Rallies Stalling

Crude

Crude oil broke above a double top in mid October but has failed to extend its rally after finding resistance from a fromer 4th wave near 80.  Still, the series of higher highs and higher lows is bullish until broken (although RSI divergence warns of a high).  74.00 is potential support.  The top of a channel intersects with a measured level at 92.57 in early December.   

Gold

Gold continues to soar following the triangle break in August.  However, there are plenty of warning signs that at least a setback is due.  5 waves up from 931.30, divergence with RSI, and the fact that the rally has reached several common measurements (including wave v of the rally being equal to 61.8% of waves i-iii).  Bottom line – respect any weakness.

Crude Oil Trades at Critical Resistance

Crude oil prices previously thundered through trendline support, but the break above trendline resistance led to impressive gains through recent trade. The commodity now trades near previous double-peaks at approximately 76.00, and the next day or so of price action could prove critical to broader direction. Near-term support is seen at congestion near 72.50, while a break of 76 resistance opens up a continuation of recent gains.

Gold prices have set fresh record highs through recent trade, hitting substantially overbought conditions on daily oscillators and showing few signs of slowing. There are obviously no historic levels from which to draw resistance, except to note that price cannot go higher indefinitely. Nearest support is at the psychologically significant 1050 and 1000 marks.

Silver has put in similarly impressive gains, but the mostly industrial metal nonetheless trades at fairly clear technical resistance. The 18.000 mark is a clear psychological level and likewise represents the top of the pair’s year-to-date rising trend channel. Failure at said mark leaves the metal at risk of sharp declines, with next real support not seen until clear congestion at 17.000. Risk/reward favors a short from these levels.

Crude Oil breaks Major Support Trendline – What’s Next?

Crude oil has fallen sharply on the day, breaking resoundingly below trendline and moving average support. Next targets include the commodity’s 200-day Simple Moving Average at 62.31, with previous spike lows near said mark reinforcing its significance. The breakdown bodes poorly for near-term price action, and previous congestion near 68 provides nearest resistance.

Gold prices have fallen substantially off of their highs and currently trade at important congestion. The 985-995 zone marks a great number
of intraday troughs, and price may have a difficult time breaking lower. Near-term resistance is fairly clear at the psychologically significant 1000 mark, while a break below 985 eyes extension towards the key 61.8% Fibonacci retracement of the 930-1025 move at 968.

Silver has reversed from clearly overbought levels, and now trades at key congestion at the 16.000 mark. Said level represents the 38.2% Fibonacci retracement of the 13.50-17.60 move and previously significant highs. A hold of said level would suggest further rallies are likely, but a break lower eyes a test of trendline support and the 61.8% Fibonacci retracement of the aforementioned near 15.000. This could be a fairly significant turning point for silver prices.

Crude Oil Forecast Bearish as Contract Breaks Key Support

Crude oil has fallen sharply on the day, breaking resoundingly below trendline and moving average support. Next targets include the commodity’s 200-day Simple Moving Average at 62.31, with previous spike lows near said mark reinforcing its significance. The breakdown bodes poorly for near-term price action, and previous congestion near 68 provides nearest resistance.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above substantial highs. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

Crude Oil Nears Important Support – Bounce Critical

Crude oil has fallen sharply on the day, testing its 50-day SMA and getting closer to long-standing trendline support. Potential price floors include the approximate trendline level at 68, while previous congestion near 67.50 likewise offers support. A break lower eyes extension towards August spike-lows near 65, while a hold of support keeps the commodity in its 12-month long ascending wedge formation. Resistance in said case would be eyed near 75.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above substantial highs. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

Crude Oil Looks for Breakout From Range

Crude oil has fallen sharply on the day, testing its 50-day SMA and getting closer to long-standing trendline support. Potential price floors include the approximate trendline level at 68, while previous congestion near 67.50 likewise offers support. A break lower eyes extension towards August spike-lows near 65, while a hold of support keeps the commodity in its 12-month long ascending wedge formation. Resistance in said case would be eyed near 75.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above yearly highs near 1015. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

Crude Oil Tests and Holds Key Support

Crude oil has fallen sharply on the day, testing its 50-day SMA and getting closer to long-standing trendline support. Potential price floors include the approximate trendline level at 68, while previous congestion near 67.50 likewise offers support. A break lower eyes extension towards August spike-lows near 65, while a hold of support keeps the commodity in its 12-month long ascending wedge formation. Resistance in said case would be eyed near 75.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above yearly highs near 1015. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

Crude Oil Nears Key Technical Support

Crude oil has fallen sharply on the day, testing its 50-day SMA and getting closer to long-standing trendline support. Potential price floors include the approximate trendline level at 68, while previous congestion near 67.50 likewise offers support. A break lower eyes extension towards August spike-lows near 65, while a hold of support keeps the commodity in its 12-month long ascending wedge formation. Resistance in said case would be eyed near 75.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above yearly highs near 1015. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

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