US Dollar Chokes Gold, Silver and Oil Movement

Gold, silver and oil haven’t gone anywhere in 2018. Why?

The chart below plots gold, silver and crude oil against the US Dollar Index.

The US dollar has been in a tight trading range for most of 2018. Although asset correlations come and go, commodities are traded in US dollars, and the US dollar inactivity likely contributed to the lack of direction in the commodities market.

I assume a dollar breakout will awaken commodities.

The November 29 US dollar update featured the chart below, which projects a more significant low in early 2018.

The US dollar is right in the down side target range, but the process of carving out a low is taking longer than projected. We are still looking for a significant dollar bottom (perhaps after one more new low).

If the correlation between US dollar (strong dollar = weak commodities) persists, the US dollar should soon begin to put pressure on commodity prices.

The first chart highlights some basic support/resistance levels and patterns to watch:

Gold:

Potential triangle with resistance at 1,365 (Fibonacci resistance at 1,382). Support around 1,310.

Silver:

Two potential triangles. A break of the shorter-term triangle should lead to a test of the longer-term triangle boundaries.

Crude Oil:

The January high could be a significant top. The short-term triangle (if it breaks higher) could cause a re-test of the January top and an excellent opportunity to short crude oil via the United States Oil Fund (USO). A break below triangle support may have 55 (long-term trend channel support) as next target.

We will look at technicals, seasonality and sentiment to assess the direction and scope of the next move. Continuous updates will be available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

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The Best Trade of the Year

We’ve had a number of good trades in 2016. In fact, only 1 of 7 trades was closed in the red.

It’s tempting to label our S&P 500 trade (bought at 1,828, sold at 2,040) the best trade of 2016 (thus far).

Barron’s rates the iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

True, the S&P 500 trade was the most contrarian trade of them all. It required a fair amount of moxie to go against the crowd.

But the best trade was a rare ‘high probability trade.’

The March 6 Profit Radar Report observed the following setup:

Natural gas futures fell to a multi-decade low ($1.611 per one million British Thermal Units – BTU).Sentiment is very bearish (bullish for gas) and seasonality is turning bullish. Trade is at or near support and there is a bullish divergence on the daily chart. This is shaping up for a rare high probability trade. We are looking for a low-risk entry point.”

The monthly bar chart shows a birds eye view of the setup.

The daily chart shows a bullish RSI divergence and the touch of double support.

Natural gas seasonality turned bullish in early March.

Some measures of investor sentiment were at or near bearish (bullish for gas) extremes.

Technicals, sentiment, and seasonality all pointed in the same direction (up). The pieces for a high probability buy signal were in place.

We bought on March 10, after trade poked above the initial red resistance line. We sold on March 30, when trade was overbought and against resistance.

The profit was about 14% for natural gas futures and about 9% for the related ETF (UNG) trade (corresponding commodity ETF returns tend to be lower due to contango).

Based on seasonality, there is more up side for natural gas, but the probability of further gains is not as high as it was in early March.

The Profit Radar Report is always on the prowl for rare high probability trades.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Oil and Gold Update

Oil Update

The February 21 Profit Radar Report said the following about crude oil:

Crude oil filled the massive gap left by Wednesday spike and is sitting right atop trend line support. Seasonality is strongly bullish until late April. For anyone interested in trading oil, this is a tempting setup to go long.

The problem with this trade is that oil has had massive daily swings, which makes identifying an effective stop-loss level nearly impossible. One of the goals of the Profit Radar Report is to keep risk at a minimum.

There is much up side to oil. Investors who don’t mind short-term drawdowns in exchange for potentially sizeable profits, this is a trade worth taking. However, since we cannot effectively limit risk, this won’t be an official trade.”

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The updated chart below shows that oil soared higher until it hit resistance near 38.

This resistance paused the rally and generated a bearish RSI divergence. More weakness is possibly, but ultimately higher prices are likely.

Gold Update

The March 2, Profit Radar Report pointed out a potential triangle formation for gold, and stated:

Gold appears to be carving out a triangle. Upon completion, triangles often lead to strong, but temporary breakouts. A quick spike to 1,300 +/- could mark the end of the initial up leg from the December low. Such a quickly reversed spike higher followed by a multi-week/months correction (see yellow projection) would harmonize to a satisfactory degree with seasonality and sentiment. A break above 1,255 would be the first steps towards a post-triangle spike.”

The chart below was published via the same update.

The second chart provides more long-term context. The purple lines outline the triangle formation. The initial post triangle thrust stopped at trend line resistance (ascending red line), and created a bearish RSI divergence. Gold found support today, and rallied higher. This keeps the potential of a move to 1,300+/- alive, but chasing this move would take impeccable timing.

Continuous updates for oil, gold, silver, S&P 500 and other assets classes are available via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Long-term Commodity Analysis

Commodities have become a focal point, usually as scapegoat or precursor of bad things to come.

Most major commodities (including oil, gold, silver, copper, lumber and grains) have collapsed.

Many believe this is reflective of a weakening economy. I won’t enter this debate, but rather offer a look at a long-term, broad commodity chart.

Shown below is the CRB Reuters/Jefferies Commodity Index.

This index consists of 19 commodities: aluminum, cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, orange juice, silver, soybeans, sugar, unleaded gas and wheat.

There are two main support areas. The index is threatening to break below the first one, and currently trading about 10% above the second one.

More down side is still possible and picking a buttom is like catching a falling knife, but the closer trade gets to support, the higher the odds of a bounce.

Although the corresponding commodity ETF – the PowerShares DB Commodity Tracking ETF (NYSEArca: DBC) – hasn’t been around as long as the CRB Reuters/Jefferies Commodity Index, it too is nearing support.

A chart showing the surprising correlation between commodities and the S&P 500 is available here: Commodities vs S&P 500

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Crude Oil Analysis Update

It’s been a while since the last free crude oil analysis (March 23: Next? A Crude Awakening for Oil Bears?).

The March 23 article noted that: “Commercial traders are starting to prepare themselves for further gains. Oil seasonality also suggests higher prices. Probably more important is a trend line that’s been important for oil prices for nearly two decades (this proprietary trend line and detailed oil seasonality chart reserved for subscribers of the Profit Radar Report). A move above this trend line is likely to trigger a rally.”

This important trend line is now in the rear view mirror, and I’m able to disclose it without conflict to my paying subscribers.

The green bold line in the crude oil futures chart below represents this trend line. It originates all the way back in 1998.

Since overcoming the bold green trend line, oil prices rallied as much as 33%.

Below is a summary of observations made in the Profit Radar Report since March:

March 29: “For aggressive traders, playing the long side (buy on dips) should ultimately prove profitable.”

April 8: “A close above 54.30 should bring more follow through gains.”

 

April 15: “Crude oil broke above 54 today. The breakout has legs as long as it stays above 54.”

May 6: “Oil prices are now gnawing on the resistance zone around 60. Yesterday’s red candle high may cause a pause. Next support is around 58.50, which could be an opportunity to buy.

Oil is trading around 58.50 right now. Based on seasonality, price may test support at 56 or 54.30 between now and mid-June (proprietary oil seasonality chart available to Profit Radar Report subscribers).

Overall, I anticipate oil prices to move higher as long as support at 54.30 holds.

Based on seasonality, buying oil ETFs like the United States Oil Fund (NYSEArca: USO) or iPath Crude Oil ETN (NYSEArca: OIL) before mid-June and/or around 54 – 56 (based on crude oil prices) is a trade worth watching.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Next? A Crude Awakening for Oil Bears?

After losing 55% in a matter of six months, oil has been flat for the last two months. Is it gathering steam for the next big move?

A volatile bottoming process is nothing new for oil.

The 1986 and 2008/2009 bottoming processes were volatile as well (2008/2009 highlighted by blue circle). There were many weeks of wild up and down swings.

The initial low wasn’t violated in a meaningful way, but there was also no meaningful progress for about three months.

Based on the 1986 and 2008/2009 script, the February 4 Profit Radar Report anticipated wild, range bound swings.

The VIX for crude oil (OVX – light blue graph) is about at the same level as it was near the 2008/2009 low. If the 2008/2009 Oil VIX high acts as resistance, down side for oil is limited.

The dark blue graph shows the net futures position (Commitment of Traders Report) of commercial traders.

 

Although not extreme by historical standards, it appears that commercial traders are starting to prepare themselves for further gains.

Oil seasonality also suggests higher prices.

The red and green lines are long-term Fibonacci support/resistance, but probably more important is a trend line that’s been important for oil prices for nearly two decades (this proprietary trend line and detailed oil seasonality chart reserved for subscribers of the Profit Radar Report).

A move above this trend line is likely to trigger a rally.

Before investing in Oil ETFs like the United States Oil Fund (NYSEArca: USO) or iPath Crude Oil ETN (NYSEArca: OIL), investors should know that futures based ETFs (like USO and OIL) are subject to contango, and may lag the underlying asset (in this case oil).

Although this wasn’t the case in February 2015 – when oil prices and USO/OIL gained as much as 24.4% before reversing lower – it’s always good to calibrate expectations.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Has Oil Bottomed?

Crude oil prices tumbled 60% since last June, but oil rallied 5% or more each of the last three days and closed 20% above last week’s low.

Is oil getting ready to climb higher?

The pieces are in place for a tradable rally.

What pieces?

  • Trade bounced from long-term support
  • Short-term technicals show a bullish divergence
  • Oil seasonality is turning bullish

Long-term Support

The long-term crude oil futures chart shows strong support around 46. Trade tried to wear down support, but ultimately it held.

On January 28, we looked at the broader Reuters/Jefferies CRB Commodity Index (Key Commodity Index at Major Inflection Point May Provide Clues for Oil).

This index was also at key support, which provided a stop-loss for Oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath Oil ETN (NYSEArca: OIL).

Bullish RSI Divergence

In late January, I was looking for new oil lows with a bullish RSI divergence and stated via the January 25 Profit Radar Report that: “Crude oil futures are now nearing those new lows. RSI is holding up well, setting up another potential inflection point for oil to rally. Seasonality is turning bullish in early February.”

The February 2 Profit Radar Report featured this chart, which shows:

  • A new low with a bullish RSI divergence
  • A break above red trend line resistance

Seasonality

Oil seasonality is turning bullish in February. My seasonality chart is based on 31 years of historical oil price patterns. This seasonal trend is too pronounced to ignore.

Summary

Oil is long-term oversold and short-term overbought. This may cause some short-term wiggles, but based on seasonality oil prices should climb higher.

Next resistance is around 55. A move above 55 should lead to further gains.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Key Commodity Index at Major Inflection Point May Provide Clues for Oil

As MVP of the commodity sector, oil is usually in the spotlight (especially after a dizzying 60% drop) while most of the other commodities operate in the shadow.

The Reuters/Jefferies CRB Commodity Index, the Granddaddy of broad commodity indexes, sports an interesting chart right now.

The index has reached the lower end of a trend channel that’s defined a multi-year down trend.

Is that a buying opportunity? Is oil near a low?

First we should look at the composition of the Reuters/Jefferies CRB Commodity Index.

In 2005, the index was revised from an equal weighted to a 4-tiered grouping system, designed to reflect the significance of each commodity. Here is the group weighting:

  • Agriculture: 41%
  • Energy: 39%
  • Base/Industrial metals: 13%
  • Precious metals: 7%

Crude oil makes up 23%. The next biggest components are gold, natural gas, corn, soybeans, aluminum, copper and live cattle with 6% each. Silver accounts for only 1%.

Since oil is the heavy weight of the Reuters/Jefferies CRB Commodity Index, trend channel support should be watched carefully for anyone fishing for an oil bottom.

Under normal circumstances this would be a low-risk opportunity to buy the Reuters/Jefferies CRB Commodity Index (trend channel could be used to manage risk).

However, there is no Reuters/Jefferies CRB Commodity ETF.

Broad based commodity ETFs include the PowerShares DB Commodity Tracking ETF (NYSEArca: DBC) and iShares GSCI Commodity ETN (NYSEArca: GSG).

DBC has a strong correlation to the Reuters/Jefferies CRB Commodity Index, but the actual chart paints a different story.

DBC already dropped below trend channel support and is near its all-time low. Aside from a Fibonacci projection level at 14.13, there is no technical chart support.

This makes it hard to manage risk effectively. Traders looking to bottom pick should probably use the Reuters/Jefferies CRB Commodity Index trend channel as stop-loss for any long positions. Oil ETFs include the United States Oil ETF (NYSEArca: USO) and iPath Oil ETN (NYSEArca: OIL).

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Weekly ETF SPY: Lumber Prices and Lumber Related ETFs

At first glance you probably won’t be interested in lumber and lumber prices. But, you should know that lumber prices have a good track record of foretelling what’s next for the real estate market. According to lumber prices, the real estate market is in for a roller coaster ride.

Back in October 2012, March 2013, and May 2013 we used lumber prices as a leading indicator for real estate prices (article listed below):

How to Turn the S&P/Case-Shiller Home Price Index into a Forward-Looking Indicator

Leading Indicator Projects Still Higher Real Estate Prices

Is the Housing and Real Estate Recovery Here to Stay?

Using lumber as a forward-looking indicator for the real estate sector has proven quite accurate, so it makes sense to look at what lumber prices are up to now.

Earlier this year lumber futures soared to $411.50 for on-track mill delivery of 110,000 board feet of random length 8-foot to 20-foot 2×4 inch pieces.

March 14, 2013 marked a significant peak and prices have fallen as much as 32.8%.

As outlined by the above-mentioned articles, lumber prices precede real estate prices by 12 – 15 months. In other words, forwarding lumber prices by 12 – 15 months allows us to roughly gauge what’s next for real estate.

Based on this observation (click here for a side-by-side comparison of lumber and real estate prices), real estate prices have a rocky road ahead (see chart below).

What’s next for lumber prices?

The chart below shows that there was no bullish RSI divergence at the most recent low. This suggests that the current rally is a counter trend.

Resistance is provided by the red lines. Prices are already above the two lower lines so a deeper retracement of the recent decline is possible.

It appears that ultimately lower prices are ahead for lumber, which will eventually (with a 12 – 15 month lag) be bad news for real estate.

There are two lumber-related ETFs:

iShares S&P Global Timber & Forestry Index Fund (WOOD)
Guggenheim Timber Index ETF (CUT)

Neither CUT nor WOOD track the actual price of lumber, but follow indexes composed of timber companies or firms that are in the timber trade.

Oil Flash Crash Erases 3.8% in 4 Minutes – Is This a Sell Signal?

Wall Street traders returning from lunch saw one of the most pronounced mini flash crashes in history. Within a matter of 4 minutes (between 1:51 –  1:54 pm EST) crude oil prices dropped 3.9%. The day’s trading range was 4.9%.

The swings were equally dramatic in oil related ETFs like the United States Oil ETF (USO) and iPath S&P GSCI Crude Oil ETN (OIL). The ripple effects were also felt in the broader PowerShares DB Commodity Index ETF (DBC) and iShares S&P GSCI Commodity Index ETF (GSG).

What caused this mini flash crash and is this a sell signal for oil?

What Caused the Sudden Drop?

Traders, analysts and regulators are still fishing for reasons, but there are only speculations thus far. An incorrectly entered trade (“fat finger error”) or rumors of a possible release of oil by the United States strategic reserves are possible suspects.

Is this A sell Signal?

Oil is not one of the asset classes regularly covered by the Profit Radar Report, but we can apply the same technical analysis methods used for the S&P 500, gold, silver, currency and Treasuries to oil.

The chart below plots crude oil futures prices against the 20 and 200-day moving average, prior support/resistance levels and a largely unknown but effective indicator called percentR.

We see that Monday’s quick dip pulled oil prices briefly below the 20 and 200-day SMA, which converged at around 96.50. Prices found support at 95 (green line), which is an area that buoyed oil prices several times before.

In addition, Monday’s drop triggered a bullish percentR low-risk entry. Only a close below 94.65 would negate the bullish low-risk entry.

Obviously, most asset classes are overbought due to last week’s Federal Reserve induced price pop and due for a correction. However, as long as oil prices stay above support at 94.65 – 95 any correction will have to wait.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.