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.

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

 

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2017 Oil Forecast

Although volatile, 2016 was a good year for crude oil. The January 10, 2016 Profit Radar Report printed this outlook for 2016:

Sentiment is bearish (which should be positive for oil), but seasonality has a minor weak spot until early February. The overall setup for oil in 2016 looks positive, with a potential buy signal early February.”

Crude oil bottomed on February 11 at 26.05.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.”

For the second half of 2016 our indicators never really lined up to point in the same direction. There was no clear signal, which helps explains the choppy performance since the June high.

What are key indicators projecting for 2017?

Investor Sentiment

Commercial hedgers (the smart money) are betting on lower oil prices. In fact, hedgers are holding a record amount of short exposure.

The chart below was published in the January 11, 2017 Profit Radar Report. At the time, hedgers were short to the tune of 465,400 futures contracts (this has increased to 509, 138).

Nevertheless, the January 11, 2017 Profit Radar Report stated that: “As long as trade stays above 48 – 50, we will allow for higher prices.” Why?

Seasonality

Oil is one of those commodities with a very distinct seasonal pattern. Seasonality turns strongly bullish in February.

Tiebreaker: Technical Analysis

Investor sentiment suggests risk is rising while seasonality should buoy prices.

How do we reconcile this conflict between sentiment and seasonality?

Such conflicts often cause stalemates or relative trading ranges.

Based on Elliott Wave Theory, oil appears to be in a wave 4 rally (which retraces part of the 2014 – 2016 drop from 107 to 26.

Ideally wave 4 will extend higher (towards 60) before falling towards and below 26 in wave 5.

Here are the most liquid oil ETPs (Exchange Traded Products):

United States Oil Fund (USO)
iPath S&P GSCI Crude Oil ETN (OIL)

ProShares UltraShort Bloomberg Crude Oil ETF (SCO)
VelocityShares 3x Inverse Crude Oil ETN (DWTI)

Continued updates and trade recommendations 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.

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

What is Driving Oil Lower?

OPEC inaction, decreased consumption, new extraction methods. There are many reasons why oil ‘should’ be down.

However, none of them is (or was) predictable.

For example, back in June the Wall Street Journal and Forbes reported that oil demand is rising. Oil traded above $60 a barrel at that time.

Back in October, CBS News asked: “Could an oil price spike slam the US again?” The question turned out to be a mute point.

If the direction of oil prices is so obvious, why do the media and analysts continuously get it wrong?

Forecasting prices obviously entails more than slapping a news event on a price event after the fact.

Seasonality is an ingredient of every Profit Radar Report market forecasts.

The September 27 Profit Radar Report warned that: “Crude oil seasonality is positive for a few more days before turning sour, so time is running out.”

The November 15 Profit Radar Report, the last time we looked at oil, stated the following: “We sold crude oil (USO) near 48 in October citing strong bearish seasonality as reason. Oil has dropped 20% since, and seasonality continues bearish until mid-December. Technical support is between 40 and 33.”

Based on technical analysis, oil is now in the general support area likely to spark a bounce eventually.

Seasonality is turning gradually bullish in mid-December, but the big seasonal buy signal won’t occur until next year.

Seasonality is not always correct, but betting against an obvious seasonal pattern (such as oil’s September – December rut) is like booking a Caribbean vacation during hurricane season.

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.

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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.

Is the Smart Money Buying Oil?

If anyone knows fundamental supply/demand forces, seasonal patterns and the potential for curveballs, it’s commercial traders.

Commercial oil traders work with oil in their day-to-day business. It’s the only commodity they deal with. Commercial traders make up about 60 – 75% of the trading volume in futures markets. That’s why they are considered the smart money.

So, is the smart money buying oil?

The chart below plots the price of crude oil against the net futures positions of commercial traders (as reported by the Commitment of Traders report).

Commercial oil traders are almost always net short as futures are used as hedge against falling prices.

Here are the key takeaways:

  1. The smart money reduced short exposure steadily as oil prices tumbled. In itself, that’s good news.
  2. However, net short positions fell to an all-time low and are still well below the levels seen at prior oil price trough. That’s not bullish.
  3. Although oil prices managed to inch higher last week, commercial traders added to their hedges (red circle). That’s bearish.

Technical analysis shows an improving picture for the Energy Select Sector SPDR ETF (NYSEArca: XLE). Click here for detailed XLE analysis.

But oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath S&P GSCI Crude Oil ETN (NYSEArca: OIL) have yet to catch their footing.

Commercial oil traders are not yet convinced oil has found a lasting bottom. Unless we know something they don’t, it appears too early to buy.

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.