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Are Crude Oil & Natural Gas about to Explode?

March 13 2010
Last weeks price action unfolded just as we expected. Money poured into stocks with the focus being on small cap, banks and technology stocks. The fact that these sectors are showing strength while utilities, health care and consumer staples lag is a good sign that investors are once again taking risks in the market.

Because investors and traders are bullish on the stock market again the money flow into the safe havens like precious metals and energy has decreased. I believe this is the reason stocks moved up last week while precious metals drifted lower.

Below are weekly charts (Natural Gas, Crude Oil and the Dollar) showing what I think is most likely to happen in the next few weeks and what should fuel the fire.

Natural Gas – Weekly Chart
Natural has been out of favor for the past 3 months with most of the selling happening recently as seen on the chart. In my opinion natural gas is over sold and about ready for a bounce.

The price of NG is now trading at a key support level but until the selling momentum stops and reverses back up I would steer clear of this commodity play. Natural gas is known for taking peoples money time and time again so trade this commodity very carefully.

Crude Oil – Weekly Chart
Crude oil has been trading in a channel for several months and is now testing the upper level. If we see the US Dollar drop in the coming weeks then I expect oil to surge higher along with natural gas. If oil breaks out then I expect to see the $90 level reached within a month.

US Dollar Index – Daily Chart
The US Dollar has put in a very nice bounce/rally since the low in November 2009. Last month the dollar finally reached a key resistance level of 81. I have been talking about this major resistance level since January as the Dollar would find it difficult to break above this level.

There is a strong chance we could see 78 reached which is the measured move down. If we get follow through selling next week then I would expect 78 to be reached within 1-2 weeks and over the next few months we could very well test the 2008 low of 72.50.

Natural Gas – It’s the Season
Natural gas’ seasonal price action shows that the price tends to strengthen between February and April. So with NG at support and we are in March you can guess what I’m thinking… higher prices are where the odds are pointing.

Crude Oil – It’s the Season
It’s the same story as natural gas above….
Higher prices seem to be where the best odds are.


Energy Trading Conclusion:

As a technical analyst the above charts are pointing to higher prices in the coming weeks for natural gas and crude oil, which is exciting for us all. BUT when things are this perfect looking we must be very cautious as the market has way to suck traders into these “perfect setups” and spit us out a couple days later for a nasty loss.

Understanding how the market moves is crucial for avoiding and/or minimizing losses when trades go against us. That is why I continue to wait for my signature low risk setup before putting any money to work.

My focus is to take the least amount of trades possible each year, only focusing on the best of the best setups. My low risk setups require risk downside risk to be under 3% for the investment of choice. and the broad market needs to be showing signs of strength as well. I use several different types of analysis to confirm if a setup has a high probability of winning and those which do are the trades I take along with my subscribers.

It is very important to wait for the market to confirm a move higher before taking a position when there is this type of setup. The market could go either way quickly and jumping the gun is not a safe bet.

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Chris Vermeulen
www.GoldAndOilGuy.com

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Oil, Gas, Silver Gold – Getting Ready for Next Rally

Commodities have and continue to be a fantastic trading vehicle for those who can stomach volatility. After last year’s market crash most commodities pulled back to normal if not lower than normal trading ranges. This allowed us to enter the market at 10+ year lows for natural gas.

If we look at the weekly chart for gold, silver, oil, natural gas and the CRB commodity index we can see that commodities in general look ready to skyrocket higher approximately 34% on average in the next 4-12 months.

Take a looks at this chart of gold. While this chart shows the basic technical analysis of the price of gold you can see the completion of the Cup & Handle pattern which is VERY BULLISH. Also you can see gold broke to a new high. While I don’t like to trade new highs it’s hard not to want to buy into this breakout. Most traders should be long gold already, but if you are not, you have a couple of options. Buy into this breakout with a tight stop or wait for a pullback and buy on a test of the breakout. Personally I am waiting for a pullback (test of breakout) before I add more to my position.

Trade Spot Gold

Trade Spot Gold

Silver has been strong but has not held up its value as well as its big sister (gold). As you can see silver must break through two more major resistance levels before making a new multi year high. Overall silver still looks strong and I will be waiting for a low risk setup for us to add more to our positions.

Trade Spot Silver

Trade Spot Silver

Crude Oil looks like a perfect Cup & Handle pattern and I am now looking for a low risk entry point which should form before we get a breakout it to the up side. I can see oil quickly moving to the $100 per barrel level once we get a breakout.

Trade Crude Oil

Trade Crude Oil

Natural Gas had a perfect shakeout in August and many aggressive traders who follow these reports followed my lead and bought natural gas around $2.90 (10 year lows). This was the move I wrote about for nearly 3 months as we waited for it to unfold. Down side risk was around 15% so it was not my signature low risk setup but this rally has been exciting. Currently natural gas is trading at resistance and taking some money off the table is a great play here. You will never go broke taking profits.

Trade Natural Gas

Trade Natural Gas

The CRB Index looks very similar to crude oil. Overall commodities look to be in the final stages of basing (bottoming) and from simple technical analysis the next more could be around 30-34%.

CRB Index

CRB Index

Commodity Trading Conclusion:
Overall commodities look like a great buy. We are seeing precious metals moving up strongly and gold making a new high which is very exciting as our golden rock stock plays push higher and our commodity ETF play continue higher as well.

Energy is a mixed bag. Oil looks bullish and ready for a nice rally, while natural gas looks a little top heavy as it trades just under resistance.

We continue to stay in the market and are waiting for another round of low risk setups which could happen in the next few days if we get favorable price action. Remember to move your stops up to lock in gains. There is nothing worse than giving back a large portion of your profits when you don’t need to.

If you would like to receive my free weekly trading reports please fill out this form:










First Name:
Email:


Chris Vermeulen