Crude Oil Trading Small Specs

Weekly Update - Volatility is Back - 5/17/10

noreply@blogger.com (Rich Olney) — Mon, 17 May 2010 14:15:00 +0000

The selling in the Euro should have hit some type of short term capitulation low judging by the weekly chart. I am looking for a bounce in the Euro here then a retest of this low then we will see. At this point I believe the Euro has all the risk priced in. In other words, European PIIG countries having fiscal deficits is old news.

For Crude it is extremely oversold. As we turn to the July chart, we can see the swing low at 71.56 and then close at 73.57 on 2/5/10. Thats our stake in the jello. I am bullish above that candlestick and bearish below it here. Looking for a bounce back into the 80 zone where I would (will) start to leg out of a long position. The 20 EMA is at 82.66 and that would be a good place to start looking the other way ie reverse short.

Not much action in the COT report from last week. The net short position for commercials stands at -201,287. There must have been some revisions to last weeks numbers, as the week over week numbers do not add up.

The Crude Oil Trading Swing Trade System at Collective 2 is back long again this morning. Keeping the stops tight here.........

Weekly Summary 5/9/10 - Mothers Day

noreply@blogger.com (Rich Olney) — Sun, 09 May 2010 22:00:00 +0000

Finally we have something to write about. The recent developments in Europe which led to dollar strength, a market crash and weakness in commodities has created an interesting trading opportunity. Crude is near the bottom of the wide sideways trading range between 86 and 73.

The bad news should be all baked in the cake here with Europe, and crude is near the bottom of the trading range and deeply oversold. The Euro should find support here as shorts cover. The May NFP report came in Friday better than expected at +290K.

We wont get a good read on the COT report till this coming Friday, last week had minimal changes as total commercial net short position decreased by 7k and was at -213k. Ultra high trading volume on Thursday with 512,285 contracts trading, and on Friday with 605,011 contracts trading. However the bears could not break Thursday low on higher volume.

I want to fade the market here. I think the selling is over. This is a tough market, you have to take on some risk and hold over the weekend to get a good entry. The Collective 2 crude oil swing trade system went long on Friday looking for a snap back rally to 80+. However should the selling continue, I would step aside if crude closes below Thursday low at aprox 74.50 or if the Euro gives up 125.

Weekly Summary 4/4/10 - Easter

noreply@blogger.com (Rich Olney) — Sun, 04 Apr 2010 23:29:00 +0000

Crude Oil is trading above 85.00 as I type in Globex. On the COT report the commercials are carrying a very large net short position of -220,250 contracts as of this Friday. This is more from taking profits on long positions than opening fresh short positions. It does not happen very often, however when price rises despite bearish action on the COT it reflects the strength of the advance.

84.00 is the upper end of the trading range from 67.00 to 84.00. With crude breaking above this long term trading range the bulls have the upper hand and the bears have been sentenced to hiding in their caves.

Another piece to consider is a strong dollar. The strong dollar has multiple reasons to go higher with a weak Euro and the expectations for the US tighten monetary policy later this year. However crude traders continue to discount the move in the dollar. The crude oil inventory situation continues to be bearish as there was another inventory build in crude last week.

There is still resistance here in the 85.00 zone depending on how you draw the trendline on the daily. The long term trading range from 67 to 84 is busted. Despite a strong dollar, surplus crude inventories and a very large commercial short position crude continues to climb higher. Higher prices in crude justify even higher prices. As long as the stock market continues to make new highs so should crude.

I am neutral here on crude and looking to play the long side of the rising channel on weakness. Crude should pull back after touching the top of the rising channel at aprox 86.20 which is also 3 standard deviations. There is support for crude on the bottom of the channel at aprox 82.00 which is also the 20 day EMA.

Is that dem Bulls running for dem hills?

noreply@blogger.com (Rich Olney) — Fri, 26 Mar 2010 14:59:00 +0000

We have a bearish chart pattern here which shows a move lower is eminent. You can see the elliptical highlights on the bearish EMA cross over and bearish MACD cross over. Short the bounces...............

Sushi Roll

noreply@blogger.com (Rich Olney) — Tue, 23 Mar 2010 15:27:00 +0000

What Does Sushi Roll Mean (Per Investopedia)?

A candlestick pattern consisting of 10 bars where the first five (inside bars) are confined within a narrow range of highs and lows and the second five (outside bars) engulf the first with both a higher high and lower low. If a sushi roll appears in a prevailing trend, it is a sign that there may be an upcoming trend reversal.

Sushi roll analysis is used to try to predict market tops and bottoms.

Update

noreply@blogger.com (Rich Olney) — Mon, 22 Mar 2010 16:08:00 +0000

I will post the weekly summary Monday evening. I don't think this trading action is bullish and explain why this evening.

Crude is Going Nowhere

noreply@blogger.com (Rich Olney) — Thu, 18 Mar 2010 15:45:00 +0000

The retest is on for the EURO. Trendline break down which is telling us this bounce in the Euro is all but done. Crude oil is going nowhere with the Euro weakness.

Sell Confirmed

noreply@blogger.com (Rich Olney) — Tue, 16 Mar 2010 04:31:00 +0000

I don't get anything for plugging American Bulls however I have followed their system for quite sometime and find it reliable. They use candlestick reading to issue buy and sell signals as formed by the candlestick formations on the daily chart. I use the buy and sell signals on American Bulls as a confirmation to my system in contrast to an entry signal.

Monday 315/09 - Weekly Summary

noreply@blogger.com (Rich Olney) — Mon, 15 Mar 2010 14:53:00 +0000

Last week crude oil prices were flat on the week closing at 81.54. The SnP was down four points on the week to close at 11.45. The dollar was down .65 closing at 79.81. The commercials loaded up on short their net short position last week increasing it by 20,917 contracts. This brings their total net short position to -203,084 which is near the higher end of the range (bearish).

Last week I did not post a weekly summary as I needed to step away from the market for a week and make sure that I was not missing anything. The question I needed to answer was "how can crude keep rising when I personally am quite bearish, what am I missing?" The optimist scenario for the economic recovery includes more demand for crude. All 3 agencies last week raised their demand figures, for the EIA, IEA and OPEC. Almost all pundits are bullish crude except for a few contrarians.

In order to make money in the markets you have to know what type of a trader you are. Counter trend or trend trader? I use counter trend trading methods so my trading tends to thrive in choppy markets but can underperform in trending markets. And likewise for a trendsystem that would outperfom in a trending market and underperform in a choppy market.

I define opportunity as an equation. In the market, as when there is a clash between price and the surrounding variables it creates opportunity. If supplies are low, and inventories are low, and the daily growth rate of total demand will soon overtake the total amount of crude that the world can pump on a daily basis then prices should rise. This is a logical cause effect type of example. In this scenerio I would be bullish and ride the trend higher. A logical trade in a logical market.
However everyone knows the story in that scerio and I would argue that it would still be difficult to make money in that market as everyone would have figured it out. The market pays for original thinking not herd type mentality.

I look for opportunity when price is in direct conflict with the variables of my opportunity equation. Prices are rising now, however fundamentals are quite bearish in the present. True they may get better down the road but not anytime soon. I believe that the strength of the economy is tied to the unemployment rate. Asset price appreciation and demand for commodities like crude are also tied to the unemployment rate. So my point is when we have a rising oil market built on hopes and dreams then I want to take a counter position and fade the market. Think the shepard vs the sheep.

Technically a close below 20 MA at 80.56 is quite bearish and should bring a test of the lower Bollinger Band at 78.13. Crude has broken down out a of rising wedge formation, and also has formed a broadening top formation on larger time frames which is bearish IMHO. BEARISH, BEARISH, BEARISH!!!!!

The commercials increasing their total net short position last week by 11% tells you how they view the market. Lock in prices now. They are selling into this strength.

For those of you that follow The Collective 2 "Crude Oil Swing Trade System" went short crude at aprox 82.70 via SCO. This trade is in the money. The system can be accessed at the below hyperlink.

Collective 2 Crude Oil Swing Trade System,(CLICK HERE).

Weekly Summary 3/1/10 - Monday

noreply@blogger.com (Rich Olney) — Mon, 01 Mar 2010 15:32:00 +0000

Crude lost .40 last week to close at 79.66. Natty finished at 4.81 losing .24 or 4.77% on the week. The USD lost .21 last week to close at 80.38. For the COT, the Commercials net short position jumped by 15% to -168,008 contracts. This was a result of closing long positions (profit taking) rather than establish fresh short positions.

Crude Oil fundamentals are bearish however the market looks at this data as the glass is half full. Negative data is discounted as old news as traders continue to focus expectations on better data on the horizon. For currencies, the USD is working off its overbought condition while holding its gains which is bearish for crude.

Technically, on the weekly charts crude looks like it is topping here at 80.00. Looking at the weekly pattern over the last 20 weeks you can see how crude is trading sideways. From a pure price perspective stops on short positions are building at the 81.00 zone. If the oil bulls can take out 81.00 and trigger stop losses then the path is cleared for a retest of the yearly high at aprox 83.95 on the continuous chart. Support below is the market at the 20 week MA at 76.89 which lines up with last weeks weekly low at 77.05.

Conclusion is that crude is at a critical juncture here 80.00. The market most likely wants to see the weekly EIA report on Wednesday before deciding which direction crude should go from here. For this week, getting short on strength at 80+ with a stop above 81 is a good risk reward trade imho with a 1 to 3 ratio with 77.00 as the profit target.

For Collective 2, we are short from last weeks high with a stop at aprox break even via SCO. Although the system is on a sell, and ideally a chart stop should remain above 81.00 stops get moved to break even when trades go in the money.

Daily Outlook 2/25/10 - Thursday

noreply@blogger.com (Rich Olney) — Thu, 25 Feb 2010 14:03:00 +0000

Futures are down big across the board. Foreign currencies are down as well. Crude Oil is down 1.15 overnight at 78.87. The globex low is 78.45 and the globex high is 80.32. The daily pivot is at 79.57 and the s1 pivot is at 78.68 and the r1 pivot is at 80.88. The s2 pivot is at 77.37 and the r2 pivot is at 81.77. For Natty it is down .047 overnight at 4.81 with the globex low is at 4.79 and the globex high is at 4.89. The daily pivot is at 4.81 with the s1 pivot at 4.788 and the r1 pivot is at 4.93. The s2 pivot is at 4.71 and the r2 pivot is at 5.00.

Crude did not take out 80.78 which is bearish imho. It is forming a flag pattern right below the 1 year ^ trendline which is strong resistance. I dont like this broadening top formation. My money is on the trendline winning this battle and crude should turn down here. Support on crude is at 78.20 and resistance above is at 80.78. A break of 78.20 leads to a test of 76.00 and a break of 80.78 leads to a test of 84 is how I see it now. When 78.00 breaks look out below, that should bring on some high energy selling imho. The rally is over. No natty chart this morning.

Weekly Summary 2.22.10 - Monday

noreply@blogger.com (Rich Olney) — Mon, 22 Feb 2010 14:08:00 +0000

Note Crude Oil Trading Small Specs will be changing from a daily forecasting service to a subscriber based trading system as of this Friday 2/26/10 (see screen shot for web address. It is free to try. The service will use Collective 2 as the intermediary for tracking performance and also for subscribing to auto trading. Manual trading is also offered as the system sends an email to subscriber telling them entry point, stop loss and profit point. Basically the service will use UCO and SCO to swing trade crude oil on the daily chart. I have been working on refining this system for quite sometime and it is ready. I dont think the average investor wants to trade futures so that is why this service uses ETFs. The weekly summary on the public blog will continue in its current format. Natty will be continue to be covered in the weekly blog.

Last Week, the SnP was up 33 points or 3% to close at 1109. Crude was up 5.56 points or 7% to close at 80.06. Natty was down .40 or 7% to close at 5.05. The USD was up up .25 or .3% to close at 80.56. Commercials are short 146k contracts of crude oil. This is an increase of 6k over last week. No change on Natty commercial net long of 34k contracts. There was a surprise rate hike by the FED to signal a bias towards tightening for the future which is dollar supportive in the long run.

Technically the bulls are in charge here. Crude is here at resistance at the redrawn 1 year ^ trendline (brown). 80 is a psychological resistance zone. I am looking for a reversal here to start at any moment and we will have to see how deep the retracement is as the first pull back should get bought (after eia report perhaps). Support is at 78.00 then strong support at 76.00. Resistance is here at 80.00 then 82.00. Above there the highs at 84.00. For Natty it is in deep yogurt, breaking down below support here with support at 4.49 and resistance above at 5.00.

Weekly Summary 2/16/10 - Tuesday

noreply@blogger.com (Rich Olney) — Tue, 16 Feb 2010 14:11:00 +0000

The markets found their footing last week. Weekly crude was up 3.31 pnts or 4.65% last week. The SnP was up 9.32 points or almost 1% to 1075. The dollar was flat last week at 80.33. Natty was down .05 last week to close at 5.46. For the COT report commercials accelerated their short covering last week as their net short position decreased from -171k to -140k. This is a change of 18%. On Natty, the commercials dropped their net long position to +32k from +41k.

Right now its all about demand. As the IEA and EIA "think" demand will increase in 2010 primarily driven by Asia aka China. OPEC says dont tell me, show me as they stick to their bearish demand forecast for 2010.

The EIA predicts EIA's revised outlook is for global liquid fuels consumption to grow by 1.2 million bbl/d in 2010 and 1.6 million bbl/d in 2011 after showing annual declines in 2008 and 2009. Non-OECD countries are expected to account for the majority of this growth in both 2010 and 2011.

The IEA predicts 86.5 million barrels a day in 2010, an increase of 170,000 from its January report and growth of 1.8% from 2009. All of the annual increase in consumption comes from emerging markets.

OPEC predicts global demand is still expected to average 85.1 million barrels a day this year, growing by 0.81 million barrels a day from last year. That would suggest a downgrade in demand growth of 10,000 barrels a day.

Technically, their are two bands of resistance at 76.00 and then 78.00 (previous swing highs on daily chart). Support below is at 73.00 and then 71.00. For Natty, support is at 5.20 then 5.00 below there with resistance at 5.65 then 6.00 above there.

For Tuesdays trading the daily pivot point is at 74.05 with the s1 pivot at 72.74 with the r1 pivot at 75.43. The s2 pivot is at 71.36 and the r2 pivot is at 76.74. For Natty, the daily pivot is at 5.44 with the s1 pivot at 5.33 with the r1 pivot at 5.58. The s2 pivot is at 5.20 and the r2 pivot is at 5.69. I have a bullish bias on crude and natty for Tuesdays session however I will be looking short at 77.00+.

Weekly Summary 2/7/10 - Superbowl Sunday

noreply@blogger.com (Rich Olney) — Mon, 08 Feb 2010 07:00:00 +0000

Short summary tonight, Congrats to dat Saints. Despite all the back and forth price action last week crude was down a little over a buck on the week to close at 71.19. The dollar was up big again up 1.13% to close at 80.36. The SnP was down about .7% or 7 points. Natty was up .37 to close at 5.50. The commercials reduced their net short position by 23k to -171,171 which is at 13% decrease in their net short position. Thats big. No real change in the Natty net long position. It remains at 44k.

It should be a volatile week as traders try to figure out if the decline is over. Strong support for crude at 69.50 to 68 zone. 69.50 is last weeks low, and 68 is the lower bollinger band on the weekly chart. Looking for a little more rally up to 72.50 then a decline later in the week after EIA inventories. For Natty 6 is resistance and 5.20 is support. Weather could push natty up into resistance at 6. 1027 is support on the SnP and it should find buyers there. Looking for one more leg lower in the market before the rally starts.

Weekly Summary 1/31/10 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 01 Feb 2010 05:14:00 +0000

On January 3rd's weekly summary I wrote:

"Crude is in a trading range between 66 and 82 and there is strong support for crude just below that trading range in the low 60's. Above 82 you can see previous support back in Jan of '08 at 85 and now that previous support becomes resistance just above that trading range. You can see the Bollinger Bands on the weekly crude chart at 82.22 and 66.66 which frame the trading range. Until this trading range is broken, which will not happen until market expectations change, I want to be a buyer of crude at the bottom of the trading range and seller near the top of the trading range. On a break out of the trading range in either direction we would need to reevaluate the strength of the break out and the catalyst. So I am neutral on crude prices for 2010 looking for crude to stay in the trading range unless a showdown with Iran escalates or expectations for world GDP tank. Crude has seasonal weakness in Feb and the stock market has seasonal weakness in June - Oct so there should be plenty of chance to get long. For Natty, the market looks to be fairly valued here at 5.xx, and any uptick in demand should be met with new supply that can be brought on quickly which should contain prices in 2010 so a trading range on Natty between 4 and 7 is reasonable (see weekly chart below)."

Last week crude finished the week down 1.65 or 2.21% to finish the week at 72.89. Natty was also down finishing the week at 5.13 down 10% or .63 The USD on the other hand was up 1.18 pnts to close at 79.47. The SPX was down 17.89 pnts to close at 1073 or down 1.64%. For crude oil, the commercials added 39,038 long contracts and shorted 6,605 contracts which increased open interest by 45K. The Net change was reducing their total net short position to -194k. This is a reduction of about 32.5k to their short position which is a large drop. We expect the commercials to cover into this price dip as they put many of these contracts on around 80+. Per the weekly EIA demand figures................ "Total products supplied over the last four-week period has averaged 18.8 million barrels per day, down by 2.0 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 8.7 million barrels per day, down by 0.8 percent from the same period last year. Distillate fuel demand has averaged 3.7 million barrels per day over the last four weeks, down by 8.1 percent from the same period last year. Jet fuel demand is 1.5 percent higher over the last four weeks compared to the same four-week period last year."

Crude has a number of factors working against it here:

1. Strong Dollar.
2. Weak Crude oil products demand (gasoline and Distillate fuel).
3. Seasonal Weakness in February (see below chart).
4. Near historical extreme (high) in Commercial Net Short position.
5. Exhausted Stock Market.

Technically crude is in deep yogurt here closing below the middle bollinger band on the weekly. Crude also broke below its long term uptrendline, the 200 EMA on the daily and is now testing the previous swing low at 72.45 from December. Closing below the middle bollinger band on the weekly makes the lower band at 67.99 the objective for this move. We also have the swing low from 9/25 at 67.46 on the March futures chart. So the 68.00 zone should have STRONG SUPPORT. The middle bollinger band now is resistance at 75.65. I am not looking for a bounce here in the event if it does it will be a shorting opportunity as crude needs to work lower here imho. Natty closed right on the middle bollinger band and as long as it closes above the middle bollinger band this week it is in good shape for the bulls. Support is at the middle bollinger band at 5.16 and resistance is above at 6.00 on the weekly. If the 5.16 gets busted on a weekly close the next downside objective would be 4.70 which is support on the daily March futures chart.

Conclusion, the dollar is strong and crude is weak. Seasonal weakness and an exhausted stock market are all contributing to crudes decline. Strong support lies at the 68.00 zone where I would be a buyer. Natty is in a trading range and buying the bottom of the range at 4.70 and selling the top of the range at 6.00 is a good way play this sideways movement. Crude needs to close above 76.00 on the weekly to stop this downside slide.

Weekend Summary 1/24/10 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 25 Jan 2010 05:15:00 +0000

Crude was down 3.83 last week or 4.9% to close at 74.54. Natty was up .08 or .43%. The SPX was down 44 points or 3.9%. The USD was up 1.05 pnts or 1.39%. Commercials continue to carry a huge short position of -226,579M BBL. That is as large a short position as I have seen it. Interesting that commercials did not cover into this 10%+ pull back. This tells me commercials want to stay positioned leaning short for the risk is to the downside.

For the markets, you can see (below charts) how the middle bollinger band on the weekly provides support during pull backs in uptrends. I am watching the middle bollinger band on the SPX as a close below the weekly 20 EMA would point to lower prices targeting the lower bollinger band at 1022. A move lower the in the SnP would have a bearish effect on crude. The USD is looking strong here as the middle bollinger band is support on the weekly chart below. It is looking to break out here as it is testing its previous high at the 78 zone.

There is some technical damage inflicted last week to the crude chart as it closed below a long term trendline that goes back to April. The market and crude is oversold here and a bounce is in order. Crude might bounce up to the middle bollinger band at 80 however sellers will be waiting to sell there. 73.00 is strong support from the previous swing low in December. If 73.00 gets taken out the next level of support is the psychological level of 70.00. Natty is being supported by cold weather which is well broadcasted. Support lies at 5.50 and pull backs to that support zone are a good entry point.

I am looking for a bounce here that should get sold. 80 would be a gift for a short entry, so a 2.5 day counter trend rally into inventories will relieve the oversold condition. Only two closes above the middle bollinger band at 80 would turn the daily chart bullish again imho.

Weekend Summary 1/17/10 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 18 Jan 2010 05:05:00 +0000

Last week March crude oil closed at 78.37 down 4.38 on the week or 4.38% (that is using Feb weekly opening price and March closing price for the week due to roll over). Natty was down 1% on the week or .06 to close at 5.68. Commercials can not short enough crude increasing their net short position by 23,849 contracts to -222,055 contracts......which is very bearish. With upcoming seasonal weakness in FEB commercials are leaning heavily short. Natty commercials increased their net long position to 42,778 which is an increase of 3597 contracts.

Fundamentals are bearish for crude as they have been since crude peaked at 147. However crude does not trade on fundamentals. Thats why we rely on Technical Analysis. There is support here for crude at the lower bollinger band on the March daily at 77.67. I'm looking for the bulls to mount a bounce there into the middle bollinger band at 81.06 where I want to be a seller. You can see that crude has strong support on the weekly chart at 75.17 which is the middle bollinger band on the weekly. Shorts should be covered at 75.00 for another bounce. This band has been support and resistance on crude going back to the last bull market (see chart).
Natty is stuck in a sideways trading pattern with 6.0 resistance and 5.35 support. Selling Natty at 6.0 and buying it at 5.35 is the way to play it for now until it breaks out of this sideways trading range.

Conclusion turn off your TV, the pundits on TV will tell you crude is going higher when it is rallying and tell you its going lower when its selling off. The commercials are leaning heavily short for seasonal weakness in crude is upon us. Crude and Natty are trading on technicals. The answers are on the chart sell resistance and buy support.

Weekly Summary 1/10/10 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 11 Jan 2010 05:31:00 +0000

Short weekly summary this week. Crude oil closed up 3.39 pnts on the week or 4.1% at 82.75 on Friday. Natural Gas was up .17 or 3% to close at 5.74. Commercials increased their net short position from 173484M BBL to 196576M BBL. This is a net increase of 23092M BBL or 13.3%. Natty commericals increased their net long position to 39181 or up 2124 on the week. Friday NFP came in at -83K jobs lost for December, higher than the highest consensus. The dollar closed down .49 or .63% on the week at 77.45.

Technically crude is breaking out the on the daily chart above the previous high at 83.19. 82-83 was strong resistance but crude looks to go higher with the shallow pull backs that get bought. The next level of resistance is at 85.42 to 86.24 from January of 2008. For Natty continues to trade sideways with 6.0 significant resistance. The commercials are selling into this strength as reflected in their increasing short position. I will look to be a seller in the 85.50 zone from which I will look for a healthy retracement.

A Couple Charts

noreply@blogger.com (Rich Olney) — Tue, 05 Jan 2010 16:05:00 +0000

Whats going on with Natty? Nothing really 6.00 has proved to VERY STRONG resistance........putting in a megaphone pattern on the daily chart I think price needs to test first support at 5.35 again then we will see if Natty can hold that level. If not, then back down to 2nd support 4.75.

I am bearish crude here, we are just trading sideways here from 66 to 82. Until that range breaks I want to sell at the top of the range and buy at the bottom of the range. The volume on crude futures is anemic where it traded 120,000 contracts on a wide range day yesterday to put that in perspective we were trading 400k contracts per day for a while. Imports on crude continue to decline and I dont find that bullish although they are trading it that way as inventories drop week over week due to declining imports.

A pull back to the middle Bollinger Band at 76.28 is in the cards a bounce back to 80 then down to the ^ trendline at 73.

Weekly Summary 1/3/10 - Sunday

noreply@blogger.com (Rich Olney) — Tue, 05 Jan 2010 03:25:00 +0000

Last week crude finished up 1.31 to close at 79.36. Natty finished down on the week .126 to close at 5.572. The USD was basically flat on the week up .12 to close at 77.95. The S&P cash closed down 1% last week at 1115.10. On the COT report, commercials left their net short position on crude virtually unchanged at -154,319M BBL. The commercials left their net long position on natural gas virtually unchanged at +36,723 contracts.

Fundamentals, you can see how crude oil imports have declined. Refiners are importing less crude. You can see on gasoline and distillate demand (heating oil), that demand is rising albeit only a smidget. Consumers are using more gas and heating oil. Hence the bullish fundamental case that pundits are gloating about on various media stations about the bullish domestic crude oil outlook for 2010. Further strong economic data out of China also is being seen as bullish for international crude. If world GDP comes in the low to medium range for 2010 then the current supply situation is in line with the expected demand. If world GDP comes in at the high end of the est. GDP range in 2010 then there is some supply constraint scenerios. However there is alot of capacity that can come back online..............

I prefer to let the economists worry about the funnymentals. The glass is half full or half empty on funnymentals and the market trades these funnymentals differantly as each economic period is unique. If there was a logical relationship between funnymentals and technical analysis then this game would be easy and we all know it is far from easy. In 2009 crude traded on correlations to currencies driven by economic stimulus and loose monetary policy, future expectations for an economic recovery, geopolitical, and the rally in the SnP.

What factors will drive crude prices in 2010? Crude is very difficult to forecast future prices for due to the volatility and the uncertainty with the economic outlook. These factors are listed below but not in order of importance.

1. A geopolitical premium on crude for a show down with Iran looks to be in the cards for 2010 and that should be a catalyst for crude when that showdown plays out. The market concern is that Iran will attempt to block the staight of Hormuz where 25% of the worlds oil is transported.

2. Expectations for US and Int'l economic outlook which s/b reflected in the performance of the SnP index.

3. Monetary Policy and its effects on currency values on the USD and EUR.

4. Domestic crude supply and demand.

Crude is in a trading range between 66 and 82 and there is strong support for crude just below that trading range in the low 60's. Above 82 you can see previous support back in Jan of '08 at 85 and now that previous support becomes resistance just above that trading range. You can see the Bollinger Bands on the weekly crude chart at 82.22 and 66.66 which frame the trading range. Until this trading range is broken, which will not happen until market expectations change, I want to be a buyer of crude at the bottom of the trading range and seller near the top of the trading range. On a break out of the trading range in either direction we would need to reevaluate the strength of the break out and the catalyst. So I am neutral on crude prices for 2010 looking for crude to stay in the trading range unless a showdown with Iran escalates or expectations for world GDP tank. Crude has seasonal weakness in Feb and the stock market has seasonal weakness in June - Oct so there should be plenty of chance to get long. For Natty, the market looks to be fairly valued here at 5.xx, and any uptick in demand should be met with new supply that can be brought on quickly which should contain prices in 2010 so a trading range on Natty between 4 and 7 is reasonable (see weekly chart below).

Weekly Summary 12/27/09 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 28 Dec 2009 05:01:00 +0000

Crude finished last week up 3.63 pnts or 4.8% closing at 78.05. Natty was down .18 or 3.1% to close at 5.698. The dollar has hit strong resistance at 78.xx. This last week of the year is one of the strongest seasonal positive bias weeks of the year for the market. Commercials reduced their net short position by 10,008 to -152,549M BBL. For Natty the commercials reduced their net long position by 8,186 contracts to 37,852 net long contracts.

Technically crude needs to break above the downtrendine at 79.40 to turn the chart bullish. However crude is overbought here so perhaps a first attempt at 80 fails followed by a shallow pull back. A second attempt to break 80 later this week will set the table for a test of the highs at 83.19 or a pull back to the ^ trendline at 75. For Natty strong resistance at 6.0 has Natty contained. Natty is holding its gains and looks to be forming a flag pattern which projects up to 7 to 7.50 zone.

Conclusion is that geopolitical headlines and expectations for a consumer come back in 2010 are giving crude a bid here. Strong resistance lies at 79.40 to 80 where I would look to be a seller. If crude closes above 80 two days in a row then the down trend that started in the end of October is over and shorts s/b covered. For Natty strong resistance at 6.00 has Natty contained for now however a bullish flag pattern looks to forming which projects to 7+. I want to be a buyer of Natty around the bottom of the flag pattern at 5.70.

COT Report

noreply@blogger.com (Rich Olney) — Mon, 21 Dec 2009 02:56:00 +0000

This is a repost of a educational post I did back in April '09 however its importance warrants a repost. I only trade crude oil natural gas so I am only concerned with the positions of traders on crude oil and natural gas. I use the "short form" only for my analysis. The "short form" includes both futures and options. When ever looking at COT data make sure it includes both futures and options. Options are used by creating synthetic or spread positions. Since the delta is .50 every two options are counted as one contract when reading the short form.

The Commercials are 80% of the Crude Oil Market. The commercials consist of both producers and users. Producers and Users want to sell to lock in their price in advance by either selling or buying depending what side of the fence they are on. Commercials are hedgers in the oil market, they sell strength and they buy weakness. Commercials are not allowed to take options positions. Large Specs are a misunderstood group. Large specs make their money off of premium collected by taking the other side of the commercial play. In the futures market they need a seller and buyer to make a transaction. If a commercial is selling then a Large spec is buying.

Large Specs are referred to as "Non Commercial" on the short form. The non commercials or large specs also use option spreads as well (2 options = 1 contract). You will see "spreads" under Non Commercials aka Large Specs. Large Specs are not better forecasters than commercials. Anyone who says follow the large specs and they use to be small specs now their large specs so they must be smart "is pulling your leg."

The last group is the "non reportables" ie Small Specs. There is a myth that you can follow the small specs and fade them as they are the dumb money. There is no statistical evidence that that is true only hearsay.

The two things we do not know about the COT report.

1. What is the trading strategy of the non reportable ie small specs. This is due to the hodge podge of different players in this group. Theoretically you could have small producers, small users, homegamers, hedgefunds and what ever else in this small spec group. Hence I ignore this group.

2. And we do not know whether the "spreads" for the non commercials ie Large Specs are Long or Short. Since "spreads" are 3x the size of the large specs futures positions it is impossible to figure out their true net position. Hence I ignore this group as well.

The COT report is delayed as when it is released on Friday it is of the previous Tuesday closing data. So its 3 days behind when released.

The way I use the COT is I plot the net position of the commercials. They are 80% of the futures market with crude oil so "follow the money." I know their trading strategy which is to sell strength and to buy weakness. I ignore the Large Specs and the Small Specs. I then measure the week over week net change and velocity of change. This tells how bearish or bullish the commercials are based on the velocity of change of their net position. I then perform volume analysis on the price chart looking for distribution days where a price advance stalls on higher volume. I like big price moves on Mondays and Tuesdays in Crude Oil so when the COT report comes out on Friday (data as of Tuesday) I can line up price vs volume vs net change on the commercials net short position.

Weekly Summary 12/20/09 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 21 Dec 2009 02:47:00 +0000

Feb Crude finished last week up 3.4% on the week or 2.47 pnts to close at 74.42. Natural Gas, was up .62 or 12% to close at 5.78. The commercials covered shorts in crude last week decreasing their net short position by 10,008 contracts to bring their net short position to -152,549M BBL. On Natural gas commercials reduced their net long position by 8,186 contracts to bring their position to net long 37,852 contracts. The dollar continued its 3 week rally up 1.23 pnts to close at 77.75.

Feb Crude bounced off the 200 EMA on the daily chart. The swing low is at 70.83. The 200 EMA is at 71.22 and there are a series of trendlines from the previous 2 month downtrendline and the 6 month uptrendline that form a support level at about 70.50. Crude is right at resistance here at the middle Bollinger Band at 74.83. If crude can put in two closes above this resistance then the upper band becomes the target at 79.64 where the upper boundry of the 2 month down channel resides.

Jan Natural Gas has had a tremendous two week rally but is right at resistance here. The swing high in August is at 6.12 on the Jan contract. The swing high in October is at 6.26. So resistance lies firmly from 6.00 to 6.26. Support lies below at the two uptrendline at aprox 5.60. This is a steep uptrendline and I dont expect Natty to hold this angle for long.

The USD is right at the 38.2% retrace of the last decline starting in March of '09 and you can see the swing low made in Dec '08 at 77.68. You can see on the seasonality chart below for crude oil futures how December and January are sideways months with February being a down month on average.

Conclusion, we have seasonality and the USD working against crude here. On the bullish side it held support at the 6 month ^ trendline. However with the bearish factors noted above I suspect this bounce was / is a technical bounce to wear off deeply oversold conditions. I want to be a seller on strength and right here at the middle bollinger band is a good short set up. Two closes above the middle bollinger band and the bulls will target the top bollinger band at about 79.64. On the other hand, I would be a buyer of crude at support zone around the 6 month trendline at 70.60. For Natty resistance here at 6.00 to 6.26 should be a tough cookie to crack and price should be rejected on the first attempt to break it and a pull back to the 2 week ^ trendline is most likely. Simply put, for this week love crude at 70........hate it at 75+. Love Natty at 5.50........hate it at 6.00+.

Daily Outlook 12/16/19 - Wednesday

noreply@blogger.com (Rich Olney) — Wed, 16 Dec 2009 15:44:00 +0000

This is the delayed version of the daily outlook posted to the member site at 7:30AM PST this morning. How did I know that Natty would be down today and crude up? Technical Analysis............is my main tool. Members receive daily access to a trading roadmap before the cash market opens. You can join by clicking on the paypal button above. The cost of competitive services is 3x (300%) the cost. How much money would you have made today if you would have had the below premarket forecast?

Futures are up across the board. Foriegn currencies are up as well. Crude is up .50 at 71.20. The globex high is 71.59 and the globex low is 70.59. The daily pivot is at 70.38 with the S1 pivot at 69.62 and the r1 pivot at 71.46. S2 comes in at 68.54 and R2 is at 72.22. For Natty is it down .04 overnight at 5.48. The globex low is 5.46 and the globex high is at 5.569. The daily pivot is at 5.458 with the S1 pivot at 5.379 and the R1 pivot at 5.60. The S2 pivot is at 5.236 and 5.458.

Today we get a hoard of economic data with CPI, housing starts, EIA Petroleum Inventories, and the FED. The rally in the dollar should end today as the FED should keep the status quo. A weak dollar is a stimulus to the US Job Market. Resistance for crude above is at 72.39. Support is below at 69.50 at the ^ trend line. A bounce up to 73.84 the middle Bollinger Band is in order. If the SnP and the dollar does not confirm an up move in crude then I will look to get short there. For Natty it is right at resistance. Support is at 5.30, the ^ trendline and resistance is all the way up to 5.60. We should see some profit taking in front of tomorrows Natty EIA report. I want to get long Natty on a pullback to the 5.0 zone. I have a bullish bias on crude today and a bearish bias on Natty hence I am long crude from yesterday playing the bounce with a tight stop where I would look to take profits and possibly flip short at 73.90...........

Weekly Summary 12/13/09 - Sunday

noreply@blogger.com (Rich Olney) — Mon, 14 Dec 2009 03:29:00 +0000

Crude finished the week down 5.6 points or -7.4% to close at 69.87. Natty on the other hand was up 12.6% or .57 to close at 5.16. The dollar had an amazing week closing at 76.58 taking out the previous intraday swing high from November at 76.50. The commercials made minimal adjustments to their total net short position of -166,382M BBL. For Natty the commercials increased their net long position to 46,039 contracts.

Below you can see the dollar has closed above its previous swing high which is bearish for crude. The Forex correlation table below you can see that Crude has the highest correlation with the SnP 500 followed by the Euro.

Technically on Crude you can see the daily chart in Crude how it starts the new year on seasonal weakness in '07, '08 and '09 with '10 looking to be no differant. You can see the retracement levels on crude and that 64 and 58 are significant retracement levels for crude on the continuous chart and targets for this seasonal weakness in crude. Referring to the Daily Futures chart below you can see that the 65 and 60 levels are previous swing lows and will offer support levels for crude. We can look for bounces at those levels to adjust positions or establish new ones. The weekly chart has support coming in at the lower Bollinger Band at 65.58 level. With crude trading under the 200 EMA on the futures chart, the next support zone is from 66.10 (previous swing low on 9/25 futures chart) down to 64.14 (38.2% retrace off the continous chart).

Technically for Natty, the daily continous chart below paints a differant picture than the futures chart. The continous chart shows that Natty is an uptrend while the daily futures chart shows the down trend still in tact. The continous chart can not be used on Natty right now due to the steep contango Natty had coming into this winter with the front month being discounted by the market. The futures chart is the chart to use and you can see Jan '10 Natty just bottomed at 4.43 on 12/3/09. On the continous chart Natty bottomed the end of August at around 2.60. Resistance above on the futures chart is firmly at the 6.00 level with support at the middle Bollinger Band at 4.90.

Conclusion is that seasonal weakness for Crude and seasonal strength for Natty should continue this week. The 65 zone +/- 1 offers the first level of support for crude. For Natty 6.00 offers strong resistance. I would like to get long Natty around 4.90 on a pull back. For Crude it is heavily correlated to the SnP and although they are heading in differant directions presently we should expect this correlation to reestablish itself once the selling in crude is completed. I will be looking for a bounce in crude at the 65 level and we will have to wait and see if crude holds that low on the retest.