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Crude Oil ‘Coiling Like a Spring’, Election Likely to Have Big Impact

  • The energy commodity has a long history of taking the stairs higher and an elevator shaft to the downside

  • The $40 level reflects over four months of price consolidation

  • A referendum on energy policy for the world's leading producer comes on November 3

At the end of last week, it was still Groundhog Day in the crude oil futures market as the price was sitting at around the $40 per barrel level on the nearby NYMEX futures contract. Groundhog Day was a movie starring Bill Murray in 1993, where every day turned out to be the same. Yogi Berra, the Hall of Fame Yankee catcher and armchair philosopher, said, "It's deja vus all over again." Since early June, crude oil has been sitting around $40 per barrel after recovering from its first negative price in history in late April.

The global pandemic caused the price of nearby NYMEX crude oil futures to fell to a low of negative $40.32 per barrel before moving around $80 higher to the $40 level, where it stalled. Crude oil can be a highly volatile commodity. The move to the lows came as demand evaporated during the spread of the global pandemic. OPEC, Russia, and other world producers dramatically cut output to balance the supply and demand equation. US production fell naturally in response to lower prices.

Meanwhile, the crude oil price could become a tightly coiled spring the longer it sits at $40 per barrel. From the time that crude oil began trading on the CME's NYMEX division, nearby crude oil futures did not trade above $41.15 per barrel from the early 1980s until 2004. In 2008, the energy commodity reached an all-time peak of $147.27 per barrel.

Support for the active month November futures contract stands at $36.58 with resistance at $44.05. The midpoint is at $40.32 per barrel, and November futures settled at $40.88 on Friday, October 16. The market has traded within the current range since mid-June.

The United States Crude Oil Fund (USO) tracks the price of NYMEX futures higher and lower.

The energy commodity has a long history of taking the stairs higher and an elevator shaft to the downside

Commodities can be one of the most volatile asset classes. Crude oil is the energy commodity that powers the world and is a leading raw material market when it comes to liquidity and volume. Crude oil also impacts other commodity prices as energy is required for production. Higher oil prices increase the cost of output, and when petroleum declines, production costs fall.

Over the long term, the oil futures market tends to move slowly and steadily during rallies and becomes a falling knife when the price drops. The most dramatic example came in 2008 during the global financial crisis.

Source: CQG

As the monthly chart illustrates, nearby NYMEX crude oil fell from a record high of $147.27 in July 2008 to a low of $32.48 per barrel in December 2008. The drop of 78% in only five months is an example of an elevator shaft path of the energy commodity during bear market periods. Crude oil rose to over $100 in February 2011 as it took over two years to recover higher as it took the stairs to the upside.

The last example of the price carnage that has become typical in the oil futures arena came this year as futures fell from $65.65 in January to a record low of negative $40.32 per barrel in April, a decline of $105.97 per barrel.

This year's drop was $9.12 less than the move lower in 2008, but it came in only three months and pushed the price of oil below zero for the first time. Since then, the price recovered to the $40 level, where it remained at the end of last week.

The $40 level reflects over four months of price consolidation

November NYMEX crude oil futures reached a low of $24.43 on April 22, $64.75 per barrel above the price of the continuous contract at that time. Contango or the steep forward premium in the oil market during the price carnage in April reflected the market's supply glut.

Meanwhile, after trading to the April low, crude oil got back on the bullish staircase.

Source: CQG

As the daily chart highlights, it took from April 22 until June 5 for the November contract to reach the $40 per barrel level. The price continued to edge higher but only reached a high of $44.05 on August 26.

Since then, the price corrected to a low of $36.58 per barrel on September 8, which has stood as the low and technical support level as of the end of last week. In September and October, crude oil has been trading around the $40 level, which has the pivot point for over four months.

A referendum on energy policy for the world's leading producer comes on November 3

Crude oil will not remain at $40 per barrel forever. The market will either get back on the staircase and make a higher high above $44.05 on November futures, or an event will trigger another elevator shaft journey to the downside. Two issues face the crude oil market over the coming weeks. The first is the November 3 election in the US that could substantially shift energy policy.

The US is the world's leading crude oil producer. A sweeping victory by Democrats could cause US output to decline. The election is a referendum on the future of the US role in the oil and gas markets.

The other issue is the continuing threat of COVID-19. Futures shutdowns would weigh on energy demand and the price of the energy commodity. Moreover, it tends to be the unknown that causes the most substantial moves. The Middle East remains a part of the world that can trigger significant price volatility. While it seems like ages ago, the rally to $65.65 in January resulted from tensions in the region that is home to over half the world's oil reserves.

Crude oil has become a tightly coiled spring at the $40 per barrel level. The longer the spring coils, the more dramatic the eventual move. Any risk positions in crude oil require tight stops as we could see volatility return to the market in a blink of an eye.

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The United States Oil Fund (USO) rose $0.02 (+0.07%) in premarket trading Tuesday. Year-to-date, USO has declined -72.09%, versus a 8.25% rise in the benchmark S&P 500 index during the same period. USO currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #68 of 113 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:USO October 20, 2020 9:34am

Gold Sentiment Reaching Bearish Extremes

We've seen a relatively normal correction over the past two months for gold (GLD) from its new all-time highs, but despite this moderate pullback, investors look to be giving up on the metal.

Based on Monday's readings, bullish sentiment on the yellow metal is now lower than in December 2019 when gold was sitting $400/oz lower below $1,500/oz.

These recent readings suggest that many were likely caught buying the metal well above $2,000/oz in August, and are now being shaken out of the trade as few rational people would be pessimistic on an asset class that's up over 27% year-to-date. Let's take a closer look below:

Chart, histogram Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

As we can see from the chart above, the metal headed back into the danger zone (red box) in August, as bullish sentiment soared to above 90% bulls and the 20-week moving average for sentiment headed above 80% bulls.

In the past, this has been a very bearish signal as the metal has typically seen a draw-down of 8% or larger after trading inside this zone. Two months later, this signal has played out almost exactly as expected, though the correction has been a little deeper than the norm. Given the decline, the sentiment moving average ha slid from 85% bulls to 60% bulls, and this is nowhere near the extreme pessimism zone that often leads to multi-year buying opportunities.

However, it's important to note that we've only headed inside this zone on eight occasions in the last 12 years, and never came remotely close to this zone in the 2010-2011 period when gold was consistently making new all-time highs. Therefore, while a mean reversion is undoubtedly to be expected as we've seen, a pullback into the green box (extreme pessimism) is highly unlikely.

If we zoom in on bullish sentiment, we can see that we have much more pessimism than the above chart would suggest, with bullish sentiment sliding below 30% last week. This is a massive sea-change from what we just saw eight weeks ago when we had 9 out of every 10 market participants bullish and calls for $3,000/oz before year-end. As noted earlier, bullish sentiment on gold is now below its March lows during the COVID-19 Crash, and below its Q4 2019 lows, even though the metal just hit a new all-time high last quarter.

These readings are quite puzzling, as we would expect an asset class that is making all-time highs to have more bulls than bears, not 2 bears for every 1 bull like we have currently. Therefore, even though these readings have not headed into the buy zone (green shaded area), valuation is becoming a tailwind given where the metal is relative to past corrections (all-time highs vs. 6-month lows). Let's see if any technical damage has been done to the metal that might explain this heavy dose of fear:

Graphical user interface Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

Graphical user interface, application Description automatically generated

(Source: TC2000.com)

Moving over to the yearly chart above, we can see that gold blasted out of a 5-year base last year and has seen significant follow-through this year, slicing through the previous all-time highs like they weren't even there.

Since then, the metal is hanging out right near its previous all-time highs, and weakness below $1,900/oz was bought up almost immediately. This is not bearish price action by any means, and I see no reason to be bearish on the metal unless the metal breaks down through old support at $1,765/oz, which would be a significant change of character.

It's important to note that this does not rule out a further pullback in the metal and a final drop towards the $1,800/oz level. However, investors should be encouraged by the fact that gold is near becoming a hated trade if this correction continues.

So, what's the best course of action?

Chart, histogram Description automatically generated

(Source: TC2000.com)

I continue to remain long from an average price of $1,500/oz~ and I may consider adding to my position if we see signs that this short-term correction is over. For now, I continue to accumulate the best gold producers like Kirkland Lake Gold (KL) and Endeavour Mining (EDVMF) on weakness, as both have recently broken out of massive bases and are trading at less than 12x FY2021 annual EPS.

These are enormous discounts to the sector average despite strong double-digit earnings growth, and I would expect these stocks to trade 40% higher over the next 18 months. As long as the bulls remain overly pessimistic like they are currently, it's time to be open-minded to an end to this correction during Q4 for the metals. The best-case scenario would be a dip below 20% bulls on sentiment, but even at current sentiment levels, there is a possibility that the metal has already bottomed at $1,860/oz.

Disclosure: I am long GLD, KL, EDVMF

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 7 Best ETFs for the NEXT Bull Market What is the Cure for Stock Market Volatility? Chart of the Day- See Christian Tharp's Stocks Ready to Breakout
The SPDR Gold Shares (GLD) was trading at $177.47 per share on Tuesday afternoon, down $3.09 (-1.71%). Year-to-date, GLD has gained 24.19%, versus a 10.58% rise in the benchmark S&P 500 index during the same period. GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #9 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:GLD October 13, 2020 2:05pm

Another Tropical Storm Bails Out the Oil Market

NYSEA:USO October 12, 2020 9:16am

The Bull and Bear Case for Crude Oil

  • Demand remains weak- The distillate crack sends a signal
  • Significant production cuts were necessary to balance the market
  • Commodity prices are leaning higher
  • The global economic landscape points to inflationary pressures

Crude oil has been trading around its $40 pivot point on nearby NYMEX futures since early June. The price rose steadily from the April low, but ran out of upside steam at the $40 level and has spent the past months consolidating around that level.

In September, selling in the stock market and rising concerns over the global pandemic and US election caused the nearby NYMEX November crude oil futures contract to fall to a low of $36.58 on September 8. The price recovered back over $40, but last Tuesday, crude oil began to fall again. The price traded down to a low of $36.63 per barrel last week even though the dollar index was weakening.

The rising number of coronavirus and rising prospects for a second wave of infections sent a chill through the crude oil market. President Trump's hospitalization on Friday, October 2 was another sign that the pandemic continues to be a clear and present danger.

The winter season is typically a time of the year when oil prices are susceptible to downside corrections. Moreover, memories of negative prices in April when demand evaporated were weighing on the price of the energy commodity. However, there are some constructive signs on the horizon when it comes to the price of the energy commodity.

Bullish and bearish factors are pulling crude oil in opposite directions. The United States Crude Oil Fund (USO) moves higher and lower with the price of the futures that trade on the NYMEX division of the CME.

Demand remains weak- The distillate crack sends a signal

Nearby crude oil futures on NYMEX closed the third quarter of the year at $40.22 per barrel. Window dressing at the end of a quarter tends to push prices in the direction where market participants hold risk positions.

Therefore, the end of the quarter is a time when the market often pulls back the curtain on consensus opinions. Last Friday, the November contract settled. At $37.05 per barrel.

One of the problems facing the crude oil market is weak demand. The distillate crack spread reflects the margin for refining a barrel of crude oil into heating oil, jet and diesel fuels, and other distillate products.

While gasoline is a seasonal oil product that tends to display strength in the spring and summer and weakness in the late fall and winter, distillates are more year-round products. The refining margin for distillate products at the end of last week continued to reflect the weak demand for oil products.

Source: CQG

The monthly chart of the heating oil crack spread, which is a proxy for distillate products, highlights that it was trading at the $8.55 per barrel level as of Friday, October 2.

In September, the processing margin traded to its lowest level in a decade since March 2010 at $6.44 per barrel. The last time it traded that low during September was in 2009. The range in the spread in September 2019 was between $21.09 and $26.10. In 2018, it traded between $22.48 and $25.94 per barrel.

At below $9 per barrel at the end of last week, the level of the distillate crack spreads tells us that the demand for crude oil and oil products remains under pressure as we move into a seasonally weak period of the year during the winter months.

Significant production cuts were necessary to balance the market

It took significant production declines in the United States and worldwide to lift the price of crude oil to the $40 per barrel level over the past months. OPEC, Russia, and other world producers have kept the level of quotas at a 7.7 million barrel per day output but since August.

The group tapered the cut from 9.7 mbpd after oil recovered to over $40 per barrel. Last Thursday, the Energy Information Administration said that daily output in the US stood at 10.7 mbpd, unchanged from the previous week, but 18.3% below the peak level in March.

The decline in production was a necessary event for supporting the price of crude oil so it could move back to the $40 level after the price carnage in March and April 2020.

Commodity prices are leaning higher

Meanwhile, commodity prices have been moving higher over the past weeks and months. Gold rose to a record high at over $2000 per ounce and was just above the $1900 level on October 2. Silver was trading at over $24 per ounce after reaching a peak just shy of $30 in early August.

Copper was near $3 after trading down to just above $2 in March. Last week, grain prices rallied. Lumber traded to an all-time high at $1,000 per 1,000 board feet in September.

Crude oil is one of the leading commodities as it continues to power the world. Despite the growth in alternative energy products and move away from hydrocarbons, crude oil continues to be the raw material that powers the world. The oil market faces a magnetic pull from the commodity asset class.

The global economic landscape points to inflationary pressures

The US dollar is the benchmark pricing mechanism for most commodities, and crude oil is no exception. The trend in the dollar versus other currencies has been lower since March.

Source: CQG

As the weekly chart illustrates, the dollar index futures contract fell from 103.96 in March to a low of 91.725 on September 1. The recovery to the 94 level leaves the dollar index a lot closer to the low than the high over the past six months.

At the beginning of October, the trend in the dollar remains lower. A weaker dollar tends to support all commodity prices.

Central banks worldwide continue to follow an unprecedented level of accommodative monetary policy. The economic impact of the global pandemic has required a tidal wave of liquidity. Short-term interest rates are at historic lows, and quantitative easing is keeping rates low further out along the yield curve. The US Fed told markets they are prepared to tolerate an inflation rate above 2% to stimulate economic conditions.

Governments continue to provide stimulus in the form of bailouts, enhanced unemployment benefits, and helicopter payments as fiscal policies to confront the coronavirus. With the number of cases rising again during what looks like a serious second wave, the stimulus is likely to continue to flow. After borrowing a record $3 trillion in May, the US Treasury will likely need to borrow more before the end of 2020.

Stimulus and liquidity increase the money supply, which is inflationary. Many commodity prices have moved higher over the past months in a sign that some inflationary winds could be blowing through the economy. Moreover, the period following the financial crisis in 2008 led to higher commodity prices, which peaked in 2011 and 2012.

The stimulus a dozen years ago and accommodative policies fuel the rally in raw material prices. Albert Einstein said that the definition of insanity is doing the same thing repeatedly and expecting a different result. With stimulus at even higher levels in 2020, commodity prices are likely to continue to move higher over the coming years.

Crude oil faces bullish and bearish factors, that pulls the energy commodity in opposite directions at the start of the final quarter of 2020. The distillate crack spread is a negative sign for the market. However, a secular bull market in commodities could be the most potent force the oil market faces over the coming years. Expect lots of two-way price volatility over the coming weeks.

Want More Great Investing Ideas? Do NOT Buy Stocks Before the Election! 7 “Safe-Haven” Dividend Stocks for Turbulent Times Chart of the Day- See Christian Tharp’s Stocks Ready to Breakout
The United States Oil Fund (USO) was trading at $27.58 per share on Monday morning, up $1.23 (+4.67%). Year-to-date, USO has declined -73.09%, versus a 6.27% rise in the benchmark S&P 500 index during the same period. USO currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #64 of 112 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:USO October 5, 2020 10:06am

Gold: Bulls Remain In Control

It's been a volatile several weeks for investors in the precious metals space, but while silver (SLV) has slid more than 25% from its highs, gold (GLD) is down just 11%, with the metal now re-testing its multi-year breakout level near the $1,800/oz level.

Despite the fact that this has been a run-of-the-mill correction with minimal technical damage, we have seen a spike in fear among investors, with bullish sentiment coming in at 28% on Wednesday's close, implying that there are two bears for every one bull in the market.

This heavy dose of pessimism in the face of a very mild correction suggests that many of the bulls are uneasy during this pullback, and the best time to prepare one's shopping list is when the crowd shifts from overly optimistic to extremely pessimistic in a short period. There's no guarantee the lows are in just yet, but investors should be preparing their shopping lists.

Graphical user interface Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

Just eight weeks ago, we had investors crawling over each other to get into gold miners (GDX), with chants for $2,500/oz gold by year-end and $3,500/oz next year. This froth in the sector showed up in sentiment readings, which came in at 94% bulls in early August.

Generally, when sentiment readings get this elevated after an extended run in an asset class, it's time to start paring back or at least take one's cursor off the buy button temporarily.

However, we've seen a massive sea change over the past three weeks as bullish sentiment for gold has plunged from 94% bulls to 24% bulls as of last week's close. This same reading showed up at the depths of the COVID-19 Crash in March, while gold fell 15% from its highs.

Given that this correction has only been 11% from peak to trough, this would suggest that investors are more skittish despite a smaller magnitude correction, which is a bullish divergence.

Chart, histogram Description automatically generated

(Source: TC2000.com)

I am often a little cautious when sentiment heads below 30% bulls as panic among investors can often lead to more panic selling. This is because investors get scared in herds, and they tend to panic all at once, selling with abandon. However, the current situation in gold deviates from the norm.

This is because even though we have significant pessimism among investors, we don't have any real technical damage, and we're certainly not in a bull market.

In fact, gold just broke out to new all-time highs two months ago, as shown above, and is merely re-testing this breakout level in a very normal fashion.

As long as the bulls can defend this breakout area at $1,800/oz on a monthly close, I see no reason to second-guess the validity of the recent breakout for the gold.

Chart, line chart, histogram Description automatically generated

(Source: TC2000.com)

If we zoom in on this pullback on a weekly chart, we can see that gold looks to be building a shallow cup base against this level, and any further leg down in this pattern towards $1,800/oz would fill out this cup-shaped base.

A final leg down in this pattern, which would undercut last week's lows, would likely lead to complete capitulation in bullish sentiment and would significantly increase the probability of a bottom in the metal.

For now, I remain on the fence as to whether we've bottomed. However, the orderly fashion in which this pullback has occurred suggests that the worst of this correction is over from a price standpoint.

So, what's the best course of action?

I have not yet added to my position in gold, which I started at $1,450/oz during last year's breakout, but I continue to hold several gold miners like Kirkland Lake Gold (KL) and Pan American (PAAS). I don't see any reason to be aggressively buying just yet as we don't have confirmation of a bottom, but as long as the bulls can continue to defend $1,800/oz on a monthly close, I remain bullish medium-term and long-term on gold. Therefore, I would view any sharp pullbacks as low-risk buying opportunities, and I believe that any undercut of the lows at $1,860/oz for gold is likely to be merely a fake-out, and a final leg down to shake out the weakest hands.

The best time to buy is when investors start getting unnecessarily pessimistic, and we're finally near that juncture on gold. If we could see a final leg down close to $1,820/oz, this would complete this setup and offer the best buying opportunity in the past several months.

Disclosure: I am long GLD, KL, PAAS

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? Do NOT Buy Stocks Before the Election! 7 "Safe-Haven" Dividend Stocks for Turbulent Times Chart of the Day- See Christian Tharp's Stocks Ready to Breakout
The SPDR Gold Shares (GLD) was trading at $178.86 per share on Thursday afternoon, up $1.74 (+0.98%). Year-to-date, GLD has gained 25.16%, versus a 5.89% rise in the benchmark S&P 500 index during the same period. GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:GLD October 1, 2020 4:02pm

Oil Testing Lower End of Range

  • NYMEX crude oil trades around the $40 per barrel pivot point

  • Historical volatility rises in the oil market

  • The election should keep price variance high over the rest of 2020

Bullish and bearish factors continue to pull the price of crude oil in opposite directions. On the bullish side, central bank liquidity, government stimulus, a weak dollar, and the Fed's willingness to tolerate inflationary pressures support all commodity prices.

Moreover, OPEC, Russia, and other world producers are sticking with a 7.7 million barrel per day production cut. US production is falling. According to Baker Hughes, 183 oil rigs were operating in the US as of the week ending on September 25, up four from the previous weeks and 530 lower than at the end of September in 2019.

US inventories have been moving lower over the past weeks. Production cuts have gone a long way to balancing the fundamental equation for crude oil.

Meanwhile, the threat of weak demand remains on the horizon as the global pandemic continues to claim victims without a vaccine.

Europe appears to be suffering a second wave of the coronavirus. On September 8, the price of nearby crude oil futures fell to its lowest level since mid-June at $36.13 per barrel. Since then, it returned to the $40 level and was just above there at the end of last week but has dropped nearly $1.50 this week.

Aside from the virus and its impact on demand, the November 3 US election will determine the nation's policy path for energy production. We should expect continued price variance in the oil futures market over the coming weeks. The United States Oil Fund (USO) is the ETF product that moves higher and lower with the price of NYMEX crude oil futures.

NYMEX crude oil trades around the $40 per barrel pivot point

In August, active month November crude oil futures rose to a new high of $44.05 per barrel. On September 8, the energy commodity corrected to a low of $36.58, a decline of 17%.

Source: CQG

As the daily chart highlights, the price returned to the $40 level at the end of last week but has dropped $1.50 in the first two days of trading this week. Nearby NYMEX futures have been trading on either side of $40 since early June.

The risk-off action in the stock market and markets across all asset classes caused the total number of open long and short positions to decline from just below 2.109 million contracts on September 15 to 2.045 contracts at the end of last week.

The move higher in the metric came as the price of oil fell. Speculative shorts with memories of the price carnage earlier this year likely sold the energy commodity as the price declined. When it recovered to $40, they likely covered those risk positions.

Meanwhile, after dropping into oversold territory earlier this month, price momentum and relative strength indicators returned to either side of neutral readings at the end of last week.

$40 on nearby NYMEX crude oil futures has been a pivot point over the past four months.

Historical volatility rises in the oil market

Like many other markets, crude oil tends to take the stairs higher, and an elevator shaft lower when the price declines.

Source: CQG

The November futures contract plunged from a high of $54.14 on February 20 to a low of $24.43 on April 22 or 55%. Over the same period, the continuous contract fell from $54.50 to negative $40.32 per barrel. The elevator shaft ride was hair raising.

During the decline, daily historical volatility on the November contract rose to a high of over 130%, and the weekly metric reached over 170%. The chart shows that the price variance measure steadily declined, reaching a low below 16% in late August.

The recent correction lifted daily historical volatility to a high of over 54% in mid-September. The move back to the $40 level pushed it to the 34.5% level at the end of last week. The metric remains at an elevated level as the crude oil market searches for direction.

The fall and winter seasons tend to be a weak time of the year for energy prices. However, the oil market is likely in wait and see mode when it comes to the November 3 election in the US.

The election should keep price variance high over the rest of 2020

Republicans and Democrats in Washington DC do not agree on much these days. The recent passing of Supreme Court Justice Ruth Bader Ginsburg and President Trump's nomination of a replacement has only inflamed passions on both sides of the political aisle.

Sadly, the spirit of the Justice, who established a friendship with her political nemesis on the bench, Justice Scalia, is lost on the leaders who prepare to faceoff in the November 3 contest.

The two political parties agree on virtually nothing, creating a turbulent landscape that will determine the US's policy path for the coming years. US voters will decide the occupant of the White House as well as the majorities in the House of Representatives and the Senate.

One of the many issues is the future of US energy policy. President Trump and Republicans have supported a drill-baby-drill policy of energy independence.

The US has become the world's leading oil and gas producer. The Democrats favor limiting or banning fracking and far more regulations for the energy industry. The election will determine the future of US output, affecting the nation and world.

Expect lots of volatility in energy commodities over the coming weeks through the election and in the aftermath. OPEC, Russia, and other world oil producers will be watching, and their output policy could be a function of the US election results.

Last Thursday, the Energy Information Administration reported that US output stood at 10.7 million barrels of crude oil per day for the week ending September 18.

A shift in leadership in the US could reduce that number significantly, handing more power to the oil cartel and Russia. Time will tell if $40 remains a pivot point for the energy commodity or if 2021 will usher in a period where the crude oil market experiences additional volatility. The US election could decide the path of least resistance of the futures market over the coming months.

On the weekly chart, support stands at $34.36, the mid-June low, with resistance at $43.78, the late August high.

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The United States Oil Fund (USO) was trading at $27.47 per share on Tuesday afternoon, down $1.22 (-4.25%). Year-to-date, USO has declined -73.19%, versus a 4.75% rise in the benchmark S&P 500 index during the same period. USO currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #66 of 112 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:USO September 29, 2020 1:06pm

Crude Oil Recovers From the Precipice

  • A technical break- The next level of support is critical

  • Demand continues to be the markets' primary concern- Seasonality weighs on the price

  • Three reasons why crude oil came storming back from a higher low

After reaching an all-time low in the NYMEX WTI futures market and fell to the lowest level of this century in the Brent futures on the Intercontinental Exchange, the price recovered. Both WTI and Brent futures rose above the $40 per barrel level, where they spent months consolidating. After an elevator ride to the downside, the energy commodity took a slow staircase higher.

The price of nearby October NYMEX futures hit rock bottom at $23.26 on April 22. It first recovered to $40 on June 5 and continued to make higher lows and higher highs until August 26 when the price reached $43.78 per barrel. On September 4, the price slipped below the $40 per barrel level for the first time since July 31, but it returned to above that level at the end of last week.

Crude oil has not taken the elevator to the downside yet, but the memories of the price carnage from February through April remain in the minds of market participants. The price of crude oil failed after a four-month recovery but the moved was a head fake. Bullish and bearish factors are pulling the energy commodity in opposite directions. It feels like we may have seen the bottom in the recent correction, and there are compelling reasons why crude oil moved higher after the bearish period that ended with a higher bottom. The United States Crude Oil Fund (USO) tracks the price of NYMEX futures.

A technical break- The next level of support is critical

After making high lows and higher highs from late April through late August, crude oil corrected lower in early September.

Source: CQG

As the daily chart of October NYMEX futures highlights, September's price action interrupted the bullish price pattern. The price of crude oil fell to a low of $36.13 on September 8 but was back above the $40 level at the end of last week. The October contract remained above the $39 level from June 30 through September 8.

The next level of critical technical support in the crude oil market stands at the June 12 low of $35.25 per barrel. A move below that level could open a floodgate of technical selling. However, the short-term move sent crude oil into an oversold condition that resulted in a higher low.

Demand continues to be the markets' primary concern- Seasonality weighs on the price

The price carnage in the crude oil market that took nearby NYMEX WTI futures to a price below zero in April and Brent futures to the lowest price of this century came on the back of the evaporation of demand. As businesses closed, people sheltered in place, and life came to an unprecedented halt because of the spread of coronavirus, the demand for energy disappeared.

OPEC, Russia, and other world producers addressed the fundamental changes in the petroleum market with an unprecedented 9.7 million barrel per day production cut. As the price moved back over the $40 per barrel level, the group tapered the cut to 7.7 mbpd, where it remains. In the US, the low price led to an output decline from a record 13.1 mbpd in March 2020 to the 10.9 mbpd level as of the week ending on September 11. According to Baker Hughes, the number of oil rigs operating in the US fell from 719 to 179 over the past year as of September 11.

While adjustments in supplies provided some balance to crude oil's fundamental equation, the demand side will drive the price action over the coming weeks and months. The requirements for petroleum will be a function of the state of the global pandemic over the fall and winter months.

Meanwhile, crude oil is moving into a time of the year when demand tends to fall naturally. Gasoline requirements tend to decline during the winter season, which often weighs on the price of the oil product and its input, crude oil.

Three reasons why crude oil came storming back from a higher low

When crude oil fell below the $40 per barrel level, the memories of price carnage in April are lifting bearish sentiment. However, three significant factors support the price of the energy commodity as we move towards the end of 2020.

The dollar remains the benchmark pricing mechanism for crude oil and most commodities. A falling dollar tends to support prices.

Source: CQG

As the weekly chart of the US dollar index illustrates, it has been falling since March 2020 and broke below its technical support level at the September 2018 low of 93.395. At the end of last week, the index remained below that level, which is bullish for commodity prices, and crude oil is no exception.

The second supportive factor is the tidal wave of central bank liquidity and government stimulus in 2020. The unprecedented flow is inflationary, and the Fed recently told the world it is prepared to tolerate inflation above the 2% target rate.

Finally, producers worldwide have already demonstrated a commitment to support the crude oil price via production cuts. Moreover, the Middle East remains an arena of the world that could cause price spikes if Iran begins to act up over the coming weeks or months.

I believe that crude oil will make a higher high over the coming weeks and months. The recent move in the oil market reflected concerns that a significant resurgence of coronavirus will cause another spike lower. Like in late April, that would likely be another compelling buying opportunity in the energy commodity that powers the world.

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The United States Oil Fund (USO) was trading at $28.22 per share on Monday afternoon, down $0.84 (-2.89%). Year-to-date, USO has declined -72.46%, versus a 2.10% rise in the benchmark S&P 500 index during the same period. USO currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #66 of 112 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:USO September 21, 2020 3:54pm

Why are Natural Gas Prices Plunging Today?

NYSE:UNG September 17, 2020 12:36pm

Silver: Sentiment Continues To Be A Headwind

It's been a frustrating couple of months for silver (SLV) investors as the $50/oz silver targets have been swept under the rug, and the metal has been unable to gain any traction the past six weeks.

While SLV entered the month of August as the best performing ETF, it's been dethroned by the Solar ETF (TAN), falling to 7th out of the top 100 ETFs. This significant shift in performance is likely due to how crowded the silver trade was as the metal approached $30.00/oz in early August.

Unfortunately, this hasn't changed much despite the 20% plus decline silver endured from its highs. Therefore, while the fundamentals and long-term picture remain bullish, this consolidation could last a while longer until some bulls start capitulating. Let's take a closer look below:

A close up of a map Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

As we can see from the chart above, silver spent nearly a month in the extreme optimism zone (red shaded area), which has led to negative returns for the metal over the following 1 month and 2 months in over 80% of occasions.

Thus far, this time is not looking different as silver finished the 1 month from the peak with a (-) 5% return, and is on track for a negative 2-month return if it cannot head back above its highs near $28.00/oz. Unfortunately, while a sharp decline of this magnitude would typically result in a complete reset of sentiment, we haven't seen this yet.

Instead, bullish sentiment for silver continues to hover near 70% bulls, suggesting more than two bulls for every bear in the market. While I have no issue with a reading like this if silver is rallying sharply, as we'd expect bulls to outweigh bears on a daily basis in an up-trending market, it's unusual to see sentiment this high after a 20% drop in an asset class. Therefore, while I believe that the $23.50/oz low in silver should hold, I would be shocked if the metal made new highs before the election.

This is because sentiment continues to remain a headwind, and asset classes typically consolidate and rarely make new highs following a steep correction until sentiment has completely reset.

A screenshot of a video game Description automatically generated

(Source: TC2000.com)

If we look at the daily chart above, the resistance I outlined at $27.80/oz continues to be a brick wall, and there's no reason to believe the correction is over until this area is reclaimed on a weekly close.

For now, the bears have successfully defended this area on several tests, and there's no reason to load up on silver or silver miners until this changes. The good news is that the metal has very strong support at $21.50/oz to $23.50/oz, so any pullbacks to this area should find strong buying support.

The other silver lining is that this consolidation allows the 200-day moving average (yellow line) to play catch-up, and it should be at $23.00/oz by November. Generally, the 200-day moving average is a floor for an asset class during the early innings of a new bull market.

While many investors in the metals space pointed to loose monetary policy and continued stimulus as reasons for the metals hitting new all-time highs in the fall, I believe that we might have to wait until winter for this to happen.

This is because even though the fundamentals are clearly a tailwind with inflation being the likely result of this loose monetary policy, excessive bullish sentiment is a headwind, and sentiment tends to rule over the short-term. Therefore, investors should be selective in buying their silver miners, and only buy on nasty down days, and refrain from chasing rallies as this consolidation could last a while longer.

For now, I remain bullish on silver and silver miners (SIL) long-term, but I am neutral short-term until sentiment cools off. Therefore, while I continue to hold existing positions in Silvercrest (SILV) and Pan American Silver (PAAS), I have no plans to get aggressive just yet.

Disclosure: I am long GLD, SILV, PAAS

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 7 Best ETFs for the NEXT Bull Market Is the Stock Market Correction Over? Chart of the Day- See the Stocks Ready to Breakout
The iShares Silver Trust (SLV) was trading at $25.04 per share on Thursday morning, down $0.19 (-0.75%). Year-to-date, SLV has gained 50.12%, versus a 5.81% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #21 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:SLV September 17, 2020 11:12am

Natural Gas: Important Levels Traders Should Monitor for Clues

 
  • A bullish reversal on September 4

  • Natural gas fails to make a higher high

  • Another pre-peak season selloff could set the stage for the winter rally

 

Natural gas can be one of the most volatile commodities that trade on the futures exchange. Since the NYMEX introduced futures on natural gas for delivery at the Henry Hub in Erath, Louisiana, in 1990, the price has traded from a low of $1.02 to a high of $15.65 per MMBtu. The last time the futures traded above $3 per MMBtu was back in January 2019.

The United States is the world's leading producer of natural gas. Massive reserves of the energy commodity in the Marcellus and Utica shales and technological advances in fracking have increased output. While the supply side of the fundamental equation has grown, natural gas has replaced coal as the input in power generation. Moreover, natural gas in liquid form now travels by ocean vessel, expanding the addressable market by creating an export market beyond traditional delivery points dependent on pipeline networks.

The natural gas market has expanded dramatically over the past years, but the price action reflects the supplies rather than the growing demand. Natural gas fell to its lowest price in a quarter-of-a-century in late June, but the continuous contract price rose by over 90% by August as it rose from $1.432 to the most recent high at $2.743 per MMBtu. Since the August high, the price has been backing off once again. The United States Natural Gas ETF product (UNG) moves higher and lower with the NYMEX futures price.

A bullish reversal on September 4

A bullish reversal in a futures market can be a powerful technical pattern that pushes a commodity's price higher. When the price of a futures contract moves to a lower level than the previous session and settled above the prior session's high, it is often a signal that higher prices are on the horizon. On September 4, the price action on the nearby NYMEX October natural gas futures contract caused the constructive pattern on the daily chart. 

Source: CQG

As the daily chart highlights, the price range in October futures was from $2.456 to $2.567 per MMBtu on September 3. The following day, the price fell to a low of $2.431 and settled at $2.588 per MMBtu creating the bullish pattern on Friday, September 4. Meanwhile, the volatile natural gas market ignored the pattern as it declined below the $2.25 level last week.

Natural gas fails to make a higher high

The failure of natural gas to follow through on the upside after the price action on September 4 was likely a function of technical and fundamental factors. From a supply and demand perspective, natural gas inventories in storage across the United States remain at significantly higher levels than last year and the five-year average as of the week ending on September 4.

Moreover, the recent rise to a high of $2.743 on August 28 came as Hurricane Laura was bearing down on the states bordering on the Gulf of Mexico. The delivery point for NYMEX natural gas in Erath, Louisiana, is near the Gulf.

The storm caused natural gas to rise to its highest price level of 2020, but it did not challenge the critical level of technical resistance at the November 2019 high.

Source: CQG

The weekly chart highlights the failure to reach the $2.905 per MMBtu level, creating a lower high in the futures market. The total number of open long and short positions in the natural gas futures market edged lower during the rally that took the price from the late June low of $1.432 to the late August high of $2.743 per MMBtu.

Open interest declined from the 1.32 million to the 1.24 million contract level during the recovery rally or over 6%. Falling open interest as the price of a futures contract rises is not typically a technical validation of a bullish trend. At the end of last week, weekly price momentum was crossing lower from overbought territory.

The relative strength indicator turned to the downside and was heading for a neutral reading on September 11. Meanwhile, weekly historical volatility moved from 72.84% in late August to below 70% last week. The technical picture for natural gas supports a continuation of the price correction since last month's 2020 peak.

Another pre-peak season selloff could set the stage for the winter rally

With approximately ten weeks to go before the start of the 2020/2021 withdrawal season, where natural gas inventories start to decline, there is still time for the price to move to a higher low. I do not expect natural gas to challenge the late June continuous contract low of $1.432, nor do I see a test of the $1.70 level, the low in the active month NYMEX October contract.

However, a move to $2 could be on the horizon given the market's technical state. The fundamentals when it comes to inventory levels that are far higher than last year, the five-year average, and have the potential to move above four trillion cubic feet for the third time since the Energy Information Administration reported the data.

Natural gas is coming into the time of the year when the energy commodity tends to experience seasonal price strength. The peak season January 2021 contract was trading above the late 2019 high at the end of last week.

Source: CQG

The chart shows that natural gas for delivery in January 2021 was trading at $3.29 per MMBtu at the end of last week, 38.5 cents or 13.3% above the peak price from November 2019, even though inventories are significantly higher going into the upcoming winter season this year.

Technical support for October natural gas futures is at the $2.20 and $2.00 per MMBtu levels. We were heading for a challenge of these downside levels at the end of last week after the energy commodity made a lower high on the weekly chart and failed to follow through after the bullish reversal pattern on September 4.

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The United States Natural Gas Fund L.P. (UNG) was trading at $12.55 per share on Tuesday morning, up $0.15 (+1.21%). Year-to-date, UNG has declined -25.56%, versus a 7.16% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #70 of 112 ETFs in the Commodity ETFs category.
NYSE:UNG September 15, 2020 10:10am

Gold: Bulls In Control

It's been a frustrating past month for investors in the gold market (GLD) as the metal broke out to new all-time highs in early August, but it has since given up the majority of its gains.

This likely comes as confusing to many gold investors as everyone from technical analysts to the perennial gold bugs was sharing charts of why gold could finish the year above $3,000/oz in August, and some even being ambitious enough to throw 2021 targets of $5,000/oz on the metal.

Unfortunately, when the majority are looking for targets that are nearly double current prices, it's typically time to pare back exposure, or at a minimum not be coerced into buying.

Since then, we've seen the metal slide 10% from its highs, and the sentiment is finally beginning to trend lower, suggesting that we are seeing some frustration among the bull cap. The good news is that while the bulls are getting frustrated, zero damage has been inflicted on gold's technical chart.

A picture containing clock Description automatically generated

(Source: TC2000.com)

As we can see in the chart above, gold broke out of a massive cup base just last month, and the metal is on track to put in a new yearly closing high. This couldn't be a more bullish development on a long-term basis as gold is one of the only assets breaking out of a 7+ year base.

However, we often see volatility around these big levels short-term as it's at all-time lows and all-time highs that we often see the most extreme levels of sentiment. If we look at the chart below, this was exactly what we saw, as bullish sentiment soared above 90% in August and remained there for 2 weeks.

Typically, time spent above 90% bullish is a reason to be cautious as rallies while sentiment resides in this danger zone are ephemeral. Fortunately, this 10% pullback in gold has finally allowed the metal to cool off from a sentiment standpoint, as it came near testing the 50% bulls level despite gold being at all-time highs.

This is a contrarian bullish indicator when an asset class is at all-time highs, as we would expect at least 75% of investors to be bullish.

However, drawn-out corrections in both time and price often make investors second guess their thesis, and this is what it looks like we're seeing here.

A picture containing screenshot Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

The good news is that despite this improvement in sentiment to near 60% bulls, the daily chart for gold continues to hold up very well.

As we can see in the chart below, gold is now re-testing the top of its channel which it's spent the past two years trading within, and an acceleration outside of a channel often leads to a more accelerated uptrend going forward.

If gold were to fall back inside this channel and break below $1,850/oz, this would have been a negative development.

However, to date, the bulls are playing strong defense at the top of this channel, evidenced by strong weekly closes and sharp reversals on any dip inside this zone. As long as the bulls can continue to defend $1,850/oz, I see no reason to be skeptical of the recent breakout to new all-time highs.

A picture containing clock Description automatically generated

(Source: TC2000.com)

While I typically prefer for bullish sentiment to dip to below 25% below starting new positions, I believe this time could be an exception for gold, because of the all-time high we saw.

If this had been a 20% plus correction for gold or gold was below its 200-day moving average, I would be alarmed at the relatively balanced sentiment levels with 60% bulls and 40% bears.

However, given that gold is at an all-time high, we may see a new floor for sentiment near 50% bulls, coinciding with the shift we've seen from a moderately upsloping channel to a move outside that channel recently.

Therefore, while I open to the fact that gold could re-test its low at $1,850/oz, I continue to add to positions in several gold miners like Kirkland Lake Gold (KL), Royal Gold (RGLD), and Probe Mines (PROBF).

The recent weakness in gold has certainly been frustrating for those that bought the breakout in gold or those focused on shorter time-frames, but the bulls remain in control of the big picture here.

Therefore, while I don't see any reason to be overly aggressive here and I have no plans to add to my gold position just yet, I do see a case for holding miners, which are trading at less than 50% of the price to cash-flow ratios that they were trading at last time gold was above $1,800/oz.

While volatility is certainly possible over the coming weeks in the metals markets, especially with another Fed Meeting on deck, I would view any corrections in gold that hold above $1,850/oz as noise and buying opportunities to scoop up miners that remain undervalued ahead of their Q3 Earnings reports in late October.

Disclosure: I am long KL, RGLD, PROBF, GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 7 Best ETFs for the NEXT Bull Market Is the Stock Market Correction Over? Chart of the Day- See the Stocks Ready to Breakout
The SPDR Gold Shares (GLD) rose $0.68 (+0.37%) in premarket trading Tuesday. Year-to-date, GLD has gained 29.39%, versus a 7.14% rise in the benchmark S&P 500 index during the same period. GLD currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:GLD September 15, 2020 9:46am

The Stock Market Weighs on Crude Oil and Opens A Floodgate

NYSE:USO September 14, 2020 9:19am

Silver: Bulls REMAIN in Control

It's been a frustrating month for investors in the silver (SLV) market as we saw the commodity plunge 20% just as all of the metals bugs were busy hiking their year-end forecasts to $50.00/oz silver.

While many of these price targets could be achievable long-term for the metal, the last time you want to see these targets is after a parabolic rally, as it typically suggests that everyone is now wildly bullish on the metal. This was confirmed by the fact that silver went onto a sentiment sell signal in early August, and it remains on a sell signal as of Wednesday's close.

Fortunately, the good news is that the silver to gold ratio remains on a bullish stance, and silver looks to be consolidating above its recent multi-year breakout, a completely normal reaction after a parabolic rally. Let's take a closer look below:

A picture containing water, person Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

One of the reasons I've been neutral to bearish on SLV since early August has been sentiment, as sentiment ultimately rules in the short-term when it comes to markets.

As we entered the month of August, we had several days with bullish sentiment sitting above 95% bulls, and we had the long-term moving average for bullish sentiment entering the danger zone (red box) above. While we remain in this danger zone as of Wednesday's close, we are trending in the right direction, with silver sentiment dropping to 60% bulls last week.

While this does not suggest a low is in, it is a step in the right direction. Preferably I would like to see silver sentiment fall beneath 40% for a day or two to suggest that speculators are capitulating and giving up their positions, but this is a step in the right direction for the time being.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

However, while sentiment continues to be a minor headwind here for silver, the monthly chart is the most bullish it's looked since early 2011 with a massive multi-year breakout occurring in July. Generally, the stronger a breakout is, the more weight it holds, and the fact that silver exploded out of its base suggests a high probability that this is a real move.

The other piece of good news is that this correction has been very normal to date, with no retracement anywhere near the breakout level of $22.00/oz~ thus far. Based on the current correction, the most likely path looks to be a new base built between $23.00/oz - $29.00/oz, and a possible breakout later this year.

However, if the metal does break down, I would expect the breakout area near $22.00/oz to provide support. Therefore, regardless of how this correction shakes out, I remain bullish long-term as long as $22.00/oz is defended.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

The other indicator that corroborates this view is the SLV to GLD ratio, which is back above its long-term moving average last month and has also broken its downtrend line.

The last time this occurred was late in 2010, and silver promptly doubled over the next year after reclaiming this moving average. If this were to play out similarly, we would see a move to $38.00/oz silver based on silver. This is not a prediction, and it's based on a small sample size, so it should be taken with a grain of salt. However, this is certainly possible within 12 months, with both the monthly chart and the silver/gold ratio on a bullish stance.

So, what's the best course of action here?

While I am not long silver as I am on the fence about how this correction unfolds, I do believe that we saw the worst of the correction with the drop last month to the $24.00/oz level. However, while we have seen the worst from a price standpoint, we may need more of a correction from a time standpoint to shake out more weak hands.

This would allow bullish sentiment to reset and exit the danger zone, and it would provide fuel for another leg higher with some bulls moving to the sidelines. Given that I'm unsure how this correction plays out for silver, I am focusing on silver miners instead and added new positions in Pan American Silver (PAAS) PAAS and Fortuna Silver Mines (FSM) last week.

These two silver miners have some of the strongest earnings growth rates in the sector and should perform well regardless of where silver goes. As long as silver stays above $22.00/oz on a monthly close, I will maintain my bullish long-term view.

Disclosure: I am long PAAS, FSM

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 7 Best ETFs for the NEXT Bull Market Will Stocks Fall into Historical September Slump? 9 "BUY THE DIP" Growth Stocks for 2020
The iShares Silver Trust (SLV) was trading at $25.19 per share on Thursday afternoon, up $0.01 (+0.04%). Year-to-date, SLV has gained 51.02%, versus a 6.35% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:SLV September 10, 2020 1:51pm

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