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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.

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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

With Winter Approaching, is Now the Time to Buy Natural Gas?

NYSE:UNG September 10, 2020 12:19pm

Natural Gas- A Pullback as Expected- Then A Bullish Reversal

NYSE:UNG September 9, 2020 9:49am

Crude Oil Down Over 10% In Past Week

  • WTI falls through the bottom end of its trading range

  • Brent rolls from October to November futures

  • Bullish and bearish factors continue to grip the oil market- Inventories and production point higher

Trading crude oil and looking for another significant move to the up or downside had been like watching paint dry since June. The decline to an all-time low in NYMEX WTI futures and the lowest price of this century in Brent futures gave way to a recovery that took the price of the energy commodity to over the $40 per barrel level. Nearby NYMEX futures first reached $40 in early June. Since then, the market had gone into a volatility coma, but the price settled below the level at the end of last week.

Weekly historical volatility on the WTI futures was around 20% to 25% level at the start of 2020. In May, it rose to over 172%. At the end of last week, the metric was back at 25%.

Bullish and bearish factors are pulling the price of the energy commodity in opposite directions as of September 4. Demand remains a critical concern, but production declines have gone a long way to balance the petroleum market's fundamental equation. While the trend remains higher, crude oil tends to take the stairs higher and an elevator shaft to the downside over time.

The slide in the US stock market last week was a warning sign for the petroleum market. The United States Oil Fund (USO) tracks the NYMEX WTI futures price, while the United States Brent Oil Fund (BNO) follows Brent futures on the Intercontinental Exchange.

WTI falls through the bottom end of its trading range

Crude oil took an elevator shaft to the downside earlier this year before recovering to over $40 per barrel. The bullish trend was in question at the end of last week.

The ascent of the energy commodity had been a slow crawl to the upside, but the decline below $40 on the back of weakness in the US stock market ked to a test of technical support at $39, the double-bottom low, which failed to hold.  

Source: CQG

As the daily chart of NYMEX October crude oil futures highlights, the price settled at the $39.77 per barrel level at the end of last week. On Tuesday, September 8, the price was trading around the $36.30 level. The total number of open long and short positions has been flatlining at around the two million contract level over the past two months. The correction from the August 26 high of $43.78 caused price momentum and relative strength indicators to fall below neutral readings to oversold conditions.

Since June 30, the price range had been from $39.00 to $43.78 per barrel. The $39 low on July 10 and July 30 created a double-bottom formation on the daily chart, which was critical support. The narrow trading range pushed daily historical volatility to 30% at the end of last week. The metric reached a high of over 153.5% in March. On September 8, it was over 47%.

The midpoint over the past two months is at $41.39 per barrel. The price moved below the lows in a short-term technical breakdown in the energy commodity.

Brent rolls from October to November futures

On the final day of August, Brent futures on the Intercontinental Exchange rolled from October to November. Brent is the pricing mechanism for approximately two-thirds of the world's crude oil, including the petroleum from the Middle East. The region is home to over half the world's crude oil reserves.

 

Source: Barchart

The chart shows that Brent futures have traded in a range from $40.35 to $46.59 since late June. The trend in the Brent futures was higher, with a midpoint at $43.47. However, at below $40 on September 8, Brent futures fell through the bottom end of the band over the past two months. Brent and WTI futures crawled higher, as fundamentals were supportive of the price. The correction in the stock market caused a return of the elevator ride lower at the start of this week.

Bullish and bearish factors continue to grip the oil market- Inventories and production point higher

Crude oil never away on the upside after reaching the $40 per barrel level. The memory of the price carnage on the downside that led to the April low of a negative price for WTI and the lowest price of this century for Brent continues to weigh on the price action.

Fears that demand could evaporate because of a resurgence of COVID-19 during the winter months is the primary bearish factor hanging over the market. The recent weakness in the stock market weighed on the price of the energy commodity. Meanwhile, the winter months tend to be a bearish seasonal period for the energy commodity.

On the bullish side of the oil market, production and inventories have been highly supportive over the past weeks. OPEC, Russia, and other producers continue to maintain a 7.7 million barrel per day cut, after tapering the level from 9.7 mbpd in August. US output has dropped, with the Energy Information Administration reporting 9.7 mbpd for the week ending on August 28.

The level of US production declined 26% from record high level in March 2020. In the latest report, the EIA said production fell by 1.1 mbpd. The decline was because of hurricane Laura's impact on petroleum production in the states on the Gulf of Mexico.

At the same time, the American Petroleum Institute and Energy Information Administration reported the sixth straight week of falling inventories for the week ending on August 28.

Source: API

Since the week ending July 24, crude oil stocks have dropped by 34.965 million barrels. Gasoline inventories moved 9.128 million barrels lower, and distillate stocks rose by only 0.933 million barrels.

Source: EIA

Over the same period, the EIA reported a decline of 38.2 million barrels of crude oil. Gasoline inventories moved 11.781 million barrels lower, and distillate stocks dropped by 0.300 million barrels.

The inventory data in the US continues to support the price of crude oil futures though they fell below the $40 per barrel at the end of last week on the NYMEX October futures contract. The November Brent futures at under $40 have some support from the decline in OPEC, Russian, and other producers' output.

Crude oil's bullish trend turned lower over the recent sessions. The memories of the decline that took prices to lows in April and concerns over demand continue to prevent the price from moving appreciably higher. Crude oil was heading for a test of the mid-June $35.25 per barrel level on October NYMEX futures, the mid-June low. A move below there could open the floodgates on the downside.

The settlement at the lowest price since June 26 on the October WTI futures contract was a warning sign for the energy commodity last week. On Tuesday, it followed through on the downside, rekindling fears that another period of price carnage could be on the horizon.

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The United States Oil Fund (USO) was trading at $26.73 per share on Tuesday afternoon, down $1.78 (-6.24%). Year-to-date, USO has declined -73.92%, versus a 5.29% 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 #69 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 8, 2020 2:49pm

Silver: Time for Patience

It's been a volatile couple of weeks for investors in silver (SLV) following the metal's 13% decline in mid-August, which put a dent in its upside momentum. The significant reversal at the $30.00/oz level has pushed the momentum in favor of the bears for the time being, and often corrections after parabolic rallies like this take at least eight to sixteen weeks to complete.

This is because it takes a while for speculators to lose interest in an asset class and sell out of disgust after they've just witnessed a powerful advance.

The good news is that while this correction might be frustrating for the bulls, especially those looking for $50.00/oz by year-end, the long-term picture will remain bullish as long as the $23.50/oz level is defended on a weekly close. Let's take a closer look at the weight of evidence below:

A picture containing outdoor, water, person Description automatically generated

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

If we begin with bullish sentiment for silver, it's been a wild year, as we saw sentiment drop to just 4% bulls in early March before sentiment rose to a new multi-year high at 97% bulls three weeks ago. These massive shifts in sentiment in a short period (lows to highs) often mark tops for a commodity, hence why there was elevated risk in the metal a few weeks ago when speculators were elbowing each other to get into the trade.

While short-term sentiment has cooled off a little with the violent drop on August 11th, the long-term moving average for bullish sentiment remains in the cautious zone at 82% bulls. This suggests that while bounces are possible and we are making progress on unwinding this crowded trade, it will likely be very difficult for silver to make new highs before October.

A screenshot of a cell phone Description automatically generated

(Source: TC2000.com)

As I noted a few weeks ago, silver was printing several caution signals in a row (orange bars) with the metal more than 30% above its acceleration bands heading into mid-August. While this rally continued a little longer than I expected with five consecutive caution signals, the gains from these types of advances are typically ephemeral, and this is precisely what we saw.

Not only was this whole advance retraced entirely, but it only took one day for this to occur. Fortunately, we are no longer on caution bars despite trading at similar levels as the overbought readings have subsided. However, we still remain extended on a short-term basis, more than 25% above the metal's long-term moving average.

A picture containing clock Description automatically generated

(Source: TC2000.com)

Finally, if we look at key support and resistance levels above, we can see strong support at $21.50/oz near the multi-year breakout area and strong resistance at $27.80/oz.

While the metal has made a few attempts to get above this resistance level at $27.80/oz, a clean weekly close above this level will be required to remove this resistance and increase the probability that the correction is over. Therefore, while we've seen the worst of the correction with the dip to $23.50/oz from a price standpoint, the correction has not satisfied the time element, so I see no reason to rush into the miners or silver near $28.00/oz.

So, what's the best course of action?

Given that silver has registered a massive monthly breakout above $21.50/oz, the bulls will remain in complete control of the bigger picture as long as they defend $23.50/oz. However, I prefer to buy and silver when we see excessive fear in the market, or at a bare minimum, indecision.

After a 120% rally in 100 days off of the March lows, it's going to take some more choppy price action to put make the bulls begin to doubt this rally.

Currently, I am keeping a close eye on Pan American Silver (PAAS) and Silvercrest Metals (SILV) to add to my position, and I would get very interested in adding to silver if it came down near $24.00/oz to create a double bottom. At this juncture, I see no reason to aggressively add to metals or miners as there is minimal evidence that this correction is complete just yet.  Therefore, patience is required here, in my opinion, as the lowest-risk entry points have still not arrived yet.

Disclosure: I am long PAAS, SILV

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 Beware Stocks in September? 9 "BUY THE DIP" Growth Stocks for 2020
The iShares Silver Trust (SLV) was trading at $25.00 per share on Thursday afternoon, down $0.55 (-2.15%). Year-to-date, SLV has gained 49.88%, versus a 8.84% 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 3, 2020 1:01pm

Natural Gas: Important Levels to Watch

NYSE:UNG September 3, 2020 11:47am

Gold: Bulls Remain In Control

It's been an eventful couple of weeks for the yellow metal (GLD) as gold's rally was derailed by a 7% daily drop in mid-August, and a drop to nearly $1,850/oz the following day. However, while this has certainly put a little doubt in some market participants' minds, it's worth noting that zero technical damage has been done to date.

This is because gold continues to trade above its key monthly moving averages, and the metal remains above its all-time high breakout made in late July.

While bullish sentiment continues to be a minor headwind to future rallies, I see no reason to give up on the metal here, and I ultimately expect that we'll see another set of new all-time highs before year-end.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

The gold price's recent correction has put what looks like a severe dent in the Gold vs. S&P-500 (SPY) ratio, with the ratio making a lower low and a lower high since April.

However, while we certainly have seen a slight departure from the strong uptrend we saw in Q1, it's worth noting that this ratio remains above its key moving averages despite being up against one of the strongest rallies in history in the S&P-500.

Currently, the S&P-500 is up over 60% in less than 115 trading days. The fact that the Gold vs. SPX ratio has held its ground regardless of this near parabolic advance is incredible.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

As we can see, if we take a bigger picture view, this ratio finally turned in early 2020 and reclaimed a multi-year resistance level (white line) dating back to 2011.

This was a significant change in character for the bulls and suggested that it was time to begin adding some gold exposure and miner exposure to one's portfolio.

However, even though this pullback has pushed the ratio down from 0.65 to 0.56 since April, the ratio remains above the short-term momentum line (green line) and the long-term moving average.

Notably, the long-term moving average is turning and finally assuming a positive slope. Therefore, while this correction in the ratio could go on a little longer, I see no reason to lose faith in this ratio's ability to maintain its bullish posture. Based on this, an allocation to gold and miners continues to make sense.

A picture containing clock Description automatically generated

(Source: TC2000.com)

If we zoom into the 4-hour chart below, we are clearly wading through a short-term correction, but the correction structure has been very normal. Other than the one-day plunge on August 11th that brought with it a significant increase in volatility, gold has been carving out a bullish continuation pattern since.

While there's no reason to believe that gold is going to head higher in a straight line from here, this pattern suggests that further consolidation would not be surprising, but the worst-case low for this correction is likely to be $1,800/oz.

Therefore, any re-test of the August 11th low or undercut of this low would be an area to look to add some exposure incrementally.

A picture containing screenshot, clock Description automatically generated

(Source: TC2000.com)

If we zoom out to a big picture view, gold couldn't look more bullish, as it's just emerged from a nearly 10-year breakout to new all-time highs.

Currently, there are no asset classes with a breakout of this magnitude to new all-time highs, suggesting that for investors looking to get in on the ground floor of a new bull market, gold is the most suitable place to be parking some of one's money.

As long as the bulls can continue to defend the $1,890/oz level on a quarterly closing basis (September close), this breakout will remain valid.

While some investors might be getting nervous that we've seen the top in gold or that much lower prices are ahead, I don't see any reason to be worried here.

While it's possible that the metal could consolidate in the $1,795/oz to $1,2045/oz range for the next month or two to reset bullish sentiment, ultimately, I expect the metal to make new all-time highs before year-end.

Therefore, buying the metal today near $2,000/oz might not be wise; any sharp pullbacks should provide low-risk buying opportunities.

For now, I have no plans to add to my position in gold, but I remain long several miners, and long gold from $1,450/oz last year. As long as gold continues to stay above $1,750/oz, I plan to stick with my position.

Disclosure: I am long GLD, AU, KL, SILV

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 Beware Stocks in September? 9 "BUY THE DIP" Growth Stocks for 2020
The SPDR Gold Shares (GLD) was trading at $185.25 per share on Tuesday morning, up $0.42 (+0.23%). Year-to-date, GLD has gained 29.64%, versus a 10.19% 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 1, 2020 11:10am

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