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Is the breakout in crude oil leading to $60 a barrel?

Cory
December 12, 2016

Doc is with us today and we take a look at the crude oil chart as well as the moves in gold today. With crude breaking out and more countries apparently on board with production cuts 2017 is setting up to be a better year for the commodity. As for gold, we are seeing some buying entering the market and open interest is climbing as well. There is the potential of a nice bounce on the back on the Fed meeting.

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Discussion
61 Comments
    CFS
    Dec 12, 2016 12:55 AM

    The one factor that is rarely discussed with regard to oil is how as price changes so does the amount of hedging that occurs. I believe that as the price approaches $60 there will be increased amounts of forward selling (hedging) as frackers that are profitable above $50 lock in future profits. Likewise for off-shore oil production.

    CFS
    Dec 12, 2016 12:58 AM

    Given that the election of Trump means that relations with Russia will be considerably improved, it might be worthwhile to look at American oil-drillers and shippers that do business with Russia.

    Dec 12, 2016 12:12 AM

    Don’t know how XOP dropped so hard. It was 45.20 in the premarket and now 43.20.

    Dec 12, 2016 12:42 AM

    In Chats, Silver ‘Mafia’ Traders Flexed Muscle, Drew Blades

    Until 2014, the global reference price for silver and other precious metals was set each day in a phone call or at a meeting with traders at a handful of banks, a century-old ritual known as the London Fix. Deutsche Bank AG was one of the banks.

    As early as 2008, one of its traders began conspiring with a trader at Fortis Bank, via electronic chat, to manipulate prices, according to court documents filed by silver investors seeking to broaden their claims that the market was rigged.

    https://www.bloomberg.com/news/articles/2016-12-12/in-chats-silver-mafia-traders-flexed-muscle-drew-blades

    Dec 12, 2016 12:55 AM

    Oil peaked last night at 54.50 and has come down to 52.50 and should be turning up soon.

    Dec 12, 2016 12:18 PM

    Lots of people think this is going to play out like last year. I can’t see that happening. Instead I expect a huge spike in the stock market and interest rates and a large drop in gold. 21000+ probably in the Dow. Then TPTB will let the stock market cool off for a while as they go sideways and correct 3-5%. This will give them cover to rally bonds back up, while gold will get a meager bounce. That’s my cynical outlook for the near term.

    Dec 12, 2016 12:25 PM

    Great comments from Doc. I wonder if he could give us some levels in the price of gold that he is looking for.

      Dec 12, 2016 12:08 PM

      Silver, when gold bounces (and I think it’s soon), I see it moving up to the low 1200’s—about 1205-1215. Then I’ll get a better feel about it’s next move. The odds are we move down again into Feb./March.

    Dec 12, 2016 12:29 PM
    Dec 12, 2016 12:32 PM

    GLd daily stochastics have been oversold for over 6 weeks now. I am not sure if anything like this has ever occurred. GLd is literally trading like a something with infinite supply.

    Dec 12, 2016 12:51 PM

    The daily MACD is poised for a nasty spike down in the miners and gold. GLd is pathetically oversold, like to surreal levels on the daily and weekly charts and it will get even more oversold shortly in all likelihood, as everyone thinks we will get at least a decent bounce before the next spike down.

    Dec 12, 2016 12:06 PM
      Dec 12, 2016 12:17 PM

      All that is likely to happen is the formation of a divergence as price goes sideways to slightly up at the rsi come down from nosebleed levels. Then you will get the stock market making new highs as the rsi does not. Eventually we will get a 3-5% correction from much higher levels.

        Dec 12, 2016 12:58 PM

        That’s possible but unlikely.

    Dec 12, 2016 12:22 PM

    You’ve got an infinite supply of yen right now. It won’t bounce more than a couple of percent until the BoJ relents, and that won’t be happening anytime soon. Same with gold.

    Dec 12, 2016 12:23 PM

    Gold has pretty much followed the arrows that I put on the following chart about two weeks ago:

    http://stockcharts.com/h-sc/ui?s=%24GOLD&p=D&yr=1&mn=2&dy=0&id=p82668551799&a=484925243

    Dec 12, 2016 12:34 PM

    I am not sure how you can be so confident of this. If we do head down to $1100, the monthly chart is going to look dire, if it already doesn’t. My guess is you will just keep extending the lower bound, next to a 100% retracement. There is no stop for gold because there is no stop for yen. Sure we could get a decent technical bounce, but it is going to take a hell of a lot more to turn the monthly chart bullish again.

      Dec 12, 2016 12:45 PM

      Spanky, cycles are very powerful, and, contrary to popular opinion, fundamental analysis is, too. The two combine to give us our charts, and they are not nearly as negative as you think.

      The miners just had one of their biggest years ever. The huge percentage gains came with some of the best strength readings ever. This is how bull markets begin. That action is very bullish for the big picture but it also explains the recent pain very well. Such moves always result in similar action in the opposite direction, and even more so when they happen before a new trend is well established.

      Gold has been short term oversold for the last month. This is good news in my book, as this condition will limit the downside of a Fed day raid. Had it bounced significantly two or three weeks ago, as it looked like it might, then it would now contain the potential energy necessary to take it much lower than most expect.

      Even if the bears are able to pound it straight into the $1,070s from here, it won’t scare me and the short-covering rally that will ensue is likely to catch most people completely off-guard.

      http://stockcharts.com/h-sc/ui?s=%24GOLD&p=D&yr=1&mn=5&dy=14&id=p50740325799&a=411098748

    Dec 12, 2016 12:57 PM

    Look at the daily stochastics for AUY. Pretty surreal action and arguably the worst it has ever been. The stochastics haven’t returned to overbought in 5 months! That is absolutely incredible. And it looks like it is about to take another dump here. It is really just unprecedented, relentless weakness.

    Dec 12, 2016 12:04 PM

    Gold going back up after Jan 20th

    Dec 12, 2016 12:43 PM

    Just out of curiousity, where does everyone sit with their opinion on the precious metals rally this year? Was the rally earlier in the year just an extended bear market rally or is this sell off an extended retracement within the beginning of a new bull market?

    To me it looks increasingly likely that the gains saw earlier in the year was just a relief rally within the bear.

      Dec 12, 2016 12:56 PM

      That is the $1mill question.
      Shoot an email to Jamie Dimon and ask. When he tells you, please let us know. Thanks.

      Dec 12, 2016 12:57 PM

      New bull, no doubt about it.

      Dec 12, 2016 12:41 PM

      Ozibatla – That’s probably THE QUESTION investors in the precious metals space must answer.

      In later December, a few of us on here noted the Double-Bottom pattern in gold as it played out (Gabriel, Matthew, myself, Bob M. and a day or two later Gary S.). Personally, since the end of 2014 (for more than a year) I’d had a key target of $1044.70 as a key support level where Gold could bottom, and I’d posted on it a number of times. When it bounced off $1045.40, then that was close enough for me to believe it would at least be an important intermediate bottom.

      Some contributors here had more conviction that it was THE BOTTOM, and that the double bottom ended the bear market for good. Others reserved judgment until they could see the intensity and strength of the impulse leg off that bottom. Then, when the miners took off with such strength after their Jan 19th, 2016 bottom, then that was the cue to more pundits and contributors that it really was the bottom, as the miners started leading the metals in a bullish way.

      I had remained more reserved, because I had said since the rally in early 2015 that I wanted to see the prior peak at $1346.80 (~$1347) taken out definitively on a closing basis. If you recall, the rally in early 2015 had fizzled out at $1307.80 and not made it past $1347. As a result $1308 became first resistance, that had to be taken out to eclipse the rally from 2015. $1308 was referred to as “The Matterhorn”, but to me it was only the first of several challenges Gold must overcome.

      It was Dragonite that reminded us all of the major spike down trough to $1321.50 from the spring of 2013, which had started the several years of sideways to down consolidation. Upon going back and looking at that again, it became very clear that this $1321.50 was a severe downturn in 2013 and defining moment in the Gold Bear. There was even a show here on the KER where the speakers had postulated that $1321 was “The Bottom” way back then. The point was that for the Bull market to be back on then Gold absolutely needed to put in a close above $1321.50.

      Well, look at the chart below of the past and what has happened this year and you’ll note that Gold took out $1307.80 (the Jan 2015 peak), $1321.50 (the 2013 spike down low trough, that did serious chart & sentiment damage), and Gold also took out $1346.80 (the next higher peak from the summer of 2014). When those levels ($1308/$1321/$1347) were taken out, then I was finally comfortable with the fact that it was not just a counter-trend rally, but in fact the beginning of the new bull in gold.

      Lastly, when Gold spiked up to $1377.50 this summer, it also took out a lessor peak of $1361.80 (from the autumn of 2013). Typically the summer is more bearish for the metals, so for Gold to have taken out so many prior peaks was uncharacteristically bullish. We mentioned in discussions on here a few times (and Glenfidish nailed it) that Gold had borrowed from the normal Fall rally by going so high into the summer, and that we’d have a dip down into November. (great call Glenfidish).

      That’s exactly what we’ve seen play out thus far, but unless Gold breaks below that $1045.40 Dec 2015 low, then in my opinion we are still in the new Gold bull market.

      Personally, I really wanted to see $1180 and $1172-$1169 61.8% fib retracement hold, and when it didn’t, then the scenario opened up where Gold could go down to test the old lows, and will double-bottom on a much larger scale “W-shaped” pattern. If this is what we are seeing play out at present, then that would be very bullish for the longer term, as it would be unlikely we’d see that $1045 area again for years.

      Currently gold is at $1162 (and it got down to $1152.40 in early morning overseas trading). We are still about $100 above the December 2015 low, and so there are only 3 scenarios:

      1) Gold consolidates somewhere near where we are presently; putting in a “higher low” and then it would be back off on the next leg higher

      2) Gold goes down near the Dec 2015 lows and puts in a larger “Double-Bottom” pattern (from where it put in the smaller double-bottom pattern at this time last year).

      3) Gold takes out $1045.40 and heads to new lows in the high 900’s. ($993.20 from the Feb 20th, 2009 peak would become next support in that scenario).

      I’d be VERY surprised to see Scenario 3 play out, but that is the only scenario where Gold is NOT in a new Bull market. If $1045.40 holds, then we are indeed still in the new baby bull market.

      Scenario 2 (Double Bottom) seems most probable to me, but if Gold rallies after the Fed blather, then we could just make a higher low here and that would be Scenario 1 (Higher Low).

      As insane as it is….. for now, we’ll have to see how the dust settles after the Fed meeting and how Gold reacts to the news. Until then, may everyone do well in the trading. Cheers!

        Dec 12, 2016 12:44 PM

        Darn it – I forgot the chart Gold chart that goes with the post above showing all those peaks & troughs. Here it is:

        http://stockcharts.com/h-sc/ui?s=%24GOLD&p=W&yr=5&mn=0&dy=0&id=p21742695491

          Dec 12, 2016 12:51 PM

          You can also note that Gold took out a number of Moving Averages this summer, but just came right back down through them again. It would be a further confirmation of the Bull being back on when Gold does move back up through those again. It could happen in the first quarter, but I believe we’ll see a bullish Fall in 2017 and that is where I’m expecting Gold to take out those moving averages once again and make a higher high than the $1377.50 this year.

            Dec 12, 2016 12:03 PM

            If gold takes that long to retake the 50 and 200 WMAs, the 50 will surely be arcing downwards by then. The apparent upcoming golden cross will be for naught. Not bullish at all IMO.

            Dec 12, 2016 12:12 PM

            Matthew – Yes the weekly does look a bit better over the longer term term averages.

            Spanky, I do believe there is validity in watching the 50 week MA and 200 week MA for golden crosses and death crosses, but for me I watch for prior peaks/troughs to be taken out as the clearest signal of bull market action or bear market action.

            There is no doubt that Gold took out a number of these prior peaks as noted above, and that was very bullish IMO. If Gold stays above $1045.40 then we haven’t made a lower low yet in 2016 that we did in 2015, so we are still on the bullish side of the equation. Just my 2 cents.

            Dec 12, 2016 12:30 PM

            The significance of important weekly MA crosses is simply that they are infrequent milestones in getting the MAs, and therefore the trend, in order. This is all about odds.

            With the 200 week MA still dropping as steeply as it is, no one should be worried about the fact the metals and miners were unable to remain near their 2016 highs. Had the trend already been mature, with the 200 week MA ascending at a 45 degree angle, then the recent performance would be cause for considerable concern.

            Like I said before, it’s a new bull market. I’m comfortable with that position but that doesn’t mean anyone else should be.

            Dec 12, 2016 12:58 PM

            But the 200 WMA isn’t dropping that steeply. Look back at the other bear to bull transitions, there is no need for the 200 WMA to flatten out. if price rises rapidly enough and hangs above the 200 WMA for a sufficient amount of time, that average will start bending up. Gold and the miners need to get back to the 50 and 200 WMAs soon.

            Dec 12, 2016 12:19 PM

            Pointing down at all is a problem and it looks pretty steep to me.

            http://stockcharts.com/h-sc/ui?s=%24GOLD&p=W&yr=2&mn=7&dy=0&id=p84918918358

            Dec 12, 2016 12:24 PM

            Study the start of the secular bull around ’99/’00 and you’ll see that the action this year was much stronger.
            Note that this is not a perfect comparison since that was the start of a secular bull that hasn’t ended and this year just marks the beginning of the resumption of the secular trend — which is probably why it has been more impressive.

            http://stockcharts.com/h-sc/ui?s=%24GOLD&p=W&st=1997-12-12&en=2002-12-12&id=p10599564501&a=493304073

            Dec 12, 2016 12:26 PM

            Matthew – The “Finally Success” green arrow was great once the 200 Week MA did flatten out.

        Dec 13, 2016 13:27 AM

        Now that is an informed answer. Cheers Excelsior, appreciate it. Heres to higher highs and higher lows. Not gonna hold my breath though

          Dec 13, 2016 13:59 AM

          We’ll know soon enough if the markets serve up a higher low, or if Gold is going down to test last year’s lows for a double bottom. Until then….. all the best in you investing.

      Dec 12, 2016 12:45 PM

      Ozibatta, I’ve warned folks over and over not to get hyped about the first move in the PM stocks while others were baying for the moon like a bunch of wolves. I’ve been consistent by saying we won’t know whether the low has been reached until the end of this year. Well, we’re close enough now to where I’ll say the low is in. The PM stocks are performing well even though they’ve seen a pull back and they had the initial move as you often see in fledging bull markets —personally, as we move into 2017 I’ll become fully invested in this sector based on the capital I’m allocating for the resources. As I’ve said over and over, we’re in for a U shaped recovery for the PMs and will not see the next leg higher for the PM stocks until probably well into late 2017 and early 2018.

        Dec 12, 2016 12:24 PM

        So Doc, if the low from late last year isnt breached or even met, would you be inclined to think that is the long term low for pms and pm stocks? Vice versa if a new low is created?

        Dec 12, 2016 12:21 PM

        Maybe I’m easily impressed but 2016 was a “to the moon” year in my book. Gold is off 15% from its July high and my portfolio is still up 4.45 fold from its January low.

        This looks like a great week for gold to put in a lasting low…

        http://stockcharts.com/h-sc/ui?s=%24GOLD&p=W&yr=2&mn=7&dy=0&id=p54853126936&a=493344771

    Dec 12, 2016 12:00 PM

    Jamie Dimon bought JPM stock at the exact bottom. He risked all that personal capital when things were looking darkest. What an amazing trader. Genius.

    Dec 12, 2016 12:09 PM

    Well look at that, oil was capped today by a big 50% Fibonacci arc…

    http://stockcharts.com/h-sc/ui?s=%24WTIC&p=W&yr=3&mn=3&dy=0&id=p85247242996&a=456688591

      Dec 12, 2016 12:16 PM

      I’m still going to hold my XOM to my last day.

        Dec 12, 2016 12:35 PM

        I think that’s a good move. I don’t share some of the bear’s views about oil and I think it is going to do very well next year. $75 should happen easily, maybe higher.

          Dec 13, 2016 13:45 AM

          That should be good for my Shell, Suncor, and Chevron too.

    Dec 12, 2016 12:20 PM
      Dec 12, 2016 12:57 PM

      It looks no different than any of the other bear flags that appeared on the way down, IMO.

        Dec 12, 2016 12:01 PM

        And maybe it is but you seem to be looking at it in isolation.

          Dec 12, 2016 12:07 PM

          Let’s see it hold above the 50 WMA and retake the 20 WMA. Then I might breathe a little easier. Maybe it can pinball between the 50 and 200 WMA in a bull pennant. I’ll believe it when I see it though.

      Dec 12, 2016 12:18 PM

      I’m holding my SLW till it’s over 100.

        Dec 12, 2016 12:00 PM

        +100 – I love it Bonzo Barzini !

          Dec 13, 2016 13:43 AM

          And SLW may go much higher than 100. If silver goes to 600, as Egon predicts, so will SLW.