Crude Oil Is Low And Going Lower So Look Out Below

December 7, 2015 - 5:19pm

 by Gary Wagner

Brent North Sea and U.S. crude futures went into free fall today by as much as 6% before recovering a small bit of their losses. The drop seems to have been in belated reaction to OPEC’s inability at a policy meeting on Friday to conclude an agreement to lower production and thereby push prices higher, or at least prevent a further decline.

Breaking with a decades-long precedent, OPEC oil ministers dropped any reference to the group's output ceiling. That seems to highlight disagreement among cartel members about how to deal with Iranian oil once Western sanctions are lifted, an imminent change.

"We're in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share," said Chris Jarvis at Caprock Risk Management, an energy consulting firm in Frederick, Maryland.

"Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI."

Also boosting the greenback are an expansion of qualitative easing moves by the European Central Bank, which also sent basic euro interest rates farther into negative territory.

Energy woes hit the Dow and S&P 500, which in turn dragged down the NASDAQ. All the main New York indexes were down just a few tenths below one full percent.

Earlier in the day, Asia was mixed to moderately higher, with the Nikkei leading the parade. Hong Kong was the only loser. Europe, too, was mixed to higher. The DAX was strongest, rising 1.25% on the day.

The fact should be faced. Fundamentally speaking, oil prices swerving hither and yon are beginning to have a very negative effect on equities.

It is not entirely necessary for crude prices to actually rise. All they have to do is stay put so traders and investors can figure out their patterns. Looking at crude charts is like looking at the EKG of an amphetamine user. Talk about jumpy…

Start with machinery, industrial construction and extraction engineering and finish with transportation and vehicle manufacturing and you have the simple snapshot of how low prices unsettle the stock markets.

Dollar strength is accounting for about 40% of the overall $14+ loss in gold, which is now down from its three-week highs.

Other components of the precious metals complex are being buffeted, as well. Platinum took the brunt of investor dissatisfaction with high-end metals, although palladium was not far behind.

Platinum fell about 3.00%, palladium around 2.65%. Even normally sedate silver was down 2.00%.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

This morning we sent out a TRADE ALERT: Sell Gold @ market filled at 1077 -78 (current 1071)

Place stop above 1089, Friday's high

Maintain both short trade and stop

Gold Market Forecast

Trading activity on Thursday as well as Friday of last week was interesting to say the least. Most noteworthy was the tremendous upward spike that we witnessed in the precious metals across the board.

It was our belief then as it is now that any kind of upside rally would be short-lived and would present us with an opportunity to initiate short positions.

This is exactly what occurred Monday morning and we entered a short position in gold. Today's video report will discuss parameters for placing our stop where we did, as well as our profit target if the market moves in our anticipated direction.

Trending Markets: Proper Action

Friday morning we sent out a trade alert Buy S&P 500 @ the market (2053 entry price) and to place a protective stop below 2040.

This morning we moved the stop up to 2072

Long @ 2053 out @ 2072 = 19 points 

19 X $250 = $4750 per contract

Trending Markets Forecast

One of the most famous equities traders of the 1950s was a gentleman by the name of Herbert Hoyle. He was once interviewed and asked why he seemed to be so successful when the vast majority of traders do not fare as well. He answered with one line: "The reason I'm profitable is I always sell too soon." That certainly was the case today with our S&P trade in which we picked up 19 points very quickly.

Today's video report details the current trade we just concluded as well as taking a close look at movement in the dollar and crude oil.