Except For Crude The Week Ends On A Whimper

April 8, 2016 - 5:13pm

 by Gary Wagner

The oil gods must be crazy. West Texas Intermediate was down, then, up; down and finally up as the weekends, with prices rising 8.00% for the week. The vast majority of that rise came today.

The U.S. oil benchmark was up more than 6.00% on the session while Brent North Sea crude was up nearly the same amount. This lurch up was driven by news of stockpile drawdowns in Cushing, Oklahoma. But… the central U.S. storage tanks are still right at or just below capacity. “Meh,” should be the response rather than a wild bidding spree.

There is something else at work, obviously. That something is a scheduled meeting of OPEC nations on the 17th of April. Traders are pinning their hopes on Iran joining the production-freeze team that many suppliers hope includes non-OPEC countries like Russia as well.

But, if Iran joins, it will be the oil surprise of the last five years. And, if production stays stagnant and demand rises, the U.S. will jump in immediately and boost its production. Additionally the (older and non-controversial Keystone Pipeline is down, leaving 600,000 barrels per day offline until next Saturday. But those are temporal influences. It’s safer to say that oil is now range-bound, even if that range is broad and will probably give us lots of volatility.

That may be why U.S. equities, which started out promisingly today have lost their fuzzy glow as the session ends. Other than the good news in the energy sector, there was nothing to bring stocks up.

GDP numbers were soft, while other figures except for employment were very middle of the road. Although we think the Atlanta Fed’s rather dour numbers for GDP are somehow not catching the whole dynamic of the American economy, there is fear in the equities markets regardless of our viewpoint.

We might have expected a stronger showing in havens today, given the weakness in U.S. equities, but perhaps the appetite was subdued going into the weekend.

Gold seems poised to move back up, but it lagged against its sisters in the precious metals complex – for today.

The yield on the U.S. 10-year bond was up slightly but the movement tells us nothing about overall conditions, meaning the bond wasn’t serving as a haven.

The yen is the curious story of the week, moving up then falling back ever so mildly today even in the face of comments from the Bank of Japan.

Japanese Finance Minister Taro Aso said early Friday that rapid currency moves were "undesirable," and that the yen's moves were "one-sided" and that Japan would take steps as needed.

Sounds like the warning of intervention was delivered. The yen did hit a 17-month high this week and it should be of great concern to the Japanese and to all major world economies. We don’t want a sick Japan.

We feel as if the yen, though, has nowhere to go but up in the face of a stalled series of rate rises predicted by Fed watchers. And, given that the negative interest rates provided by the BoJ are having little or no effect on the strength of the yen, we foresee only a true intervention as their solution.

That means either dumping yen onto the market or issuing more bonds – many more bonds. The former seems feasible. The latter seems ridiculous given negative rates.

Either way, the volatility rippling through the world economy provides some qualified attractions for the haven investor. At least for a while.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

This morning we sent out a special trade alert recommending that our subscribers initiate a long position in gold. Traders taking that call got in at 1240 per ounce.

Maintain your current long position in gold at 1240.

Maintain your current protective stop below 1222.

 

Gold Market Forecast

During this most recent correction, gold prices that had traded to an intraday high of approximately 1280 then fell to a low of 1206.

Our initial target for the conclusion of that correction was between 1195 and 1205.

Although our first attempt at positioning ourselves from the long side was stifled when the market came down to hit a double bottom at 1206, recent price action has given us solid technical indicators that the bottom at 1206 should be the conclusion to our former correction.

Over this last week we identified a compression triangle in which we had a series of lower highs and higher lows.

It was a break above the standing resistance of that compression triangle that triggered our buy signal this morning.

Trending Markets: Proper Action

We are currently flat with no active trades in trending markets.

Trending Markets Forecast

Over the last two weeks we have noticed that for the first time in 2016 there has been a decoupling between crude oil and US equities.

Although we closed higher on the day, US equities lost approximately a percent and a half on the week.

The real question traders must ask themselves is whether we are simply witnessing a consolidation within the market before moving to higher prices in an attempt to take out the record highs, or if what we were witnessing has been a potential top in the market.

I believe we will get some key answers to these questions at the beginning of next week.