Happy Thanksgiving Everyone! Gold and Oil Charts

Posted @ 12:23 pm - Filed under Economy, Market Correction, Max Whitmore, Predictions

I told you last week I would give you a deeper look into the oil and gold markets, as well as some comments on the interest rate developments internationally. But, before I get to those, I first want to give you just a quick update on the S&P. With the Thanksgiving holiday upon us, no need to go into a long analysis here this week. Here is the S&P chart as of the close last Friday (11-20).

Basically you will note that the price from last Friday was only a tad lower (from 1093.48 to 1091.38 – remember this is the S&P cash index, not the futures). We did move closer to the “Headline” again, however, and this, with the high green line (fast stochastic) in the Momentum Section (bottom of the chart), has me a little concerned that we might see a bit more selling soon.

At the moment, I don’t expect any major continued selling, but I do see the possibility for a sell back to the 1050-60 area as possible. We should get some idea if that will begin to happen by this week’s end (remembering this is a holiday week and the likelihood of a major move either way is usually not very great on holiday weeks).

As I see it, unless we can get above S&P 1,100 and pretty much stay there all this week, this correction will likely occur and I wanted to alert you to it -– probability (as they say on the weather forecast) is about 65%, at the moment.

Bottom line here is that we are still ABOVE the Super Chart Keyline for now. Again, not a lot to say here today, as holiday is upon us, except, of course, Happy Thanksgiving.

OK, let’s go to the oil and gold charts. Here is the crude oil chart (weekly) back to 2005, nearly 5 years ago. Why so far back? You need to see what the history is to give some idea of where the future might take us.

You can see from the chart that the huge oil price fall from the $150 area last year has only recovered, at best, about 38% of its total loss, but, currently prices are just above the all-important Keyline. All this has taken most of this year to accomplish. However, we are still in the “blue zone” where there is still some question as to the next major direction. The bias is to the upside, but we need time to see if we break out of the “blue.”

Now, take a look at the Momentum Section of the chart (at the bottom of the chart). Note that the Momentum black line (the slow stochastic) is almost at 90, at the moment (89.67). Such a high reading generally portends that we are more likely to see lower crude oil prices rather than higher in the next few months (high readings often means that a price climb is approaching a near term “stall out”). In this instance, I would expect that the Keyline will prove to be support at around the $72-73 per barrel mark (see line on chart) and the last broken support, back in late 2007 early 2008 at about $89-90 a barrel (see line on chart), will likely be the key overhead resistance.

That outlook has some importance from the standpoint that a trading range of $72-90 a barrel could also mean that the dollar might also achieve a more stable price range near term or might actually strengthen a bit. Stabilizing action in the dollar would seem to be the better indication, as I see it at the moment. (Oil is often a very good forecaster for the dollar.)

Bottom line on oil? Expect a trading range of about $72 to $90 per barrel over the next several months. I will be keeping my eye on this bell-weather commodity and let you know if developments on the chart change this near term outlook.

And as for gold, well it remains one of the most powerful charts I have seen in a long time. I told you last week I expect the $2-3,000 range in the next 3-4 years (possibly even sooner depending on political developments), but I want to add quickly that in the near term we could see some “backing and filling” on gold prices.

We have had a very sharp breakout to higher prices the last 12 months, now well above the $1,000 per oz. level as you can see above on the chart, and the black line (slow stochastic) on the Momentum Section of my chart (at the bottom of the chart) is almost at the 95 level (94.21). With such a very high reading, I do expect some sort of correction in the near term.

Now you need to know that corrections generally come in one of two flavors. One is called a “true” price correction (prices fall) or a correction called a correction “in time.” A correction in time means that while gold’s price tends to stay in a relatively very narrow price range, the Momentum Section black line moves back toward the mid-range of its chart (usually in the 40-60 area (the chart is scaled 0-100, as you know). So, I will be alert to see which one develops and let you know.

If it turns out to be a price correction, more aggressive buying might be in order if we reach support in the lower $1,000 area -– see the support line I have drawn in at about $1,050. However, a correction “in time” will be a tougher one to use to add to your portfolio, as prices will likely stay above the $1,100 area. For now, let’s just wait and see what develops here, also.

Bottom line on gold? Watch for some near term (60-90 days) correction action that brings the Momentum Section black line much lower on its chart scale.

Lastly, you need to be alert to some developments on the interest rate scene internationally, as I said last week. As you all are aware, interest rates are practically non-existent today. In other words, the fallout from the market crash last year is being taken out on the savers of the land. Not much we can do about that one, at least as long as the Fed holds rates down to re-liquefy the balance sheets of banks.

But, there is finally some serious international talk about firming up rates in the near future –- read interest rates could go higher. Of course, timing is, as always, crucial. One very important development so far, if you did not know, is that Australia recently hiked their rates a bit causing other central banks of the world to begin to take a serious look to see if they might want to do the same.

There is a two prong benefit to interest rate hikes. First, it will help quiet the inflation jitters being experienced by many folks all around the world, including here in the U.S. The second benefit is, of course, savers will begin to re-liquefy their bank accounts, too, for many a really needed event.

But, the downside to rate increases is what we really want to be alert to here. If rate hikes do come to pass the effect will be almost instantly lower stock prices everywhere. A higher cost of doing business means lower profits and that means lower stock prices. And this is why the Australian move is so important.

Bottom line on interest rates here? With one country already making the move, we need to be very alert to moves in Europe and in Canada, especially. So far, it is only talk. But, if rates begin to rise (and lower bond prices will likely be the first to signal this by moving below my Keyline on the bond chart, at about 116 last Friday), I will have a special report for you at once.

Well, not much else to report on this holiday week, except to say please have a very Happy Thanksgiving. Let us all count our blessings, even if they might be a bit fewer than several years ago. The ancients had a saying that applies so well to these days -– “This too shall pass.” Let’s us, each in our own words and each in our own way, lift up our thoughts this wonderful holiday and pray for better days. You can count on it that I will.

And, as always, do have a good investing week. And you keep in touch. I do! See you next week.

Closes as of Friday 11-22-09 (cash index) TOP 10 STOCK SECTORS
DOW Indu. 10,318.16 LAST 6 MONTHS @11-20-09
S&P 1091.38 1. ENGINES (+82%) 6. ELECTRICAL(+50%)
NASDAQ 2,146.04 2. BROADCAST(+71%) 7. APPLIANCES(+49%)
30 YR BONDS 120 28/32 3. PRINTING (+65%) 8. TEXTILE (+45%)
GOLD 1,151.20 4. AUTO (+58%) 9. TOOLS (+43%)
OIL (Nymex) 77.69 5. PUBLISHING (+52%) 10. MINING (+41%)

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

This entry was posted on Monday, November 23rd, 2009 at 12:23 pm and is filed under Economy, Market Correction, Max Whitmore, Predictions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.