Gold has now reached a timeframe where a December pullback is in effect. If things play out a temporary bottom should be seen in mid December or early January and another gold leg up would develop into the early winter……. the 1075-1125 area ….offers a potential opportunity.

The chart below shows just how important the 1075 area turned out to be.  Look at the price of last two lows on the chart.

Since that December 11^th update gold bottomed right at the 1075 area. In early January (the first trading day) the price of gold opened under 1100 and another rally leg of 93 dollars from bottom to top price developed into mid January.  But since that time gold and just about all other markets have a begun a severe short term decline.  The one market of course that is rallying is the US Dollar.  When you look at a seasonal chart of the dollar BEFORE the turn of the century it looked like this below.  We can see the lows are made in the October thru December time frame and the highs occur in February, March or June depending on the strength of the rally.  Since the dollar has been so one sided this past decade, (especially the last few years) the rallies we’ve seen (or haven’t seen) usually fizzle out early.   Thus the potential peak or pullbacks should be in February, March or June/July if the dollar does in fact have a medium term rally.    Therefore, if the dollars trend remains bearish on the longer term , we still should expect a dollar peak in a few weeks, (February) a few months, (April) or by the beginning of summer.   DEPENDING on its strength or lack of will determine which peak point the dollar reverts back to down.  If the dollar has any seasonality, the next big move down (in a strong trend) won’t be until summer.

This also suggests that gold’s next BIG MOVE might not be until summer arrives.  That doesn’t mean that gold can’t move higher, but it does mean that the strongest time for gold will probably be the second half of the year and not the first half.  However the dollar has a pretty good pullback seasonally at the end of March as well.  If gold is indeed still strong and the underlying fundamentals that got us here are still in effect then the potential for gold to make a solid bottom could be in that March timeframe as well.

Another commodity that usually comes alive in the March timeframe is the oil market.  And it plays well with the increased activity for vehicle travel, vacation time and peak increased springtime business.

In that same update from December 11^th we made the following observations and speculated on the price of crude saying:

Odds suggest that a rally attempt should develop from this 65-70 dollar area. SHOULD OIL MOVE BELOW the 200 day average at$ 65, then the potential for a move below 60 towards the red support line will be a potential area for a late winter bottom. Look for December or March to provide the lows in crude.

As you can see from the chart below the oil rally did indeed develop from the 65-70 area (69.81 was the low).   Since then we got the rally we projected and now oil is on its way towards a late winter low.  Whether the downtrend will continue to late winter and below 60 is yet to be seen.  However, this is a great time to update the outlook we had then.

If we zoom out on the chart below just a bit we can see the 100 day (blue line) and the 200 day (red line) moving averages are getting to be very close together.  And as technical analysis would have it, price is right in between both moving averages.   To illustrate how actually stable crude oil has been we can see that today’s price is at the same area as the June high and the summer prices (July/August/September)

So in the crude oil market there’s a short term decision point coming here in February and that is whether we hold the 200 day moving average at 71.50 and/or test the September/December lows in the 65-69 area and bottom out in February.   But there is one more level of support and that is the 60 dollar area we mentioned in our December report.  If we look now at this 60 dollar area we can see that our long term moving average (green) is sitting right at the same place our lower channel line resides.   If we take the July lows at 58 and our lower channel we would speculate that the 56-62 area in crude oil would be a potential low point we could expect if the crude oil market does indeed bottom out in its seasonal March timeframe.

In summary, the crude oil market should bottom at one of the two areas listed above and the ideal time would be in the next 4-8 weeks.

Let’s look one more time in the precious metals camp and the charts below.

Gold is currently sitting at the 100 day moving average.  We’ve already seen on our zoom in gold chart earlier in this report that the 1075 area is an important price.  Should gold bottom here we would suspect a bounce or rally into mid February.  If the oil and dollar seasonal play out I suspect that a February rally would eventually give way to one more correction in line when the oil and dollar seasonal high/low’s come into play.  Now they won’t come in all on the same week, but we can expect within a few weeks.

Should this current support area give way, odds favor a move to the 200 day (red moving average) would be the next likely stop for gold.  Interestingly the 200 day average in gold is right where the lower channel line resides and you can’t see it on the chart below at 1021.

Finally we have one more area where our long term moving average is and that area is at the 966 price area.   If we combine the September low at 980, we could say that major medium term support would be the 966-980 area.  Although that sounds extreme maybe, its only 100 dollars from here and this pullback we just went thru from the high is 140 ago.   In any event these are the three areas we are looking at to provide an opportunity for a turning point and rally.  Therefore we favor a Feb/March low and a spring rally when we look at the overall picture.

And finally let’s take a look at Silver below.

Here too we can see that silver is trading in between the 100 and 200 day moving average as this week’s range touched both averages and price is sitting in between both averages.

Silver is also reaching an oversold area as its position is near the averages, the lower channel line and the Williams indicator at the bottom of the chart is also flashing oversold.  The signal comes when the indicator moves OUT of oversold and begins to head back up.

Finally we see our long term green moving average is at the 14.40 area.  Observe how this moving average caught the February 2008 high when price touched the average at the same time that it touched our upper channel line.  Then in August and September of 2009, price this time pulled back down and kissed that average from the upside and AGAIN the price touch was at the bottom of the price channel and the fall rally took off from there.  Should silver break down from the lower channel line and the 200 day moving average,  the potential will be for silver to drop to this key average in the 1440 area.

In summary, we think this current pullback has a good chance of bottoming at one of these price zones and will probably follow the seasonal aspects that gold takes.

The key of course is not guessing which price area these commodities will bottom at but to observe price action and look for setups where we stand the best chance of catching the trend once this correction ends in these commodities.  The medium and long term trend is still up in commodities.  However, we have recently seen shades of 2008 where all commodities go down while the US Dollar rises.  This is the one thing that traders and investors (and we also) must keep an eye out for.

We pay attention to the short term movements in the same manner we do these medium term trends.  When our short term signals line up with these medium term points, we isolate areas of low risk setups and take action.  We invite you to stop by our website, check it out, and maybe get on our e-mailing list.

We’re looking at potential setups developing in the metals and oil markets all the time.  This year promises to be a challenging time to be involved in these markets and the ability to turn a profit will be the result of getting a good low risk setup.  That’s something we work at all the time.

I will have a Gold Trading Service for trading gold futures, CFD’s and ETF’s

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John Winston
Commodity Futures and ETF Trader
www.TechnicalCommodityTrader.com

January 18, 2010

A lot of investment focus for outlook 2010 is geared toward inflation based assets such as gold and oil.  What a change from the turn of the last decade when the rage was totally based on paper assets such as stocks, bonds and yes folks, even the US Dollar.  Indeed the age of the Dot.Com stocks was the zenith of the paper world.

Right around the time the NASDAQ was peaking at the 5000 area, gold was bottoming at the 250 dollar area and crude oil at the around the 18 dollar per barrel price.  How times have changed.

Gold Trends Analysis

Today the question is not whether gold is a good investment but rather if the correction from December is complete and higher prices are forthcoming?

The chart above of the gold ETF (GLD) shows us the uptrend that the precious metal has been in.  It is only investment that has made a post crash 2008 high and it certainly has a lot going for it as we enter this year.  Inflation fears,  currency crisis, debt default, physical supply, and a fundamental loss of faith in government and the financial systems has brought gold followers and analysts from being shunned at social events to at least tolerated today.

A look at the chart shows that gold is in a long term uptrend and is very reflective of the fundamental developments that are transpiring worldwide.  But what about the short term outlook of gold?  Has the lows of December provided the next buy opportunity here or is there lower price still lurking in the upcoming month or two?  While we are long term bulls, there are a few things on the chart that has our short term attention.   Let’s look at a few of the issues.

First off, the arrows on the chart highlight something pretty important when it comes to a volume spike. And that is when they occur the potential for good sized corrections are at their most likely to take place.  The past few years and the arrows on the chart confirm that.  But more importantly is that when they occur at or near the top of the upper channel line in conjunction with MACD and Money Flow indicators turning down, price has always retreated to the bottom of the channel line before initiating a new sustainable bull market run.  Now while that may seem a long way from here, historical precedence argues that it is the most likely course.

The red moving average is the same as the 200 day moving average only it is measured in weeks.  Notice how often over the past three years that price has pulled back at or very close to that average.  The fact that it is now resting at the same area as the lower channel adds weight to the potential of a correction in gold to reach that area.  The fact is that markets do not go long periods of time without testing that all important average.  The chance that 2010 will not test the 200 day average is not very high.

How about the money flow indicator at the bottom of the chart?  Notice that there has not been ONE PRICE BOTTOM during the last three years that did not have the Money Flow Indicator touching the lower price line at the 20 area when gold’s bottom occurred.  This is yet another indicator that has me cautious of calling the all clear for gold over the short term.

How about our MACD indicator?  While this indicator has not been as concise at trend picking, we can see that the times MACD was in a downtrend, gold for the most part followed it down.  Currently this indicator is on the verge of turning down as well.

While I don’t use technical indicators as my buy and sell tactics, I do like to look at them as coincidental indicators when I am suspect of trend direction.  The fact that they are not in bullish mode adds to the concern whether gold has really made a significant bottom.   Finally, if we look at all of the major pullbacks in the past few years, we can see that pullbacks usually do not have one straight line down for 4 weeks and then a resumption of the trend.  In fact, the shortest ones lasted in the 8 week timeframe and others were much longer.

Since the beginning of the month and year, a nice two week rally has unfolded in Gold running gold up from 1075 to the 1160 area at its peak.  As we close out the week, we can see that gold and the 50 day moving average (the blue average line on the chart) are both at the same place in price.  For GLD that price is the 110.80 area.

So where does this leave us on the short term?

While we have re-iterated we are long term bullish on gold, our analysis of the conditions on the chart above leaves us in a NEUTRAL position as it relates to the short term.  Here’s what we are looking at.

Gold ETF Trader

From a short term basis, gold has reached a decision making area.  With the exception of November, which was a blow off month for gold, price usually begins a sideways pull back from mid month to end just in time for options expiration and such.   Therefore should gold fail to exceed last week’s high in the metal and the ETF, odds will favor that an end of month short term low could develop.  From a price perspective, GLD has a gap in price at the 107area and two short term support points (see blue arrows) at 105 and 100.  We would expect a pullback to one of those areas depending on the strength and/or weakness that gold exhibits over the next few weeks.

Also on the short term decision plate is how the 10 and 39 day averages are situation right where price and the 50 day average reside as well.  This merging of price with the 3 moving averages confirms our neutral stance over the short term.    From here we will look to see which way price breaks and will look for a low risk entry when time such an opportunity.

From a medium term perspective and a historic seasonal basis, gold should be closer to the end of this current rally leg than its beginning.  Price has more often than not been in its upper range come February over the history of gold.  With a 540 dollar rally over the past 14 months, it should stand to reason that the potential for a deeper correction than what we’ve seen is a possibility.   If one studies the chart, there is usually a mid-winter sell off in gold.  In strong years the rally can extend into the spring but it is not the norm.  The point is we should expect a correction at or near this time of year.  Rather than guess at its beginnings, we will look to see breaks of the support areas we listed above as increasing the odds of such an event.

With the 200 day average right near 100, a pullback in 2010 towards this area might provide a good set-up entry from a medium term perspective.  This has been a solid buying area the past few years with the exception of the 2008 crash.  It is a rare year that gold or any market for that matter does not visit this key average.  Medium term investors should have cash ready to put to work if such an occasion were to develop.   However, there are important considerations and technical work that needs to be done at the time of each test of key support area and one should not just purchase at that price blindly.

When we think about it, there are really only 4-5 good swing trades per year.  When price patterns, support areas, technical timing indicators and sentiment all line up, it is then that low risk entries are presented to us.   Even a short term trader will notice that the above chart of daily gold only required one or two trades per month for maximum efficiency and profit.

Investors on the other hand who are not worried about the weekly blips but are concerned with the yearly trends should be trimming down their positions this time of year and reducing their exposure, not increasing it in a normal year.  Unfortunately, things are anything but normal these days.  Regardless of that fact history shows that the best performance from the end of winter into the June timeframe is crude oil.

One look at the seasonal chart below shows that the best time of the year to own crude oil is to plan purchases in mid to late February when the seasonal tendencies of crude produces the best rallies usually.   Interestingly enough this is when gold usually takes a back seat to oil in the same timeframe.  If an inflation investor is your modus operandi for 2010, a portfolio rebalancing in February might be an interesting tactic to execute.  If inflation is a problem, oil will follow gold higher.  Indeed, history suggests it outperforms it in the spring.

Over the past week oil has once again closed lower on weakness.  The seasonal chart below shows us that is exactly what we should be expecting during this time of the year.

Seasonal Crude Oil Trend

The key now will be putting together a low risk entry in the same manner we described earlier in the article as it relates to gold.

Crude Oil Futures Trader

When we place the seasonal chart close to the oil chart we can see the inconsistencies with the seasonal at first glance.   However, the most important factor was the late February low was correct in forecasting a great entry price for crude.   The seasonal called for a pullback from April to June which did not occur in 2009.  However the seasonal shows that the second best time to buy crude is the July time frame on the seasonal.  Look how July provided the second best time to buy crude on its chart.

Now we are in a timeframe where crude should become its weakest and if history is with us, should provide a great opportunity mid winter.   Here’s where one wants to look at the extent of the coming pullback.  We know crude should be weak.  There are three key price areas that have produced lows since July.  These are the areas that should be watched for a potential winter low.

In summary barring another crash of epic deflationary proportions as a few advocates have surmised, the gold and oil market should continue to provide a bull market status.  Those heavy in gold might want to consider a trimming of some of the great gains, and shifting a bit into crude oil come mid winter.

At Commodity Trader our focus and emphasis is always on waiting patiently for low risk set-ups in the metals and the oil markets.  Come by and visit our site and check out what we’re specifically recommending.

Join My Free Trading Newsletter for ETF and Futures Trading: http://technicalcommoditytrader.com

Regards
John Winston

Gold, Oil, Natural Gas, & SP500 Futures Trading Coming Soon…

Futures and CFD trading alerts for virtually 24 hour trading. Alerts are based weekly, daily, hourly and 5 minute trading charts. Using hard stops and trailing stops allows us to trade around the clock as positions mature during times we are not available to watch our screens.

Trades vary in holding times from a few minutes to several days depending on market volatility and current trends.

Coming Soon…

As we entered 2009, we had a major asset crash due to the events in toxic debt. In response the Fed initiates major bailout programs. In the loosest monetary policy of modern times, interest rates collapse to a low in late 2009. Look at the interest rate collapse into the end of 2008 on the TBT chart (20 year Inverse Short Bond ETF) As we can see by the chart, today the long term interest rate picture is in a neutral position entering 2010 above the blue downtrend line but above the blue uptrend line. The technical indicators are warning that this current uptrend is losing steam as RSI has turned down and Williams %R is in the process of dropping out of its overbought area (usually a sell signal). This indicator we use has been a good at assisting us to discern where the highs and lows occurred.

Gold Trend Trading

The 50 and 200 day averages are converging right where price is. A break above or below the averages with a subsequent penetration of the trend line would set the next interest rate trend in motion. The direction that rates take will influence many of the other markets. A break higher will portent higher rates and lower bond prices for the USA.

Right around the same time interest rates bottomed last November, the FIRST asset class responds.

Gold bottoms with a November / December spike at the 700 dollar area right when interest rates bottom and takes off on a rally to 1007 in March.

Trend of Gold

The gold chart displays the massive $540 dollar rally that has transpired over the past 13 months. Not only has gold led all asset classes from the depths of the debt hole, but has been the clear winner of the decade in mounting a rally from $251 dollars to $1227 at the peak. So strong has the rally been that the 200 day moving average was only tested once, during the spring lows of April and May. Even the 50 day moving average went from September to December over 100 days without being revisited until the past few days.

The lows for 2009 were the $865 – $870 area in gold. That pullback low was to exactly the same price as the peak of January 21, 1980 when gold touched $875. From that low in spring, gold rallied away from the 200 day average until it reached a point where price was $250 dollars above the average when it peaked at $1227.

Outlook for Correction
There are three probable places for a price low during this pullback. First is the 50 day moving average at the current price area of $1110. This is one potential price zone where a rally might re-establish itself. Should gold bottom in the 1080-1090 area and solidly move above the 50 day average, gold would stage an assault on the upper trend line where a major channel in which price has bounced off the channel three times over the past 13 months.

The second area is the horizontal channel line drawn off the 2007 and 2008 top. We can see how this area points to the price area where gold broke over 1000 to finally rally into higher triple digit prices. This pullback or test of the breakout area would give us a range of about 1020-1040 in price.

The final area is where the bottom channel line, the small blue downtrend line drawn off the March and June peaks and the 200 day moving average converge in price. That would put the price range at about the 950-990 area and will be the most SOLID PRICE SUPPORT area for gold in which gold would still maintain its upward momentum within this channel. Closes below the 930-950 area during 2010 would suggest that the current credit contraction cycle has the potential to bring down the house one more time like it did in 2008.

We expect gold will bottom at one of these three areas between now and mid January and a rally back up to test or exceed the upper trend channel should develop going into mid winter. Depending on the strength of the next leg up will determine how long the rally is to last. Seasonal charts show that corrections usually develop in the mid-February to early March timeframe on average. We suspect a spring peak will lead to what it usually does, a July/August low. Should gold next rally fail to make new highs and then turn lower under the 50 day average or below the low of this current pullback, the potential to test the lower levels we have listed above will be in play.

Going into 2010, the gold market seems to have had only one nemesis, DEBT DEFAULT. The 2007 high at 1033 occurred right at the beginning of the Lehman default announcement. This most recent pullback began within a week from the Dubai announcement and the announcement itself had a 55 dollar pullback day. It is an area that bears watching. We’ve seen the debt situation go from public, to institutional, to financial, and now with the most recent rumblings, NATIONAL. USA, UK, Spain, Greece, Iceland, Italy, and the list goes on, but you get the idea. There are those who feel the situation in China is not to be trusted either. The notion that the global economic recovery is not sustainable or at best in serious question is viable as the longer end of the interest rate curve as we saw on the TBT chart has not signaled a new higher trend rate as of yet. Should the recovery falter at a time of massive credit contraction the liquidation of assets both paper and hard cannot be dismissed. Paper will go and depending on the severity of the contraction will depend on how much gold might be affected.

But what does Dr. Copper say?

There are a lot of analysts who look to copper to gauge economic strength. The chart below shows that copper was the next major commodity to bottom when the feds collapsed interest rates. Copper blew away the completion in 2009 by running from $1.25 to $3.25 in a triple digit gain. And look at the chart. It was virtually straight up all year. Most recently however, the price velocity over the past few months suggests of a price that is running out of steam. Copper is virtually unchanged in the past few months.

Copper Trends

The price high is also coming at a time price location where the 2008 collapse in price began from. Notice the blue arrow line drawn where a price gap occurred and price never recovered. The fact that price has rallied all the way back to this area and is now showing weakness in its price pattern suggests that Copper also is questioning the viability of this recovery. For certain a correction from this area is the odds favored event. Watch the Williams% R indicator as it is just about to fall out of its overbought range.

From a time and price perspective copper looks ripe for a pullback in early 2010. Should copper drop below the lower blue channel line and below the 280-290 area, odds would favor a pullback to a minimum of the 200 day average at the 260 area with potential to trade lower should the recovery falter in the far east. As long as we remain in the channel copper can climb. Should it break below, odds favor a correction.

Crude Oil
Crude double dipped at the bottom by developing a December low and then a subsequent February seasonal low under the 40 dollar area, which if you recall was near the 1991 Iraq invasion high.

Oil Trend

Crude oil is nearing the potential seasonal lows as well. Notice that the current nine straight days drop to under $70 had crude oil at the same price as last June and August. This underscores how important it is to understand not only the trend of markets, but the VELOCITY and STRENGTH of the trends. While it can be said that Crude is almost a double this year that is suggestive that you bought at the bottom. More important is that anyone playing crude since last June who is not a very short term trader has been hard pressed to make a buck. However, its seasonal lows are approaching. As long as oil is above the 59-65 area the uptrend should continue. Any moves down that PRICE AREA anytime but especially by the end of February where the seasonal lows are due would be an excellent opportunity to take a position. The two blue arrows drawn on the chart shows the next key resistance area in crude oil. The 90-110 area should provide the most significant resistance to price in 2010. The current price pattern does not look as bullish as the other commodities, but look for a seasonal low in the coming weeks.

From Year to Year………………….

From the end of last October to mid February, Gold was the place to be. From mid February to mid June Crude was the place to be. From mid June to mid August, copper was the place to be. And since September, it has been Gold, Gold, Gold.
In light of the above paragraph, there are a few ways investors and traders can take advantage of the seasonal tendencies. One is to be overweight the commodity that is in season and the one showing the best strength on the chart. Another is to simply line your portfolio with a mix of these commodities so that each can have their turn providing a lift to the bottom line of your portfolio. And finally for the seasoned trader, take advantage of gold spring selloffs by having some crude plays with those gold profits you take in the winter WHEN the trend changes.

The markets will not be an easy navigating area in 2010. One of the key elements we need to be on guard for is whether the markets will do the opposite of this market, the US dollar.

USD Trend

There has been a potential trend change in the US dollar and some believe will be the “surprise” trade of 2010. Whether that is a correct forecast or not will depend on many variables.
This is where we come in. Over the course of 2010 we will be forever assessing the trends and looking for great chart set-ups to take opportunity by the hand and to brave the adversity coming.

There is a great wisdom that is known by all the great traders and investors and it is this.

“If you do not take advantage of the 4 or 5 good rallies that occur during the year and ride them, then the rest of the market will eventually nibble your profits and account balances away.”

Stop by our website for our Free Gold Trends Trading Analysis

Regards
John Winston
www.TechnicalCommodityTrader.com

Over the course of the past three months, gold has taken the lead from the crude oil market is a normal autumn seasonal pattern. Granted, Oil held up longer than usual and gold rallied longer, but the seasonal trends are still playing.

Let’s look at the gold market first, as it has been front and center. A lot of investors shun gold but a hard look at the commodity market shows that it is one of the lesser volatile commodities. As far as a bubble goes, gold is nowhere near the price appreciations seen in other commodities like copper, sugar, cocoa, orange juice and a host of others.

Technical Trader

We can see that price highs are made in the Jan/February time frame on average, but in bull market legs, have been known to extend into the spring. The gold chart below shows that the mid February timeframe established the winter high, made a temporary low at the beginning of May and a secondary low in the July time frame.

On the other end of the spectrum, the September thru December time period is usually where the best appreciation is witnessed. For the most part, this is how gold behaved this year with the exception that the end of September and early November lows were only mild corrections as the bull leg was strong enough to make these seasonal pullbacks just dips on the chart.

In my August 19th Gold and Oil commentary, I made a case for a bull market rally in gold and targeted the ideal time to begin would be September. Two weeks after that update, gold launched into its best run in quite a while and has become a headline item even in the mainstream press. But what is the outlook going forward ?

Gold has now reached a timeframe where a December pullback is in effect. If things play out a temporary bottom should be seen in mid December or early January and another gold leg up would develop into the early winter. That has been the norm of late. Over the past three years, February has been a pivotal month for price peaks in gold. The seasonal chart above shows that January/February price highs can be important. The stronger the rally, the longer the seasonal extends. The 2007 price peak did not come until the month of May, exceeding the February price peak.

So where are we now in the rally?

First off we can see that the fall rally began right on time at the very beginning of September. We entered the September timeframe with gold just below the 950 area. Seasonal pullbacks occurred at months end in September and October. But the beginning of November bought on a major escalation in price once the 1070 area was taken out on the upside. Here’s what I had to say in our August 19th report regarding gold:

“Moves above the 975-985 area would greatly favor an upside breakout and moves above the 1075-1100 would be indicative that the next leg of the gold market has begun.”

Commodity Trader

From a price perspective gold has support at the 1100 dollar area (plus or minus 25 dollars) and at the bottom of our price channel at the 980-1050 area. All technical indicators confirm of gold’s pullback and if the seasonal tendencies continue to play out, gold should provide one more rally as we work our way into the winter months. The 50 day moving average has not been touched since late August and is due for a visit. This is where we get our first number of 1100 (plus or minus 20 dollars).
The lower black channel line is another area of interest on this chart. It has provided price support in each pullback during the 2009 season and is another area where a potential low might develop. We can see it provided the lows in May, July, Aug, and September. This confirms the importance of this channel line. Just under that channel is the 200 day moving average, a level that provided major support during the April timeframe this year. It currently stands at the 979 area. Coincidentally, it was near this area that the latest leg of this rally began. While that area seems far away we need to keep in mind that the current gold rally began over 13 months ago at the $680 price level. A medium term correction after a $540 dollar move wound be a reasonable expectation as well.

There are a few ways one could play it. First, if your short term oriented or looking for a spot to hop on board, the first area we mentioned, the 1075-1125 area (ideally the 50 day moving average) offers a potential opportunity for gold’s price to turn and would be ideal for a short term play and as it turns out, would put price right near the middle of the channel lines. For those looking to enter, one option is to take the first nibble at this first price area, and a secondary position could be taken should gold make it to the bottom of the channel line near the 1000 area. This would give gold two key areas to bottom in and would be less of a risk using this scale in method for new entrants who have been eager to participate.

The second area of interest is the 200 day moving average and the lower black price channel line on the gold chart above. If we add a plus or minus $25 dollars to this area, we would come up with the 950-1000 area where a potential gold bottom could form. Using the example above, this is where one might contemplate a secondary position.

From a technical perspective both of the areas we’ve mentioned is an important price point on the chart using various methods of calculations for price retracement and support areas. If one is trying to build an entry plan into this market the above EXAMPLE is an excellent way for one to plan and execute a simple entry strategy that has more than one entry point as part of the overall plan. I am not advocating you use the above example, but that you have a plan of your own rather than just enter anywhere on an emotional whim.

In order to be successful in the markets there is really only two things one needs to know. How to enter a market and when to exit one is the bottom line when the scores are tallied. If you have an entry plan, and an exit strategy, your chances of success will be much greater.

Gold Outlook

The 13 month old bull market in gold has an incredible $540 dollar run behind it a short time. This is significant when you consider that for all of history, gold was under $700 at one point last October. The best part of the seasonal run on average is behind us. But that is on average. In bull markets, gold has the tendency to run higher in the mid winter to early spring timeframe. The bullish fundamentals and news of nations and central banks buying gold, the short supply in the physical markets, the rumors of physical shortages at the exchanges, the debasement of paper currencies via the printing press, and the “LOSS OF CONFIDENCE” in world government provides a powerful incentive for potential price increases in gold.

What could derail the train?

It seems there is only one thing that has been able to affect the price of gold to the downside and that is the potential of a mass debt default. This observation is based solely on the fact that the 2008 global meltdown had a direct impact to the price of gold and so far, it seems that the Dubai situation has also coincided with a downdraft. That is not to say that investors wouldn’t flock to gold this time either. They very well might. Suffice to say that should further escalation begin to surface in the debt area, one should be aware of the potential implications for gold. On the bullish side, one can say this. Gold has been the only major financial instrument to make NEW highs since the last debt default.

On the upside……….

From a pure chart perspective in this report, the upper channel line on the gold chart at the 1250 area is an area where we should expect a significant resistance area. Should all the bullish fundamentals come into play and the perfect storm develops for gold, then the breakout above the 1250 area will be even more powerful than the one we saw when gold broke above the 1070 area recently and should provide another leg up into mid winter and or early spring.

On the downside………..

We’ve already pointed out the two key areas to watch (near the 50 and 200 day averages and the upper and lower black channel lines on the chart). Odds would favor that one of these two areas will provide a meaningful or at least a trading bottom for gold. A rally back up from the 50 day moving average that fails to exceed the upper black channel line at the 1250 area would leave the door open for more consolidation in gold’s price over the coming month. Failures at the 50 day average might provide impetus for a test of the lower boundaries of the channel.

The bottom line………..

From a seasonal standpoint, odds favor one more push up into mid winter. We feel the key area to watch price action is at the upper end of this channel line. A failure to move above the upper black channel line would provide the peak for this current leg and a correction into the spring would unfold. A move above this line would suggest the next bull move is underway and would prolong the gold rally into a later timeframe in 2010. We feel that the 1250-1325 is the most important price area over the next few months. Short termers should pay attention to the 50 day and longer term investors at the 200 day average and the lower black channel line. For seasonal players, some profits out of GOLD and INTO CRUDE OIL during the FEB/March timeframe is usually the ideal time for crude to take over the lead in price appreciation. And with that said, let’s look at the crude oil market.

In the seasonal chart below, we can see that the main area where crude oil usually bottoms is the FEB/MARCH time frame on Average. I suspect that all the calls for $100 dollar oil over the past few months has been temporarily delayed due to the seasonal tendencies of the crude oil market. Indeed, the current downdraft is playing right along with these aspects. We can see that coming up, there usually is a slight bounce in December to January, and from there, a major low into late winter. In a bull market, crude can and does sometimes bottom in December and the pullback in winter can at times provide a higher low. Purchases at the seasonal bottom have two key liquidation times on average, April/June and/or October/November.
The weakest part of the cycle as we can see is the October thru February timeframe, a timeframe we have now entered. (months are below this chart…contract month above.)

Commodity Trading

In the Crude oil market, the seasonal tendencies are much more pronounced and to some extent, the timeframes are more consistent.

The chart below of crude shows some interesting seasonal highlights from last year. First and most important is the seasonal low in December, the January bounce, and the final low at the end of February and beginning of March. This was a perfect seasonal move. From there an April move began to pullback, but the bullish action ran it higher into June and crude peaked very late. The seasonal chart calling for a July low was a very short 4 to 6 week affair. However, it did produce the seasonal July low right on time. From that point we rallied right to the end of October and peaked at the 82 dollar area right on the seasonal date for a turn. Since then we have dropped all the way to the 69 dollar area.

The end of December approaches and an initial low is due soon in crude. A look at the chart shows the 65-70 dollar area is a key spot where the 200 day moving average and the current daily trend channel lie. On the technical side, RSI is near the oversold area, and Williams %R is nearing that area as well. A longer term support area is the fat red line just above the 55 area on the chart. Odds suggest that a rally attempt should develop from this 65-70 dollar area. SHOULD OIL MOVE BELOW the 200 day average at$ 65, then the potential for a move below 60 towards the red support line will be a potential area for a late winter bottom.

Look for December or March to provide the lows in crude. March is a great time to trim a few gold profits and funnel them into the crude oil market.

Commodity ETF

These are interesting times for commodity investors and it is important to be looking at all aspects of the markets. Seasonals are so often overlooked, yet they provide a guideline for what to expect and when to expect it. At our website, we are following the seasonal trends of gold and oil always analyzing the price charts looking for low risk set-up trades and/or entries for our subscribers. We invite you to visit our site and have a look.

If you would like to recive my Free Technical Commodity Trader Reports visit my website:

John Winston
www.TechnicalCommodityTrader.com

Nations who depend on consumption from the USA have little choice but to extend credit or face economic contraction in their own economies. And while debt has reached 12% of GDP the foreign support of the dollar and treasuries continues for the United States. But there are changes going on. Most disconcerting is the fact that China has been rolling over its debt from the long term bond to the short term Treasuries, which basically pay zero. While there has been little fanfare over this development, one has to wonder why China would forgo a 2 – 3% rate of return in favor of a zero rate of return on investment. This much we know. They have moved their seat in the theater very close to the exit door.

When your biggest creditor moves his seat that close to the exit and the movie is not even close to intermission, one gets the impression that the film is not pleasing to them. Now it would be one thing if China were a paying customer viewing the film. But they are not here to pay and watch the film. They are here to lend money to the filmmaker to use the money to distribute the film to the consuming audience. Let us hope they stay for the remainder of the story.

There can only be one reason interest rates are so low at a time when the monetary base is so expansive and that is that the central bank policy is to avoid a depression and attempt to jump start the economy. While the lowering of interest rates was a success during the Reagan era, it came at a time when interest rates had just completed a cycle high and inflation had completed its run up from the consequences of the US Dollar coming off the gold standard.

The most recent bank bailouts can best be described at this. Cash was distributed to the banking sector to shore up their balance sheets. Instead of taking this money and lending it to industry, it took that cash and deposited back with the Feds by buying up the Treasury curve. And to understand how the stock market can rise at a time like this is simply the consequence of funds and government insured deposits along with Fed liquidity that is channeled from the banks to the hedge funds where the money is put to work in a speculative manner. This “free” money is creating bubbles in Hong Kong real estate and other Far East markets too.

We’ve arrived at a time when the price of many commodities and other financial instruments trade in direct opposite to the US dollar. This brings us to the realization that many markets are invested in as a short position against the US dollar. What else would explain such phenomena?

In 2009, it did not matter where you invested, as long as you stayed away from the US dollar, you’ve done well.

Commodity Trend Trading

In Crude Oil, we can see that 2009 has produced a doubling of price. Many analysts are now setting their eyes on the 100 dollar level. However, the most recent breakout in price has not followed thru and instead we have gone thru four weeks of sideways price.

Commodity Trends

A quick glance at the seasonal chart above shows us why. Crude Oil has just arrived at its weakest seasonal time of the year. The October thru February period on average usually brings lower prices. If we zoom out and look at the chart on a longer term basis, we can see that there is an important band of resistance that exists from the 80-95 dollar area of crude.

Trading Commodities

When we combine this factor along with technical indicators that are flashing a potential loss of momentum, we can see that the odds of a strong rising crude price over the next few months would warrant caution here. A lot will depend on the strength of the US Dollar, the supply side equation or a geopolitical event to provide impetus for higher price. However, a move above the highs established in October might provide a burst to the 95 dollar area. But beyond that, while we recognize that price always rules, it would seem the seasonal favor sideways to lower prices on average. This is further confirmed when we look at the seasonal aspects of the US Dollar (chart below). The chart is telling in the fact that it shows the US dollar for the most part, spends most of its time sideways to lower. However, the mid November to mid December time frame is one of these exceptions where the US dollar usually bounces higher. Thus over the next month or so, on average, the crude oil market is most likely to trade sideways to lower and the US dollar should incur a bounce.

Trading Commodity Trends

Bottom line: Crude oil support is the 60-65 area and the 70-72 area based on the moving averages. As long as crude remains above the 72 dollar area, the trend remains up. Should crude oil move above the 83-84 dollar area, then a contra-seasonal rally to the 95 dollar range would be the most likely outcome. Barring a geopolitical event, the crude oil market usually moves lower during this time of year. As long as crude is below the 83-84 area, odds favor lower prices over the next month and potentially into February. Going forward is another story. The lack of planning for an oil emergency in this country could have crippling effects. Can you imagine a crunch during the farming planting season? Since most everything is tied to crude oil prices, it should be on your radar constantly. If peak oil is a truism, there are much higher prices coming in the future for most commodities.

The market that has stolen the spotlight lately is the gold market. While a 20 year bear market went a long way to destroy gold’s image, the first decade of the 21st century has belonged to gold. From its lows of 250 dollars, gold has now climbed almost 900 dollars higher and sits at a historic price peak relative to the US dollar.
Gold is another market that usually sells off in the October and sometimes November time period. True to its cyclicality, gold peaked on October 13th and pulled back into month’s end. However, as soon as November arrived, gold did what it has been doing since September, and that’s rally. As soon as the pullbacks begin in gold, contra-seasonal news hits the street and propels gold higher. In September it was the Chinese telling its citizens to buy gold and silver. In October it was India buying gold and we think this most recent rise might be due to the developing story that tungsten is being discovered in gold bars. While some people last week pointed to the fact that this story is not a new one we want to point out that it sometimes takes a bit of time for investors to grasp the big price changing stories. It’s almost like when you hurt yourself really bad. There’s a time delay before the shock or pain really sets in. We suspect that the gold market may be waking up to the fact that all is not right. We are not certain, but it must make some very uneasy.

Whether this is true or not we cannot dismiss the fact that many countries are in the process of calling their gold out of storage and demanding they be returned back to the mother countries. To me, these are signs of uncertainty and fear and not just prudence. Time will tell.

Gold Trends

Now if all is well in the gold community, why would countries call their gold out of storage facilities? Can you think of any other reason besides CONCERN? Why would you take your money out of your local bank to store it home? Think for a moment the potential for panic as 400 ounce gold bars get drilled and tungsten is found in the middle. Now this is all speculation on my part, but it is something that bears (no pun intended) watching over the coming weeks.

The one thing that we are not speculating on is the price chart. We can see that there is no doubt that gold has broken out to the upside in very strong fashion. So strong is gold that the overbought readings are their highest since 1981. Over the past few weeks we continue to make new highs at a time when gold should be correcting. Now we are approaching an important price point on the weekly chart which should give us clue as to whether gold will finally produce a pullback. Notice that the weekly chart channel that has been drawn shows a potential price resistance area directly ahead of us. The 1135-1150 area is an area where gold should at least see some type of pullback. We say should because gold has traded above this channel line once before during the peaks of 2008. However, it was also a key resistance in the November timeframe of 2008 and the 2009 February price peak. That we have arrived back at this resistance line a full year later is interesting and from a cyclical standpoint, is suggesting that it could be an important price and time area.

Gold Trend

We can see by the gold seasonal chart that November usually has a quick and sharp mid month pullback and a higher price into month’s end. More important is the overall trend for November and December and that is sideways. The 2007 bull market in gold saw a November and December sideways price pattern during its bull run, might we see the same thing this year?

The point we are trying to make is barring a panic up move, the odds that a pullback in gold is due is high. Yet, when a major move is underway in a market, this is always the circumstance. The market just keeps going higher until (or so it seems) those who have been waiting to jump on capitulate and jump on. You probably already know the rest of the story. The market peaks a few days or a week later and a good correction sets in. So what is an investor to do?

In order to avoid making decisions like this, an investor needs to make a decision before these moves have covered so much ground. While it is never easy buying at high prices there are times when price must be perceived differently. Gold is only $300 dollars higher than its 1980 peak. Does that make gold feel cheaper? Even if it doesn’t there is one thing you need to consider.

For gold to have exceeded its 1980 price is a very bullish development for the simple reason that it tells us that demand has returned to this market. This year’s pullback low was the same price area as the 1980 high. Since then, it has rallied almost 300 dollars.

During the last 19 months, gold established a new ceiling, the triple digit 1000 United States dollar area where it would always run into resistance. While gold was a victim of the meltdown of 2008, a closer look at the chart shows that it was a courtesy drop and with the exception of a monthly close of 728 at the height of the crash, gold was the first commodity to bottom, a full 5 months before the stock market, and is the only commodity to establish a post crash high. The fact that China, India, and central banks are buying gold certainly must send chills down the spine of the ponzi scheme dollar printers and the massive short positions in gold. The fundamentals……….and accompanying price charts all seem bullish for gold.

If this is a super bull market it is really just beginning to accelerate.

We are at a point in the gold cycle where entering here can be risky due to the overbought condition of the market and its potential to pullback is a consideration. This is why it is important to first recognize important long term price points like 1000 in gold and to have an entry and exit plan to participate in a market that is moving. The difficulty with not acting when one should is that the average investor wants to buy when prices are low or worse, waits for the pullback that never comes. In a REAL BULL, the pullback doesn’t come. So there are times when major price points are exceeded that entering the market is prudent. The breakout above the highs of March 2007 and subsequent rise higher is developing on a weekly chart and is therefore much more powerful that a daily breakout. Consequently the price ranges expand and the moves also become more pronounced and investors have to make decisions WHEN these breakouts occur, not 100 bucks higher.

Gold has given us clues to its strength by making the 2009 low equal to the 1980 high, and then successfully hurdled 1000 and held. Its first pullback since the rally above 1000 dropped to just under its March 2007 high and since then, the STRONGEST part of the rally has developed.

From a cyclical standpoint and from a price resistance area, this coming week and the 1135-1180 area in gold stand a good chance of providing a peak and 2-6 week pullback. This is the most likely scenario, however, when markets reach this level of momentum, the market can at times ignore all technical factors and just continue higher. For instance, gold demonstrated a few weeks ago that it was not afraid to rally even when the US Dollar was moving higher. These are very bullish developments.
All of these indications seem to suggest that gold is in a major bull market albeit in need of a pullback to take some of the froth out. As far as a “b” wave potential, I am not an Ellot Wave expert, but know enough to be dangerous. My take is this. If gold doesn’t peak here, and moves above 1200, I just can’t see how one could justify this as a bear market wave. Still there are some worrisome factors. Silver, Platinum and gold stocks are well below their highs and GOLD IS ALONE as the one moving higher. This is usually a bearish development in the metals and the only exception would be that gold is in a super bull move.

From an investor standpoint, the key is having a battle plan for your entry and exit tactics. The crude oil and gold markets can provide a nice way to hedge against dollar depreciation, but we must always remember that the geopolitical and demand supply economics must be included in the mix.

Gold’s wild card is it is the currency of last resort. If a global currency meltdown or panic occurs, gold will be the safe haven. On the other side of the equation, is what the ramifications are for gold should the world experience a credit contraction. (Depression). Should one be long GOLD or RICE?

In closing, we think the oil and gold market while still in up trends, are susceptible to seasonal influence here. Gold is currently the market of choice, but should OIL MOVE above that red resistance line, a quick rally to the 95 dollar area could develop fast. As long as oil is below the 84 dollar a barrel area, we think the seasonal favors a pullback. In gold, investors should be looking for a pullback to which they can jump onto in this strong market. We think the upside is limited to the 1135-1185 area over the coming weeks and that a healthy pullback would be good for the gold market.
Whatever direction gold and oil take one needs to be following the overall trends and looking to identify the price areas and times where nice set ups occur so as to enter with the least possible amount of risk to the trade. If that sounds interesting to you, we invite you to stop by our website, kick the tires, and see what tactics we are looking at in the oil and metal markets and suggesting to our readers.

Join my Free Commodity Trading Newsletter:
By John Winston

There was a time not so long ago on this planet that obtaining information on gold, be it fundamental, technical or quantitive was a daunting task. From a technical price perspective, if you wanted to look at a chart you had two choices. You could buy the Wall St Journal, get the price, and then draw (yes draw) your price chart. Or you could mail order for a yearly subscription to one of only a few companies that provided this service. Every Thursday or Friday you would get your charts and then spend the weekend drawing Thursday and Friday’s bars on your chart and recalculating your indicators for the upcoming week. Your charts were only updated to the preceding Wednesday because they had to be printed and circulated to subscribers. So for every stock or commodity you tracked you had to take a pencil or pen and update all of those pages with price bars from the past few days.

Now if you wanted fundamental information there was the Wall St Journal, the Journal of Commerce, Annual reports from mining companies, and the local Library. I mention this not for a nostalgic look back, but to make a point about how difficult and time consuming it was to obtain basic information that we whip up on the internet now in a matter of moments.

We are clearly in the information age and the ease of “info at your fingertips” has spawned a whole new bull market in….technical analysis and information gathering.

Whatever your opinion you may have of the precious metals future price, there is information out there to justify your “position.” Myriads of information. This can be very dangerous for the individual investor. No matter how much we’d like to think we are not biased and opinionated, there is no way around it. It is inherent and in our nature. The exceptions are rare. What usually happens is we tend to gravitate towards the information that most fits our view of the market’s future price direction. And this type of information is especially powerful when we hold a larger than we should position in a stock, or commodity sector. And there are many voices (commentary) out there mixed in with an incredible amount of supporting data. The investor is left with the problem of sorting it all out by himself or procuring the services of a market maven to assist him with the details at hand. And even there I have seen a good analyst go from bullish to bearish and actually get subscriber cancellations. Unfortunately, this makes it very difficult for the analyst to remain unbiased knowing if he/she becomes a bear, and then subscriptions will suffer. Who do you know who’s a bull in gold or any other commodity for that matter that accumulates bearish data and subscribes to an advisor who is an outright bear?

The proliferation of analysts and websites on the internet are many.

In order to be successful the advisor must have made some good/great calls at some point in time, and must have a good reputation. Most importantly is how the advisor performs when a trend change develops. A perma bull analyst who had services in the 90’s for stocks must have built quite a reputation by just being long. But what were their results in this last decade?

If you’re a perma bull there are subscription gold advisors and websites that held thru the entire collapse of the Mining stock sector where week after week a new “support” area would be chosen, a new channel drawn, and another key CYCLE would be due to bottom. One advisor, in order to remain bullish during the crash of 2008 would change indicators to suit their outlook. Near the end it got silly as the moving averages would be lengthened as long as it took to make the moving average look like it had not been broken by the price of gold during the bull market. I think near the lows the advisor was using a 21 or 29 month moving average on his long term charts. You’d look at it and it would show all the lows holding and of course the latest low was showing resting right on the line too !!! The advisor would go thru all the reasons why the low was about to be made, and if one got off he/she might miss the train.

The reality was that most of his subscribers were in STOCKS and not gold the metal. While gold was only dropping 30 percent the gold stocks collapsed. At their lows in 2008, a lot of investors had been pistol whipped to the tune of losses from 50%-70%. Those who used margin by buying the major producers and then using their margin to buy the junior miners lost everything and were wiped out even before the low arrived via margin calls.

On the other side of the aisle are the perma bears. There are some very famous ones too that have been allowed to be perma bears for many a year. There was a certain bear, who in all fairness called for a rally near the lows in gold. But in his view this was only a bear market rally in an on-going bear market. He called for a rally to 420 and was right on the money all the way up. Now we are talking a guy who had been bearish since the peak in 1980 and the results spoke for themselves. He had been correct for 20 years on the long term price of gold. And by the time we got to 420 in gold, he gave his first sell signal. Then a second sell signal at 460. By this time of course he had built up quite the case as to why gold was about to peak. How gold doesn’t do well in a recession, and how the US dollar was still in a bull market and was just going through a correction. Well by the time we got to 480 his case data read like a dossier. He gave us the millennium cycles, the historical data from the last great depression, actually making a case that Homestake mining only went up after the whole stock market bottomed.

Finally in great detail, he laid out how the psychologies of the masses were not ready for a bull market in gold. At that 480 level in his own words he said to his audience “This is your LAST chance to short the precious metals at these prices for a long time”. He was right on that call. It was the last chance to short gold at those price levels because gold just took off and we never saw those levels again. And do you know what? He has remained bearish throughout this entire rally all the way to today.

Now the above examples are not extraordinary just because each call could not have been more wrong about market direction. What is extraordinary about it is they still have a huge following. Granted there must have been a lot who left (what else you going to do once your broke) but the process of wiping out entire client fortunes are not achieved overnight. What happens is that once the “clients” are committed on the wrong side of the market, the advisor babysits himself and his subscribers throughout the demise of their equity account by assuring them at each new high or each new bottom that “this is it.” This is the bottom and the bull or bear market is about to resume.

And that leads us to today. We have so much information at our fingertips. I recall reading that a study was made to determine if investor performance of today has improved along with the information age. It hasn’t.

Fortunately there are advisory services that are not afraid to follow the trends and are willing to be bullish at times and also bearish when price dictates. Twenty year rallies are the exception not the rule. And even during bull markets, there are times when one needs to be bearish as most bull markets suffer at one point or other pullbacks that are as deep as 38% and even 50% or 61%. The commodity chart below speaks for itself. One must be flexible in the world of commodities because at the top, few were bearish.

Goldman Sacs Commodity Index

Goldman Sacs Commodity Index

Recently, after a long consolidation of five months the commodity markets have come alive again as price has broken out to the upside. With the Asian miracle there have been new demands on food and energy to the global supply as an increase in wealth always brings new demand.

With the onslaught of fiat currency and the mass printing press of the United States and the loss of confidence in various governments, the investment world is also shifting towards gold and silver as a means of preserving their purchasing power. Taken in context, the fundamentals for food, energy, and hard money assets (barring another meltdown) favor the upside. The crude oil chart shows how close it mirrors the commodity chart.

Crude Oil Commodity Price

Crude Oil Commodity

Here too we see that crude oil has recently moved out of a consolidation pattern of pretty much the same length of time as the GS commodity chart. In both charts, we see that we are not that far away from price resistance. Now if all resistance areas halted each commodity price appreciation, it would not be called resistance. It would be called “the top.” So while the resistance for crude is going to be the 90 to 110 area over the medium term, the key is going to be providing the analysis of whether we get through that area. And that’s where an unbiased investment advisor becomes the important factor. The chart above clearly demonstrates that you cannot buy and hold oil forever. (You can but your results will not be that good. There are some who bought above 140. But even more important, even the ones who bought at 90 are looking at a zero net gain over the last two years. So we think buying and holding is not a good strategy. If you’re the type of person who uses an advisor, you would be well served with one who follows the trend, is patient and waits for low risk set-up’s for his clients. That is our number one goal for our subscribers.

This recent breakout in energy and commodities is one that we’ve been watching and we think that the possibility of trend resumption has merit. Let’s look at one more market.

Gold Commodity Prices

Gold Commodity Rrice

Since the meltdown of 2008 there is only one major market that has broken out to new highs and that is GOLD. Shunned as a barbaric metal for over 20 years, gold has quietly rallied 4X over this decade. More importantly, it has broken out to new historic highs after a long 19 month consolidation pattern. Long term price breakouts of this fashion can produce great price moves and the prospects for gold, when viewed in relation to what is happening in the United States, suggests that the potential for an inflationary environment down the road is one that is difficult to dismiss.

All of the demand/supply prospects look very bullish for gold and should investment demand increase from here, it could (and is already) overwhelming the demand. With the advent of ETF’s the ability to buy commodities like crude and gold has been a huge success as far as providing vehicles for investors to participate in these commodities. But as we’ve seen, there are times you need to be out of the market. If we think about it for a moment, knowing when to get in is certainly important to success but knowing when to get out is the KEY to profits in markets like this.

Over the past few years, it was easy. Get in and stay in. We think over the next few years it’s going to be a lot more difficult as volatility is the order of the day. Crude’s drop from 147 to 35 is a clear demonstration that “holding” for the long term might not necessarily be the best way to go. While the fundamentals are known today, we can expect one thing. And that is that fundamentals will change. Crude is an excellent example. At the turn of the century, guess what was a key energy source? WHALE BLUBBER. Sounds incredible now but such is the case. Petroleum’s only use was Petroleum Jelly. Remember that stuff? Petroleum is now the main supply of energy for the entire globe. Can you imagine telling a whaler 100 years ago that the stuff (petroleum jelly) that you rub on a baby’s butt to keep it dry while in cloth diapers was going to replace whale blubber and become “the” worlds main energy component and that the world would consume 400 million gallons of petroleum a day by the turn of the next century? You would have been laughed off the docks.

How about gold? Can you imagine telling someone 100 years ago that real money (gold), the stuff used since the dawn of civilization would be replaced by ……PAPER. Not only would it be replaced by paper, but less than 2% of the world’s population would even own gold. Then you would lay this bombshell on him/her. Even though paper has replaced gold and that less than 2% of the population own gold, the price of gold would rise from $20 dollars per ounce to 1000………..a fifty fold increase. Surely they would look at you as if you were some nut. You could carry on with your story. You tell them that the United States government would confiscate all gold from its citizens, pay them $20 dollars for their gold, and then once they had it all, they would revalue it (overnight) at 35 dollars. Then they would make it illegal over the next 40 years for you to even OWN any gold. Can you imagine the look on their faces?

Since the dawn of civilization gold has been real money. However, in most of our lifetime that has not been the case. Real money (overall) does not lose its purchasing power. But paper money does. We can even make the case that the PRICE OF ANYTHING in the long term does not go up. What you’re really seeing is the value of the paper dollar going down. Here’s what I mean.

In 1908, Henry Ford sold his model T cars for $850 dollars or 42.5 ounces of gold. The base price of the all-wheel-drive 2010 Ford Taurus SHO with some (but not all) options comes to about $42,500 dollar or ………………………42.5 OUNCES OF GOLD!!!!

Any questions?

Now that we know what real money is, don’t you think its time you started buying some? If you’re answer is a resounding yes, and you have never done so, do yourself a favor. Get the services of someone who is familiar with the trends so you can have the confidence to buy some. If you don’t, 100 years from now some person will say something like this to another person. “Did you know 100 years ago, given the choice, people used to keep their wealth in paper instead of gold even though they knew that they would lose 90% of their purchasing power?

Think of how much more sophisticated the new 2010 Ford Taurus SHO is comparatively speaking to the Model T. Yet the price, in terms of gold has not increased one iota in all that time. If you don’t own gold, do yourself a favor. Get some. If you don’t have an advisor who is tracking the market for you, get one. One that follows price trends.

Let’s take a look at one more chart.

Recall the story about whale blubber and how a SUBSTITUTE eventually arrived on the scene? The chart below is a chart of Natural Gas. As you can see, it has incurred a tremendous drop as it saw prices that were near 10 year lows. Recently natural gas seems to have made a MAJOR LOW in price. The move is in its infancy and for the last month we have been consolidating. While gold and crude oil are well along their way in their bull markets, Natural Gas is really just beginning to show signs that a major long term trend change may be in the making. Now is the time to seek out opportunities in this upcoming market. This is a market that has the potential to increase its usage in the area of transportation and home energy. Already cities use natural gas for their bus fleets and the technology to burn cleaner increases every few years.

Natural Gas Commodity Price

Natural Gas Commodity Price

In summary, the potential for the world to move away from paper is growing in leaps and bounds and the growing demand for energy is rapidly expanding. The advent of ETF’s and other investment vehicles has made the participation of these markets to the average investor easier than it ever has. Gold is in a major bull market, crude is the horsepower of the world, and natural gas is a market that has probably put in a long term bottom and has the potential to do what crude did to whale blubber.

The charts also demonstrate however, that drops of up to 75% can and do occur in these markets. It also shows that 400% increases (gold) and 1400% increases (crude from $10 dollars to $147 this decade) can also occur. Thus the ability to cash in on these markets requires only two things. Knowing when to get in and knowing when to get out. We invite you to come to our website and follow along with us as we analyze the trends of these markets and look for low risk set-ups to enter them and participate in their current trends.

If you would like to receive my free weekly trading reports join my free newsletter at:

John Winston

Gold momentum Trading Newsletter Chart

Really, when you stop to think about it we all tend to make the practice of successful trading and investment harder than it really needs to be; we apply dozens of conflicting indicators and then listen to too many different points of view, and then wonder why we’ve become powerless to choose just which side of the market to be on. Sound familiar? It should, because if we’re all honest about it, everyone who’s ever traded and invested for any length of time has probably found themselves mired in a similar situation, one in which confusion and fear overshadows sound logic, long-term fundamentals and high probability patterns of momentum, support and resistance. So let’s simplify things a bit, right here, right now, starting with this easy-to-decipher weekly chart of the cash Gold market.

Glancing at he chart above, we see three easy-to-understand chart dynamics at work, as follows:

1.) Gold has successfully broken above a significant swing high, the one made in March 2008.
2.) The spread between the 12 week and 50 week exponential moving averages (EMA’s) is widening, implying increased momentum.
3.) The A-B-C swing dynamics (with point ‘A’ being a major swing high and point ‘B’ being a major swing low) are suggesting that Gold will continue up to meet the Fibonacci 127% extension price near $1,091.00.

None of these technical aspects is especially significant in and of itself, but when all three are combined and the ‘big picture’ view takes center stage, these three unique chart dynamics work together to paint a very bullish near-term future for the price of cash Gold. It’s also helpful for Gold Bugs to note that Gold hasn’t broken down (in percentage terms) to the same extent as have the broad US stock indexes, such as the Russell 2000 index and the S&P 500 index, each of which are off by more than 5% from their respective post-crash 2009 highs as of this writing. In fact, at some point in this ongoing Gold bull market, we may very well see the price of Gold completely de-couple from any semblance of correlated movement with the broad stock market indexes, as investor concerns over inflation and dollar devaluation trump all other considerations. And even a small percentage of money pulled from the stock market – subsequently re-invested in the Gold market – could make such a ‘de-coupling’ an event worthy of notice by millions of investors, worldwide.

For those investors who may be wary of putting large sums of cash to work right now in the Gold market, here’s a possible way for you to dip your toes into the water without fear of getting in too far over your head. First off, if you believe that the current Gold bull market is a generational event, one destined to run higher for another five years or more, then why not consider putting a modest ‘core’ position to work now, one that you’ll hold for the remainder of the bull market? Then if the price continues higher, you can be glad that you didn’t miss the boat entirely. If prices pullback somewhat, you’ll be happy that you didn’t buy too much of a core position even as you re-evaluate the long-term technicals and fundamentals, to see if putting on additional trading or investing positions is a wise course of action. The future is unknowable, for the most part, so taking an ‘easy does it’ course of action at this point might be just the ticket for those who are late to board the eight-year run in the Gold market. For those already long Gold, keep an eye on that 12/50 weekly EMA spread; with Gold looking as if the Fib 127% price level at $1,091.00 could act as a defacto ‘price magnet’, an ever-widening spread will be the tip-off that Gold intends to hit that 127% retracement price sooner rather than later.

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John Winston

Futures and CFD trading alerts for virtually 24 hour trading. Alerts are based weekly, daily, hourly and 5 minute trading charts. Using hard stops and trailing stops allows us to trade around the clock as positions mature during times we are not available to watch our screens.

Trades vary in holding times from a few minutes to several days depending on market volatility and current trends.

Gold Futures Trading – Coming Soon

When you get right down to it, no matter what techniques one might rely on for his investment decisions there is one thing that they all have in common.  In order to be successful an investor has to be on the right side of the longer term trends. We are all bombarded with daily charts and sometimes weekly, but looking at the long term monthly charts can reveal areas where price on the long term has historically shown to be important turning or continuation points.  Not only do they give you a perspective or where price has been in the past, it gives you an idea of where price is now in relation to where major peaks and bottoms occurred. A great example of how a long term perspective can influence an investment or trading decision can be seen in the Corn chart below courtesy of Moore Research, Inc.  http://www.mrci.com/pdf/c.pdf A quick look at the chart and we can see how the $4.00 area has been a major price turning point in the past.   Over the past 38 years, $4 dollars (with the exception of 1996) had been uncharted territory.

Corn CBOT

I’ve used this example because it is relevant right now as Corn futures are knocking on the $4 dollar area.  But now that we’ve seen a long term chart, we can see how significant this price area is to this commodity.   On the inverse, we can see historically that buying Corn at/near/or under $2 dollars a bushel over the past 38 years was buying when price was cheap.  Of course it’s not that easy buying 5000 bushels of corn and storing in your basement and trying to re-sell it a few years later.  However, I am using corn for illustrative purposes and we will look at the Crude, Natural Gas, and Gold markets after this exercise.  Having viewed the chart we can now see how the $4 dollar area is kind of like a pivot point going forward here.  Either it’s still a long term price point where corn will turn down or it has the potential to become a floor for long term price.  Armed with this knowledge one can at least formulate a decision making process for corn and better understand if the price fundamentals are about to change on a longer term basis. Now we can also surmise the following after having viewed the monthly corn chart.  First, either corn is at or near a potential major peak in price or the long term fundamentals of supply/demand are changing.  And there’s a third possibility.  The US Dollar’s weakness is affecting the price of corn.  To elaborate on the third possibility, it seems that the commodity and financial markets has become a one way street.  For the most part, the stock and commodity markets all rally together when the dollar is dropping in value and the opposite when the dollar is rallying. During the latter part of this decade adding currency fluctuation into the analysis is a must. This history of paper money is littered with great dynasties that have come and gone.  Even in the days of Rome, the beginning of the end could be seen in the amount of gold purity that was contained in their coins.  Near the end I read somewhere that the gold coins had less than 10% gold and substitutes like bronze was used in the making of the coins. Over the 20^th century little by little the same thing has happened to the currency of the United States.  From the confiscation of gold during the great depression, the Bretton Woods agreement to finally Richard Nixon’s removal of the US Dollar from gold, the US Dollar has become nothing more than a piece of paper backed by nothing. On that fateful night Nixon was heard afterward to say “Now……….we are all Keynesians.” About 36 months later the stock market bottomed at 577 and over the next 40 years, would rise to a high of 14,000, gold would move from 35 to 1000 and crude oil from $5 to $150. (At their respective peaks).  And that brings us to the world we live in today. The status of the American dollar from which the term “it’s as good as gold” comes from, has become a currency that has lost the credibility of the global world and while it is not being reported, a mass exodus is underway by the nations who are holding most of it.  Its rejection will bring profound changes to the wealth and power that the United States once commanded.  The pillars are being removed slowly and while no one has noticed that much, it will be obvious to all when the building finally comes crashing down. Throughout this global debt crisis, each tool that has been wielded by the Federal Reserve has rendered no results.  At first, we were assured that the situation would be remedied, but we have to ask ourselves, what can the Fed do?  They have fired all of their bullets already. Today besides other currencies, the world’s basic substitute for dollars is oil and gold.  There is already a move underfoot to no longer price oil in US Dollars, and when that happens, the power of the USA will greatly be usurped. Since oil and gold play’s such an important part of our financial world and is at the center of headlines, let’s take a look at the long term charts to get a price perspective of where we are at. First up we have the long term Crude Oil chart.  Recall the importance of the $4 dollar area for corn and we can see that Crude Oil has the same long term PIVOT point with the exception that it’s $40 dollars and not $4.   We can see how IMPORTANT the $40 dollar area is and we can ask the same questions as we did with Corn.

Crude Oil CBOT - NYM

We can see that the 1990 Desert storm spike was right at the 4 dollar area and was a hint of things to come.  Forty dollars has an important element to it as well.  Recall that we had a mini recession in 1991 about a year after oil had hit $40.  Now move over to the year 2000.  Notice we had a peak at $40 there as well.  Shortly after that, we were in a recession.  As a matter of fact, that recession ended not long after the 911 event.  Who in USA can’t forget George Bush telling us to all go out and spend money? We can see that the collapse from the highs near 150 bottomed just below the 40 dollar area and interestingly we’ve been through the deepest recession in 80 years.  Now once again oil is moving higher but this time from basically the $40 dollar area.  Is $40 the new floor for gold as $20 was during the 80’s and 90’s?  Until proven otherwise, we think yes.   And if $40 is the new $20, is $80 the new $40?  That answer we should have soon as oil is making its second foray into the 80 level with new highs this past week. The seasonal average for Crude usually peaks in this time frame and it is very possible that Crude could indeed pullback, but it will only do so if the US Dollar bottoms and begins to move up.  November is usually the strongest period for the US Dollar as well so it’s an important test.  In an average year, we probably would peak here and pullback to the 6o dollar area and form a low sometime in the January/February period. You will notice that there are three channels that have been added to the price chart. Notice this latest consolidation over the past few months in oil has been bouncing off the bottom of that line at around the 65 dollar area.  Then over the past month, we’ve broken out of that range and price has just hurdled $80. Of particular interest is the second red channel line on the chart.  This line goes all the way back to 1997 and if you look at the price action this line has provided resistance to price in 2005 and 2006.  Now if we look at the price spike of 2007 we can see that once this second red line was exceeded, we rallied to the 100 area and then to confirm the channel lines importance, price pulled back from 100 right back to the top of that trend line at about $85, and then for about three months price oscillated in that same range as oil bounced back to 100, and one more time down to 85 before liftoff to the 150 area. Therefore, we can conclude that if the oil market is not peaking here and now and it still has legs, then the most likely price event would be for Crude Oil to climb to the 95-100 area and for price to touch that second red channel line on the chart again. A final observation is that we can see how the lowest two channel lines have provided the highs and lows for crude oil since 1998 with the exception of the 2007 overshoot oil mania and the 2008 meltdown liquidation event.   And since the meltdown low was at the $40 dollar area, we believe that price is now the new floor for oil.  In fact, we think that price action will most likely follow between the two red bottom trend lines between now and February.  If this is the case, we should expect the highs to be in the 95-105 area and the pullbacks to be in the 68-75 area over the next 3 or 4 months. This brings us to the currency situation affecting the global marketplace.  Up until recently, government debt and printing of money had been done in a somewhat orderly fashion, and for the most part the ravages of inflation were well masked with cheap labor from the developing nations. But as in the last war (Vietnam) this war was to be no different.   Combined with the fact that USA has given its industrial base to China, the latest war on terror has proved to be a deficit killer.  The final straw of course was when the real estate market collapsed but the cracks and fissures had long been developing.  In fact shortly after the 911 event, when the USA reflated its markets that one final time, the commodity known as gold ended a 20 year bear market and bottomed at the 250 dollar level.

GOld CBOT - CMX

The long term view of Gold shows that as $4 dollars is to corn, and $40 dollars is to gold, the chart above suggests that the $700 dollar area is most probably the PIVOT point for gold.  We can see that although 1980 did have a spike to $875, the chart reveals that 700 (or just slightly above it) was where the price rise was really contained.  The 2006 high was also at 700 and spent almost a year and a half bouncing off that area before it blasted thru to 1000.  Finally, the subsequent 2008 meltdown low was right at the $700 dollar area.  We think the weight of the evidence suggests that $700 is indeed the new pivot. From this chart we can see that gold’s price has been trading in its second channel from the top and like crude’s drop below its channel to its $40 dollar pivot point, gold’s drop during the same meltdown pierced its channel and dropped all the way to $700, its pivot point.  The subsequent bounce back into its channel for the past 12 months is now reaching the upper boundary of its channel line.  That line is pointing to the 1100 dollar area in the October/November time frame.  Like Crude, Gold is also due for a seasonal pullback at this time of the year.  Therefore we should be cautious when gold reaches the 1100-1150 area should that price level be realized over the next 2-4 weeks. Now with that said, the question arises as to whether gold could break above that channel line.  Usually channel lines, when broken, are the result of price having tested and bounced off it for a period of time.  In this case, while there have been no price hits on this channel, we see that the highs of 2008 were very close to touching that line.  And the latest bar on the chart is also very close to touching that channel. Sometimes there are price spikes that develop at these price points.  The 1980 high is one example.  But more to the point, 1983 and 2006 witnessed spikes above the red channel line.   The potential for gold to do the same on this current rally is a strong possibility as well.  The most incredible thing about gold is that it is the only well known commodity to be making NEW HIGHS since the meltdown. It is an amazing thing that less than 2% of the population own form of gold.  In fact, Doug Casey’s work shows that there is only about 1 ounce of the metal available for each person on earth. That leads to the next question, how much paper money is there on earth?  At last look in 2008, it was estimated that there would be about $3000 per person on earth should it be divided up equally.  Now there are a lot more complex ways to arrive at what price of gold should be, but even in this simple method it shows that equally speaking, the price of gold should be at least $3000 per ounce. So what conclusions should we draw from the chart?  First, gold is in a major bull market, it is currently the LEADING market of the world making new historic price highs and appreciating at about a 30% clip per year over this decade.    We can see that a price high in the 1100 (and possibly 1200 on a spike) could coincide with an autumn pullback that usually develops around this time period along with Crude. The US Dollar as we have mentioned is the wild card that gets thrown into the mix.

USD - US Dollar

The US Dollar’s pivot point seems to be the 80 area.   As you can see, it always provided a support area until interest rates fell to almost zero in order to try and restimulate the US economy over the last few years.   Overall however, we can see that the dollar has a down trending channel that it is following long term.  We can see that while gold and crude are making their way to the next upper trend line, the US Dollar is making its way to the lower trend line.  And this comes at a time when the Dollar enters its usual seasonal rally. Finally, let’s look at one more chart.  Natural Gas.

Natural Gas - NYM

We list this chart because we have recently made a major low in this energy commodity.  The recent low near $2 dollars was at the low PIVOT point price.  I’ve also highlighted the high PIVOT point on this long term chart, the $10 – $11 dollar area. During the month of September, Natural Gas made a major low and a spike to the $5 dollar area brings us to the first trend line on the price chart.  We see that beyond this area, the $8 dollar area is the next trend line that price projects.  For those of you watching the Natural Gas market, think of how more confident you might have been in purchasing a Natural Gas investment had you seen where price was on the long term chart.  But if you look closely at the chart, you will see that every time we have ever hit this trend line, price has always BOUNCED off it twice.  In 94-95 there was a double bounce.  The 98-99 low had a double bounce and finally the 01-02 had a double bounce.  If history is any guide, the odds suggest we will get a retest of this area once in 2010 and a long term low will probably be established.  Armed with this knowledge, the next time Natural Gas gets anywhere below the $3 dollar level, buy with both arms.

Now that we’ve looked at the long term charts we can draw some probable conclusions

The Crude Oil market seems to have a new pivot low price of $40 dollars.  It is in a price channel that projects the range to be in the 65-100 dollar area.  The current rally on the monthly charts projects a rally to the 95-100 dollar area. The Gold market seems to have a long term pivot price of $700 dollars.  It is in a price channel that projects the range to be in the 910-1100 area .  The current rally on the monthly charts projects a rally to the 1100-1150 area. The Natural Gas market seems to have a long term pivot low price of just above the $2 dollar area.  It is in a price channel that projects the range to be in the 2-5 dollar area.  The current rally on the monthly charts projects a pullback to the pivot line one more time before a long term rally gets underway. Now that we have the long term price perspectives, we can better focus on our medium and shorter term perspectives.  But those timeframes all have their own support and resistance channel lines and their respective up and down trends within these longer term channels.  If you have an interest in following the trends of these commodities and getting some advice when great set-ups with low risk entries occur, we invite you to visit our website For more information join my free trading newsletter:

By: John Winston

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Crude Oil Seasonal Trading - Click to Make LARGER

Crude Oil Seasonal Trading Contract

The top chart is the 17 year seasonal average for Crude Oil. And right below it, we have the Light Crude Continuous Contract. As we can see, on average, Crude usually bottoms in the middle to end of February. When we look at the chart, we can see that while crude made its low at the beginning of the year, it remained in a consolidation until the end of February and then Bottomed. Coinciding with that bottom, we can see that the % R oscillator finally came out of oversold area, and the MACD histogram began to register bars above the zero line. By the beginning of March, oil had turned up, the 50 day moving average was overcome, and the seasonal low was in place.

Next we look at the seasonal and see that April is the next peak, but that price moves only sideways to a bit lower until May, where a correction begins and last into July.

On the Crude chart, we can see that the rally did in fact PEAK in APRIL and it moved sideways into May. But instead of continuing lower into June and July, a COUNTER SEASONAL rally developed and when MARKETS don’t do what they are supposed to, a strong rally catches the crowd on the wrong side of the market (like stocks this year).

However, we see that a selloff into the JULY period did indeed happen……..albeit from a higher level. The point is the seasonal pull still produced a July low and that selloff was a decent one.

Now if we go back to the seasonal, we see that a PEAK IN PRICE IS DUE HERE. (The bottom of the chart is time; the top yellow months are CONTRACT months) We can see that the most likely time for Crude to develop a correction is this time of the year. We can see that PRICE is being influenced by this seasonal as crude has been going sideways most of the month and seasonally is ready for a good pullback.

A normal pullback would see Crude at the 47 to 54 area sometime this winter. AS LONG AS MACD histogram keeps rising and %R is above 80, and RSI moves above the 50 area, the rally can continue. %R recently came out of 80, and MACD is barely above the zero area. Combine that with RSI right at 50 and the odds suggest this market is about to make its move in the next two weeks one way or another.

Here’s what to look for. If Crude remains strong (weak US DOLLAR) instead of turning down here, Crude would break the old highs and start another leg, probably into November. I believe it will have a lot to do with what the Dollar does, but there are so many other wild cards (Iran) that projections can be difficult. And I think the sideways action speaks to that.

Should crude hurdle above 77, odds will favor a seasonal delay. On the other hand, if crude were to break below the 50 day average, then the lows of September, then the odds would favor the seasonal being underway.

Next up we will look at the copper market as it is so important to the global growth of the world although not a precious metal, it is good to keep an eye on it.
We can see by the seasonal chart below that copper also is a September candidate for a pullback into the October area, then an end of month blip to November and finally a December low.

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Copper Seasonal Trading

Copper Seasonal Trading Contract

The seasonal chart shows that like Crude, copper has a high point in April and a pullback to the July period. Copper is much more PRONOUNCED but the timeframes are similar.

Like crude, copper peaked in April and ran sideways until the May period, pulled a June high, and a July low. And just like crude, copper ran up into September, and has gone sideways. And just like crude was stronger than expected, so was copper. But each has followed the seasonal ebb and tide that its average has established over the years. Coppers technical picture also shows a %R reading that has just dropped out of the 80 range, and MACD histogram is right at the zero line. For the first time in quite a while, RSI has dropped below 50 and has recently made its way back to 50.

It would seem that copper is at a turning point too and the direction should be established within the next few weeks. Above 310 and copper too could be heading higher one more time before the fall correction begins. Below the 260 area and the correction should be in full bloom. We suspect that both commodities will follow each other.

Now let’s look at the gold seasonal. First the gold chart, then the seasonal.

Gold Seasonal Trading

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Gold Seasonal Trading

Gold has followed the seasonal pattern very close this year. We can see that a major price peak occurred in mid February right on time, and that a late March bounce to April and a correction to May took place. LIKE crude and copper, the May to JUNE period was a much stronger seasonal upward bias as is the average. We can see by the chart that the gold market usually explodes in September and then has a peak in early October and a sizeable correction into the November or December time frame. Price is usually choppy until December.

Unlike the other commodities, gold’s technical condition is still in BULLISH mode……..although one can make a case that RSI is flashing OVERBOUGHT. We would agree, but we think that %R must drop below 80 and the MACD histogram bars need to stop RISING first.

These commodities have pretty much followed themselves from an ebb and flow standpoint. Copper seems to have been the most persistent rise.

These markets have pretty much followed each other this year and the time has come when all of the seasonal trends seem to favor the downside. Not that they will, but the odds favor a correction to begin sometime between now and November. The stronger the commodities are, the longer before the correction starts. Oil and Copper have already turned over and seem to be waiting for gold to complete its up move. Ok, one more chart.

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USD Dollar Seasonal Trading

USD Dollar Seasonal Trading Contract

Yes………it’s the US DOLLAR.

We can see that the year started out right. The dollar made a strong seasonal high in March right on its seasonal schedule. And that is when things turned. The stock market bottomed, and so did crude oil a few weeks before that.

We can see a CONTRA SEASONAL that began in mid April. Instead of moving higher to June the US Dollar collapsed. As stated earlier, this is usually what happens when a contra seasonal appears. The trend becomes strong as market participants are not positioned as they usually are.

It’s been pretty much down since then for the US Dollar.

Conclusions:
If you’ve been having difficulty understanding market behavior lately, these charts suggest to me that the analysis is already what we all know. ALL MARKETS RUN COUNTER TO FUNNY MONEY. Can you imagine calling the US Dollar funny money? That is what it has become. Actually, it’s become UNFUNNY money as the situation is serious.

Look at how long it has stayed OVERSOLD as % R just can’t come out of bearish mode. If you’re saying to yourself, hey, this looks like an EKG of someone who has died your close.

So while the dollar trend is clearly down, there will be at the very least a dead cat bounce. Therefore, we should expect a 4-6 week reprise in the dollar as the seasonal chart suggests. Seeing that the first October period in the dollar seems completed with that little October bounce, odds favor that the commodities correction in gold and even in crude or copper might not arrive until the mid November time frame.

Whenever the time frame arrives we should see the US dollars technical condition show %R come out of oversold, RSI begin to rise again (NOTICE THE HUGE DIVERGENCE THERE as RSI has not made a new low with price) and for MACD histogram to hold the zero level and put in a higher bar. At that point in time, the gold, crude and copper market should begin their autumn correction for a brief time before the next leg down of the dollar begins. Keep an eye on these subtle clues and when you see them it will give you a clue that a short term bounce of 4-6 weeks and a subsequent commodities pullback is probably near.

If things play out, these commodities will take a breather and then resume their trend near year end.

Get my Commodity Trading Reports via email visit: www.TechnicalCommodityTrader.com

By: John Winston

Over the past 5 months the markets that crashed have staged a significant comeback.  While the stock market usually grabs the headlines, there have been some great commodity runs as well.

As the season’s change, the demands for commodities vary according to each respective market.  For instance, let’s take a look at copper.  Below is the 15 (Red) and 40 (blue) year averages of the Copper seasonal price chart.  One of the more prolonged downtrends on the chart shows that from September to the middle of October, copper is usually weak.  We can see the demand PHASE of this commodity is the December to April time frame.

(NOTE – Do not follow the yellow months.  Those are Futures
Contracts.  Follow the blue months at bottom of chart.

Now let’s look at how copper has performed in relation to this chart. Shown below, the price chart of copper shows that a rally formed from December thru April right on time.  In fact we can see how April’s high was in a very tight range, bouncing off the $4 dollar area each and every week in April.  Interestingly, look at the seasonal chart.  Notice how it also has a tight range for most of April.  Sometimes price plays out exactly as it should, and other times, it’s a bit harder to see.  Although there was a spike high in May, on a closing basis April provided the high and the correction lasted until the beginning of June before rallying to July.  So far so good and a very accurate price comparison was in play.  And then the meltdown of 2008 began.

Just like every other commodity and financial instrument, the price of copper collapsed.  Instead of moving sideways over the summer and providing a September peak, copper began drifting lower into August.  But the rally into September never appeared.  If you look on the chart you can see August wend sideways and as soon as September arrived, the market drifted lower fighting to stay above $3 dollars.  With the seasonal kicking in at around the same time, copper never stood a chance.  The bearish factors overwhelmed the metal and the price retreated to $1.25 by years end.

COPPER SPOT WEEKLY CHART

Now by this time, the UP portion of the seasonal came into effect.
We can see that the December to April time frame of copper strength played out as we rallied right into April and we rallied strong.  Here again the pullback was only 5 weeks and price began moving up again.  In retrospect, a May high was indicative of strength as price rallied. Finally the June pullback came into effect and prices retreated to a June low.  So rather than correct down from May to June, copper was so strong that it’s retreat only started in June and then corrected to the seasonal low into July.  Again, this was a sign that copper was still very strong.

What next?

Copper is arriving at the point of the year in which weakness usually sets in.  If we look at the seasonal chart it indicates that on average, copper peaks around the first week of September and barring a few short cover rallies, usually bottoms in December.  This ebb and tide has been transpiring on average for the last 40 years so it is good to keep in mind.   It is not a guarantee that price will correct.  As a matter of fact, when a seasonal inversion happens, the moves are usually violent.  But inversions are the exception, not the rule.  The rule is that copper usually peaks in price near this time of year.   For those who have played this run, it might be a good time to prune a little.

So where and what should we be looking for?

COPPER SPOT WEEKLY CHART

I’ve highlighted two areas on the chart by circling them with a red oval.  Notice how this is the 2.95 – 3.30 ish area.   Now let’s move over and look at price.  We can see that price is just arriving at the $3 dollar area.   By looking at the action circled, we should surmise that this is a very important area on the price chart.  And look at copper jumping up and over its trend channel and arriving at this resistance area just when the seasonal highs are due to take place.   Therefore, over the next four weeks, copper should provide us with a peak in price and a pullback into December.  It certainly has been powered in some part by the China factor.  In fact, the Canadian Dollar really took in on the chin earlier this week on concern with the Shanghai Index as it took a 17% haircut recently.  If we keep in mind that this market has doubled since March we see that the pullback although steep, is still within the confines of a rising market.  Nevertheless it was enough to rattle the Canadian dollar, which is a great “currency” proxy for the metal and mineral markets.  China has been a huge importer of copper.  If they take a break here, copper should also.

If copper’s rise slows right here and begins to consolidate, it will suggest that the resistance above the 3 dollar area is still in effect.  And look at price. It’s sitting on top of the blue channel line. This will be a tough line to stay above.  As long as it does, it is displaying incredible strength and we should stay with it.  But a dip back into the channel and then a failure trying to get back above that line (where it becomes resistance) might be a good clue to suggest the seasonal pullback into late fall is taking effect.

Conclusions

The seasonal change coming and the chart resistance would suggest that an interim peak in copper should be developing over the next four weeks in the price area of $2.95 to $3.35.  From there, we would look for a pullback to the bottom of the blue channel line around the $2.25 – 2.50 area sometime late in the fall or very early winter would be the seasonal tendency for this metal.

Crude Oil

How about Crude oil?  Things have been very choppy lately.  Are we peaking?  Interestingly, if we look at the seasonal chart, we can see that crude oil usually has a very choppy August, with up and down and sideways action.  The good news for the bulls is that the Crude oil market still has about another 6-8 weeks left of its seasonal action.

(NOTE – Do not follow the yellow months.  Those are Futures
Contracts.   Follow the blue months at bottom of chart.

In the crude oil chart below, we see the same meltdown of 2008 as we did in Copper.  But other than that, the chart is following seasonality “this year”.  But let’s look at what happens when “seasonality” inverts.  You can see we bottomed in February of 2008 in February and we rallied to April.  So far so good.  But instead of pulling back into July and making a low, look how we exploded up and made a high in July.  In fact, crude oil was the “MEDIA BOY” at the very peak.  That its final ascent was a seasonal inversion will be something to keep an eye out for when we watch other inversions in the future.  But that was it.  When everyone got back home from July 4th vacation it was the end for crude as it virtually collapsed.

By time crude stopped plunging it was December.  A look at the seasonal chart shows that the lows for crude are the December and the February area time period.  Look how crude made a December low and moved sideways right to the last week of February and made its lows at the 33 area.  Thus this year’s oil bottom was right on time as far as the seasonal goes.  The pullback from April to May developed, but May was very strong and seasonally, it’s usually a sideways market.  This is a sign of strength.  And how about the July low in crude?  On the chart the pullback did not begin until June (very late) and it lasted only 4 weeks.  This was another sign of strength.  And so now here we are in the middle of August and prices are knocking on the door of above 70 for the second time.  Will Crude peak out here?

While it is getting late in the game, the seasonal suggests not yet.  On average, the peak is not due until the October time frame.  But we want to be on guard when price slows.

The crude chart above suggests that RESISTANCE is the 90-100 dollar area.  I’ve highlighted the area from late 2007 where that resistance or pressure point area exists with a red circle and have drawn an arrow towards that resistance point that is coming up.
Should the rally continue odds favor a peak near or at that area and then a pullback into February?

At this time we are in an uptrend channel as price is within the blue channel lines.  As long as price remains above the trend line or the lows established in July, the trend is intact and odds will suggest higher prices.  As we near the end of the seasonal, we always have to be on guard for weakness.  For instance, notice how we recently made a double top in price just above 70.  If we look to the very far left of the chart we can see that in August of 2007 price just happened to be where we are today…………..at the 70 area.  Notice how that year had a small pullback in September before the rally into late October/early November.  That pullback support was the 70 area, and as you can see we are encountering resistance at this price point also. But in 2007, it was just a pause, and small pullback before the next leg of the rally.  When price finally did peak at October’s end, notice that the correction that began was sideways at best…….indicative of strength.  Sure enough, prices started a rally right around the end of February where the seasonal suggests bottoms are usually made.

So what do we make of this rally?  It is maintaining its uptrend momentum and velocity when it is inside the blue channel range.  I’ve noticed over the past four weeks that we have been hanging around the bottom end of that channel and it would be nice (if you’re a bull) to see a thrust above 75.  That would increase the odds that the September portion of the seasonal would be under way.  Keep your eyes on the US Dollar also.  Moves above the 80-82 area could put a lid on crude prices.

For now (barring a dollar rally), odds suggest that the rally is not complete.  We have support at the 57-60 area should the blue channel line not hold price.  Either one of these areas should provide support.  Lastly, I’ve drawn another circle under the 50 dollar area.  This area has a good chance of providing support for next year’s pullback near winters end.

Gold

Finally tonight we want to take a look at gold.  Here’s the seasonal chart below.

We can see that we are at a key time for the gold seasonal.  Lows are usually made right at the end of August.  Interestingly, we are only about 30 dollars above the July lows, and the choppiness we’ve seen in gold is actually what the seasonal suggests this time of year.  What’s important for gold is what lies in front of us.  September.  You can see that a nice rally usually develops from somewhere in this time frame.  The “optimum” time is about to arrive.  Like the other commodities gold also went to the barber shop last fall.  But unlike all other commodities, gold has returned to its highs……….a real sign of strength so far.  I say so far because we must also conclude that gold has not made a new high for 18 plus months.  Many are anticipating a tremendous rally should the highs succumb to price.

If the seasonal plays out then a rally is due to begin within two weeks and a September rally will ensue.  One needs be careful however, as the metals are also well known for pullbacks in the October and November time frames.  When gold is very strong it will bypass or only pullback slightly then and move into its winter peaks.  However, in a normal year, gold has a decent pullback in that time period (Oct/Nov) as well.

The tremendous consolidation and current coiling action in gold makes us sure of one thing.  A good sized move is coming up.  I’ve drawn two key trend lines on the weekly chart above.  As long as we are above those up channel lines, we should assume a fall rally.   The end of August is notorious for a steep drop and reversal for gold.  Keep your eyes open.  Should there be a big thrust down towards the lower channel lines on the chart above, and then a subsequent reversal and turnaround back up in early September, then the odds will greatly increase that the fall rally is under way.

On the upside, traders and technicians are looking at this triangle formation that has developed on the chart.  Moves above the 975-985 area would greatly favor an upside breakout and moves above the 1075-1100 would be indicative that the next leg of the gold market has begun.

Conclusions

The gold market is close to starting a good move.  Many participants are expecting an upside breakout.  While that may well be the case, make sure you keep your eyes on the downside too.  The “inflation” scenario is a crowded one and the dollar bull is a rare specie at this time.  While I won’t argue the inflation point, I want to see price confirm such an occurrence.

On the chart there are two channels that are PARAMOUNT to an uptrend support.  There is also a blue horizontal line showing support at the 850 level.  Should we begin to break these red trend lines, especially the lower one, it will be a warning to gold bulls that all is not right underneath.  This is especially important this time of the year as gold is usually strong after August.  Should a drop occur in the next few weeks that hold’s any of these support areas, it just might end up being the low before the fall rally.  However, any break of the 850 area would be a warning shot across the bow that gold’s seasonal move would be in serious trouble.  So keep your eyes on the 850 – 880 – and 925 area in gold.

If these support areas hold and gold breaks above the triangle lines and 975- 985, the upside will be the odds favored move in the coming months.

Closing thoughts

While copper and oil have led the charge since the lows in commodities, the seasonal price averages of these commodities suggest that first copper and then oil should hand the baton over to the gold market at some point in time this fall and take a break while gold leads the pack up.

Since we live in strange times, one needs to be aware that a US Dollar rally could squelch these commodities should it embark on a rally.  Interestingly enough, the dollar index is at a key spot on its chart.  Should the dollar move above the 80 area, and then the 82 area, oil, gold and copper will have a lot of potential price pressure put upon it.  If you do venture into this area, keep one eye out for the US dollar and moves above the 80 area on the index.
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John Winston