Commodities Countdown

$GOLD - More Of The Same? $NATGAS Resistance? $USO More Trouble Ahead?


As the overall volatility of the markets increase, the down trend is becoming more noticeable. However, some of the Gold stocks have strong SCTR's and the price of oil just keeps inching lower. Natural gas has had a very strong run off the lows but gapped lower this morning. Just a brief look at three of the major commodities is an interesting study. Let's start with Gold.

Chart 1

Notice how the MACD is showing us a pretty predictable pattern here. From deeply oversold momentum lows, the MACD returns to the centre line. We are there now. The real question will be: Do we have a pullback like December 2014 that continues to drive to a new momentum high, or do we just stall and rollover here?  Notice the January 2015 surge was meaningful, but the May 2015 secondary surge was minimal and the October 2015 surge was only marginally more helpful by taking out the old highs with about 2 dollars of gain from $112 to $114. Currently, the SCTR is above 75 so that is the good news. Watch for a pullback and perhaps an opportunity to enter might be nearby.

As for oil, the trend down has only accelerated since the US Government allowed selling oil offshore. 

Chart 2

Everything is in the bottom right-hand corner, except the volume. This massive volume blast is probably suggesting selling exhaustion. I don't have the courage to be stepping in front of it. I don't think we need to catch the absolute low. With an SCTR of 0.4, there is a significant down thrust. The real problem is a suggested further drop in oil from $33 to $22 would be 33%. When the bottom is moving this fast, caution is in order. The swings are massive at this low price level.

$NATGAS has been rallying recently, but today gapped lower once again. This is easier to see in the zoom box on the right. With the MACD momentum getting back to zero, this is an interesting place to watch. Seeing this ETF stall at the trend line on the price chart is not a surprise. The real question is: Does it have enough momentum to break above it this week?

Chart 3

I continue to believe the big question is the $USD trade. It refuses to breakout to higher ground. While we don't have a clear answer on this yet, it would appear that the big swings in Gold and Oil are not trading in step with the currency on a daily basis right now. Gold rallied last week while the UUP did, which is odd, and oil went lower as the dollar pulled back in the past 5 sessions. The UUP made a high last Monday, but oil could not rally once in those 5 days as the dollar pulled back. So the correlation to the dollar has not been as tight over the last few weeks.

Chart 4

The short-covering rally off a major low for oil would be substantial. Currently, the trend is very linear, down. Perhaps that low in oil will come this week. When it gets beaten down this far, we don't have to be looking for continued shorting opportunities. I do expect the market to rally into earnings and Options Expiration Day is Friday. A low in oil, earnings, and the OE day are all good potential fuses to light a rally to the upside. It might be more valuable to find locations on charts where you want to be buying things as they turn up. With both Natural Gas and Gold returning to the MACD centre line, those trades might need time to breathe out. Check out the Canadian Technician Webinar Tuesday at 5 PM EST or the Commodities Countdown on Thursday at 5 PM EST this week. I'll be talking about commodities on both webinars! I'll also be hosting a working group at the Calgary CSTA meeting on Tuesday, January 12th. If you are in town on Tuesday, we'd love to see you there. You can register at CSTA.ORG.

Good trading,
Greg Schnell, CMT

Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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