The Futures / Inter Market Report

Trading the World's Markets

November 30, 2007

Matthew Caruso, CMT

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Energy and Precious Metals at important top

The energy and precious metal markets have been on a parabolic rise in recent weeks. Oil has reached historic highs and precious metals have reached multi-decade highs. A bottom in silver was forecasted on august 24^th at $11.94 http://tradesystemguru.com/content/view/81/58/ , and a target for gold of $867 per ounce and crude oil of $100 per barrel was made on September 21^st when crude was trading at $81.30 a barrel and gold at $732 am ounce, http://tradesystemguru.com/content/view/90/58/. 

            That was then, now however it seems that the markets are giving an entirely different message then a few weeks ago. All of the energy markets as well as the precious metals have closed the week on a very bearish note (note that copper is not a precious metal and still appears very bullish as noted last week). Weekly charts of crude oil, rbob gasoline, natural gas and gold can be seen in figures 1 to 4 respectively. Not only have all these markets closed at or very near their low, they are also all testing or already breaking through their up trendlines. To make matters worse the weekly ranges are the biggest seen in weeks which adds to the evidence that people are running to the exits in these markets and are willing to accept much lower prices just to exit their positions. This is typical after a very strong rise. In fact, such strong selling pushes prices down quickly forcing others to liquidate as well, and the whole process feeds on itself.

Although these markets are all still in up trends, the rate of ascent that they have experienced are stronger then normal. Markets that climb very quickly and at an increasing rate are very susceptible to fast and steep reversals of trend. A reversal of trend is what all of these markets look to have started this week. 

One of the best aspects of technical analysis is that it allows the analyst to be very flexible and to change his or her opinion. The main advantage over fundamental analysts is that a technical analyst always can determine where his idea is wrong and an existing position should be exited. What I am getting by saying this is that if the strong down move that started this does not continue and prices manage to make new highs, these markets will likely climb a lot higher. When a bearish signal fails to be bearish, that is incredibly bullish. For that reason if these bearish signals fail to produce the expected sell off and climb to new highs, this week’s bearish sell off will have been negated.

Figure 1 chart by genesisft.com

Figure 2 chart by genesisft.com              

Figure 3 chart by genesisft.com

Figure 4 chart by genesisft.com

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