A tale of two commodities

November 8, 20126 Comments

Perhaps two of the most watched commodities out there are oil (due to its significance to the economy) and gold (which has become far more in focus to investors as a defensive play). Technically, oil looks unattractive at this juncture, while gold looks bullish. Let’s take a look at the charts.

Gold

If you follow this blog, you know I’ve probably spent more time talking about gold (and silver) than I should. But the trading for this commodity has been fairly profitable for me in the portfolios I manage, given what appears to me as a fairly readable chart. In my last gold update (https://www.valuetrend.ca/?p=1527 ), I noted that gold would fall into a technical “buy” zone somewhere between $1680 support and $1700. I advised that we should consider a trade on a stochastics hook-up and crossover. Gold reacted as expected, and bounced off of the $1680 support right on schedule. I confess that I bought at just over $1700 on the stochastics hook that took place the day before its $1680 support bounce – but I’m satisfied with my entry point. Two things that I’d like you to note on the gold chart above:

  1. First, please note the bullish 50-200 day MA crossover back in September, telling us that the big trend is bullish. Both lines are sloping up. Seasonal trends for gold are bullish in the big picture as well. This gives me confidence that trading off a near-term low point is a good bet, given the bigger positive picture.
  2. Next, note the bounce off of prior-noted support with really nice big white candles (bulls are in charge), along with a nice rising stochastics line.

Gold looks to be a reasonable bet for a rally to at least its last resistance point of $1800.

 

Crude oil

I’ve also covered oil a few times in recent blogs, noting that the chart is in a bearish trend (https://www.valuetrend.ca/?p=1533 ). We can compare the chart of oil with that of gold, and see a much more bearish picture in this commodity. Here are a few points to note on oil:

  1. In contrast to the gold chart, the WTI crude chart shows a bearish big picture. Note the bearish 50-200 day MA crossover back in June. Both lines are sloping down. Seasonal trends for oil are bearish until later in the winter. The bigger picture for oil is unfavorable.
  2. In the shorter term, support has been broken at $92, and stochastics shows no sign of turning up despite its oversold condition. This suggests a potential for a tepid rally at best, without much hope for meaningful strength. The trend is down, and no turnaround in price has occurred at this time. Oil could see its old low of below $80 before long.

While there is a chance for some sort of oversold rally in the near-term for crude, the bigger picture for a more meaningful upside remains doubtful at this time.

6 Comments

  • Hi Kieth,

    I bought HZU and HBU last friday. On tuesday I bought HOD when oil hit its 20 dma to play the short size. So far these trades are working out. I would become bullish on oil around $80.

    Regards,

    Jordan

    Reply
  • Hi Keith

    I too bought in the early 1700s but felt confident when it bounced at 1680 as you said. Thank you for all the info! Just a question regarding the correlation with the US dollar – it seems the US dollar is going up but precious metals usually go down (inverse relation) so how would you explain this when price action is very positive?

    Also, how long would seasonality last?

    Regards
    Margaret

    Reply
    • thanks Margaret
      Yes, the dollar and gold can be co-related, but gold can be a leading indicator–its not 100% in sync with the dollar. There is worry about the fiscal cliff and other such problems–which probably allowed it to find support at $1680 per the technicals. These problems may, if unresolved, push the dollar down, hence golds rise today as a hedge.
      Seasonals end around the end of December for gold.

      Reply
  • Keith thanks for your excellent report. I truly enjoy reading you blog. What would be the best way to play this ETF’S or certain gold plays. Keep up the good work.

    All the best
    Kevin

    Reply
    • Thanks Kevin
      I play gold bullion ETF’s–but gold stocks may have leverage that the bullion play doesnt offer. As a pure technical guy, I am trying to play gold with as little outside influence as possible, and stocks can throw unique downside or upside surprises at you (earnings good or bad, etc) that a pure commodity play just wont do. But that doesnt mean you shouldnt look as some stocks–a good pick could give you even more upside than the commodity.

      Reply

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