Crude’s Bullish Behavior Could Prove Contagious


Because securities markets sometimes do crazy things for stretches of days, weeks or even months, Rick’s Picks seldom attempts to reconcile seemingly contradictory forecasts for trading vehicles that are related, such as crude oil and gold (more on these two in a moment).  Nor do we seek to explain the ups and downs of stocks, bonds and commodities by connecting their frequently nutty behavior to events in the even nuttier world.  That futile task we leave to The New York Times, The Wall Street Journal and their ilk, since they are in the business of selling news as something that matters greatly, particularly to investors. It is with the foregoing in mind that we came to contemplate a seeming fork in the road for crude oil and gold. On the charts, the former looks like it’s about to blast off, while the latter seems bent on screwing the pooch for the remainder of 2011. We said as much in the headline that topped yesterday’s commentary:  Doomed Rally in Stocks Could Cap Gold’s Surge. Doomed may have been too strong a word – we did write a column for a Hearst paper for a few years, remember – but bulls could hardly have been encouraged by the egg the broad averages laid yesterday after having rallied nearly 300 points the day before.

A few denizens of the Rick’s Picks forum (click here for a free seven-day pass that will also give you access to our detailed daily forecasts and trading recommendations) thought that stocks were simply taking a rest, but we saw them as relapsing into the quagmire of global problems. The most bullish story out there at the moment – bullish, that is, for everything but the U.S. dollar and Treasury paper – is that Helicopter Ben is about to announce QE3. This is the kind of claptrap that the aforementioned newspapers like to serve up, and we don’t doubt that it would send risk assets into a parabolic rise, at least for a day or two. But who actually believes QE2 ever ended? It’s not as though the U.S. embarked on an austerity program after “official” easing went into eclipse. The other bullish story is that Europe is going to somehow get its act together…yeah, sure. Although this may soon appear to have occurred in the headline on some New York Times story, or in The International Herald Tribune, we would caution congenital optimists that there will be only devilish details to be found on the runover page.

If We Were Laying Odds…

So what about that technical divergence between crude and gold?  Rick’s Picks has been calling for a gold correction down to at least $1627, basis the December Comex contract. That’s $40 beneath the so-far cycle low of $1667 achieved on November 22.  However, our forecast for March Crude is bullish, calling for a rally to at least 109.65, a little more than $6 above the so-far recovery high achieved earlier this month.  How will we reconcile the two? If we were to lay odds – and that is implicitly what we do every time we trade – we’d bet on crude to pull bullion higher in the days and weeks ahead, and then for bullion to repay the favor by aggressively taking the lead into year’s end. Stocks would simply meander sideways or waft higher, eventually losing their lock-step hold on precious metals. In any event, it would be quite bullish for gold to turn “impulsively” higher on the daily chart without having corrected down to $1627, the Hidden Pivot support noted above.  If that were to occur – officially, with a print $106 above, at $1733 — a big-picture target at $1977 would then be in play.  Click here if you would like to learn how to find and use these targets yourself, and to never, ever need to ask some guru what he or she thinks about the market.


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Comments on this entry are closed.

Robert December 1, 2011, 4:02 am

Ya know….

Isn’t it “convenient” that the Fed would pull this dollar swap free money charade while Congress was out for the Winter Break..?

The Bernanke has a month to print with impunity without worrying about being called to the microphone to explain himself.

Sort of like an impudent teenager behaves when the folks are out of town

But hey, whatever- my brokerage account was feeling the love today.

Thanks Ben.

Rich November 30, 2011, 6:05 pm

Totally agree Rick. Extremely nice call.
Flip-flopped back long AGQ, FAS, QLD, TNA, NZD/USD in CNBC Million Dollar Portfolio Challenge early this AM at some cost. Staying with the uptrend until further notice.
Big4 still long and strong Ags, Crude, PAL, RUT and SPX…

Robert November 30, 2011, 5:23 pm

The Gold:Crude ratio has gotten too popular in my opinion.

One of my favorite arbitrage indicators is how many gallons of unleaded gasoline a pound of copper buys:$COPPER:$GASO&p=D&yr=3&mn=0&dy=0&id=p70205380846

in stockcharts, the ratio is $copper:$gaso

In today’s world, and for the foreseeable future, the most important prices are in all things practical and necessary (food, fuel, and essential consumer durables)

Gasoline is a core consumer “must have”, and copper is the most industrial of the metals- copper moves without the stigma of the “it’s money, no it’s not” sentimental baggage.

Copper:gas (and silver:copper) are the ratios that signalled my decision yesterday to go long in a leveraged silver ETF-

With today’s news that every western Central Bank are making an “all in” bet that they can finally, once and for all convince the planet that debt solvency predicaments can be corrected by market liquidity; it appears my decision yesterday was well timed (pure luck, I assure you)

I also like using copper as opposed to Gold because of the supply factor: 90% of new Gold into the market comes as a by-product of copper mining.

This fact is the one hinge-pin in the whole “Gold versus credit” money argument.

If the price of Gold goes too high, then it would eventually become worthwhile to flood the market with Copper (cratering the price) in order to generate the increasing margins on Gold production.

But- since JPMorgan is believed to have a veritable long side corner on the world’s above ground copper supply, franky the idea of collapsing copper prices has a certain appeal to me…

mava November 30, 2011, 10:07 pm

While I believe that only Gold is money, and everything should properly be measured against it, I agree with Robert.

The thing is, that today, gold is manipulated by the governments so heavily, that it can not be used as a measuring stick, no matter what one wants to believe. If you let yourself to be guided by gold/oil ratio, then what you perceive as a true value of oil is actually a function of that overlaid by a function of gold manipulation, true extent of which can not be known. Therefore the degree and the direction of bias in said ration, too, can not be known.

roger erickson November 30, 2011, 5:10 pm

“The move makes clear that regulators increasingly are concerned about the strain that the European debt crisis is placing on financial companies,”

sure, but what about the rest of us? the previously REAL economy?

at what point do such independent actions make a mockery of supposedly “National” policy?

the Fed has no idea what national options they’re squandering? for all, on behalf of few?

this is certainly thwarting the national aims of Germany (to force euro-unification) & China (to further their own national aims); and who knows how many of our best interests

this certainly drives home the reality that even the Pentagon works for – and on behalf of – financial interests – who currently have very narrow & superficial outlooks

At this rate, we may as well let the Fed re-write the Constitution.

Robert November 30, 2011, 5:49 pm

“At this rate, we may as well let the Fed re-write the Constitution…”

What Constitution? Today we are absolutely, 100% governed by only the 14th amendment, the 1933 war powers act, and the sheer egregiousness of executive order:

Face it- we all live beneath the sheer weight and scourge of despondant tyranny, and the tyranny is making its move to go global.

Look forward to the one world government. It is the last stepping stone to true individual sovereignty that we face.

gary leibowitz November 30, 2011, 4:37 pm

Lokks like the grand party where all is invited has been announced today.

Expect a really strong rally for a minimum of 1 month. All things that go up just might stay up. The Kinetic Law of Wall Street.

All commodities will rise with the tide.

Today will be the breakout event. How many rabbits can the FED pull out of that hat? Lowering dollar swap costs is a ingenius was of introducing liquidity to the markets. No QE3 announcement yet. I suspect it will only be used as a last resort. Not sure there is political will left to allow it.

Looks like this stock market rally can last a lot longer than anyone expected. I still see the end game as being the same. It’s just a matter of how steep the slide becomes next time around.

fallingman November 30, 2011, 4:37 pm

Thanks for this. I appreciate the market commentary.

roger erickson November 30, 2011, 3:15 pm

Rename the UK “Office for Budget Responsibility” as the “Office for Class Fraud”

Buster November 30, 2011, 5:23 pm

Yes Roger, I have many such names for these wealth transfer institutions.
“Whoever controls the volume of money in any country is absolute master of all industry & commerce….And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation & depression originate.”-James Garfield ( US President who was assassinated weeks after making this statement in 1881)
In 1891 the Banksters prepared to fleece the American People once again. In a memo sent out by the American Bankers Association to all it’s members, which reads:
“On September 1st, 1894, we will not renew our loans under any consideration. On Sept 1st we will demand our money. We will foreclose & become mortgagees in possession. We can take two-thirds of the farms west of the Mississippi, & thousands of them east of the Mississippi as well, at our own price… The farmers will become tenants as in England…” (as printed in the Congressional Record of April 29, 1913))
Certainly the debt scam is still very much the chosen means of transferring from the needy to the greedy, as it has been for many centuries. I still find it hard to take how few people ‘get’ this scam, wasting their intellect believing news media BS about ‘getting to grips’ with debts while failing to grasp the fundamental fraud occurring worldwide. It pains me to even listen to the news for it’s absolute lies or misinformation from seemingly educated economists, politicians, Banksters & reporters. The debts can never be repaid as only the principle is created, not the interest. As soon as debt money is created it is a guarantee that somebody is going to lose his assets to the Banksters in order to pay the debt somewhere along the line.
If anyone creates a contract that guarantees somebody is going to loose everything it is a criminal act of theft against the unwitting victim, yet this is how our whole monetary system is designed. This is the ONLY financial issue which needs to be understood by the people of the world. Now is the time for this revelation to be fully revealed ready for the total destruction of this criminal organization for all eternity.
Get your asses & your assets out of Babylon if & whilst you can, ‘cos she’s going down.
It’s just a matter of time now.

roger erickson November 30, 2011, 3:13 pm

As usual, the driving factor is policy decisions.

Warren Mosler:
“[Osborn’s statement] Says it all, sadly.
France and Germany also announce agreement to target 0 deficits for all euro members, which takes the steam out of any relief rally as they solve the solvency issue.
Not much upside for the world economy when it all thinks and acts like this:”

Osborne Vows More Austerity as Slump Hits U.K. Deficit Plan
Chancellor of the Exchequer George Osborne said Britain faces two extra years of austerity as he sought to shore up his deficit-reduction plans, intensifying a conflict with unions that are staging a mass walkout today.

Osborne .. announce 23 billion pounds ($36 billion) of additional spending cuts after the Office for Budget Responsibility slashed its forecasts for economic growth. … more than 700,000 public- sector workers will lose their jobs over the next six years.

“Osborne acknowledges that the consolidation program is behind schedule and aims to make up for lost ground with an even longer period of fiscal austerity,”
[Citigroup – of course – says “The government has no alternative.” Fraud-fox speech to chickens?]

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