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It appears that the Summer slowdown in the commodity markets will arrive late this year with raised levels of volatility on the back of lots of Headline News.
The reason why the market was unprepared for this announcement is primarily due to the belief that Saudi Arabia is in the process of turning up its tap to ensure adequate supplies into the critical autumn period where the expectation is for a considerable tightness in the market.
This action has helped reduced prices over the last couple of weeks as WTI came down about 7%, but the IEA must feel that more is needed as "bottlenecks" continue to be evident due to the loss of the high quality Libyan Crude Oil. And the World's refinery appetite for Saudi Crude is at capacity.
The IEA has a total of 1.3B bbls of strategic reserves available for such actions with the US alone holding more than 700M government controlled bbls in storage.
That being the case, it was not surprising that the US intends to contribute 30M bbls as announced. As expected the immediate reaction was fast fall in Crude Oil prices.
Brent Crude Oil, the leading benchmark for Global Crude Oil transactions, fell 6%, and is currently off about 15% from the April high, but is still 33% higher than the Y 2010 average price.
It is interesting to note that Brent Crude failed to break the April low of 105.15 on that News, and this could indicate that although the market may see a lower range over the Summer, say between 104 and 115, it would be a surprise to see a revisit of the 100 mark.
For that to happen, I believe that Global economic activity would have fall deeper, something that may just have been halted by this action buy the IEA.
The longer term risk points towards higher prices as rising demand will continue to challenge low levels of spare capacity however.
The IEA's Executive Director said that a price spike was feared without the action as taken. This is obviously a worrying sign for the future should the Libyan crisis continue because additional releases would likely not have the same effect as the one last week.
All of that said, Shayne and I believe that Crude Oil prices in the near term may see further Southside corrections towards 101 in Brent and 85.00 in WTI on the back of the IEA's output decision and Crude Oil demand risks. However, we believe that there is a firm underlying fundamental Crude Oil market structure may see both the UK and USA benchmarks resume their primary up-trends upon completion of the IEA's release schedule.
Gold had a volatile week as a break above the recent high at 1,550 was followed by the deepest decline in 7 wks as it got caught up in a general round of risk aversion.
Weak economic data from China to the US combined with the IEA announcement had investors heading for the Exits across different assets and Gold did not excape.
Now, as we head into the Summer months, which are normally a time of year for weak demand, further losses towards 1,485 can not be ruled out, even though the fundamentals continue to support the precious Yellow metal in the months ahead.
The Southside move for Gold drove the metal back towards 1500.00, and we mentioned before how critical this level is and considered the separating barrier from the negativity for Gold.
The failure to stabilize above 1549.00 after reaching 1556.00 is the reason for the Southside move IMO after breaching 1537.00.
For now I and Neutral on the precious Yellow metal, and observing the price behavior around the critical 1500.00 area.
August Gold declined 1.3% to close at 1500.90 oz. The Gold price traded below the 1500 mark to aa low 1498.50, its lowest levels since May 20.
Gold fell over 50 pts in the last 2 trading sessions of the week to mark its largest weekly decline since early May.**
The trading range for today is among the key support at 1494.00 and key resistance now at 1575.00.
The short-term trend is to the upside targeting 1600.00 per ounce as far as areas of 1430.00 remain intact.
Support: 1500.00, 1494.00, 1488.00
Resistance: 1522.00, 1532.00, 1537.00, 1549.00, 1556.00, 1562.00
Recommendation Based on the charts and explanations above I recommend observing and waiting for more confirms. Stay tuned...
** From a technical POV, the past 4 trading days saw Gold make an Evening Doji Star formation which is one of the strongest Bearish reversal signals in the market.
This formation is characterized by the continuation of a Bullish trend, which is then followed by a Doji, reflecting uncertainty in the market, and then the trend reversal is confirmed with a sell-off.
Typically, the larger a move down is on day-3 or 4, the stronger the reversal signal. Coinciding this Bearish candlestick formation was a Negative Divergence between Gold and RSI on the daily chart, whereby Gold made a higher high and RSI made a lower high.
Thursday's decline also saw the precious Yellow metal temporarily trade below the 50-Day SMA around 1521, A mark not seen since mid-February, and a daily close below could lead others to take action. Additionally, there is confirmation of the long-term trend line break on the daily close as well as when RSI broke below its corresponding trend line support mark.
The sharp Southside action confirms that the precious White metal is trading in the Bearish C wave, and traded around 35.00 areas, the critical barrier over intra-day basis for Friday.
The 4-hour closing below this level will extend the Southside move IMO, and that is what was expected for Silver Friday to continue the Bearishness on the scenario mentioned above. July Silver finished off 0.9% to 34.70 oz on Friday
The trading range for Friday was between the Key support at 34.50 and Key resistance now at 38.90.
The short-term trend is to the Southside targeting 26.65 as long as 48.50 remain the high on weekly closings.
Support: 34.80, 34.50, 34.35, 33.90
Resistance: 35.65, 36.00, 36.15, 36.35, 36.80
Recommendation Based on the charts and explanations above my opinion: Sell Silver around 35.65 and take profit in stages at 34.50, 33.90, 33.05 with a stop loss on a daily closing above 36.35 as prudent.
After testing 95 Crude Oil dropped to test the major ascending trend line support near 89.50 to achieve most of our targets over daily and weekly basis.
Thursday's closing was below the 200 SMA and the 93.00 support Zone and this is a very Bearish sign IMO; however the medium term trend line that was tested yesterday may form a good support for Crude Oil in addition to that RSI is showing a Bullish divergence.
That said, there were mixed signals on Friday, but I believe that sustained trading below 93.00 keeps the Southside movement in place, but a daily close above 94.60 may change that POV.
Trading range on Friday was between the major support at 88.00 and the major resistance at 95.00
The short term trend is to the Southside with steady daily closing below 106.70, targeting 87.00.
Support: 90.60, 89.70, 88.90, 88.00
Resistance: 91.50 92.30, 93.00, 93.80, 95.00, 95.70
Recommendation Based on the charts and explanations above my opinion is: sell Crude Oil around 93.40 and take profit in stages at 89.85, 89.70 and 88.00. Stop loss with daily closing above 94.60 demonstrates prudence.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.
www.livetradingnews.com
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