Technical Look At Crude Oil

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Over the last several weeks, WTI Crude Oil has made a major upward move, with the return of backwardation, which describes a futures forward curve in which the cost of crude for immediate delivery is higher than future deliveries. With improved infrastructure, crude is now flowing from Cushing and the production areas to coastline refineries where demand has remained strong to meet summer demand for gasoline at a time of slowing imports. This has led to the biggest monthly drop in US inventories in more than 30 years, according to the Energy Information Administration (EIA), explaining why the price of spot crude has risen relatively more than deferred during this time.

We saw the Brent-WTI spread collapse back to parity last week before bouncing again. The longer-term target of the spread is being determined by the cost of transporting oil by pipeline and rail from inland production and storage sites to coastline refineries, so on that basis we will expect Brent's premium over WTI to be maintained in the medium term.

Looking forward, refinery demand is set to peak over the next month, which could lead to a further reduction in US crude inventories. But with production still running at a high rate, the annual turnaround, when refineries shut down to prepare for the production of heating oil and other products, could be the turning point and inventories may begin to build again, resulting in some downside price pressure.

The latest Commitment of Traders (COT) report shows that large speculators have never been more bullish on crude oil and are holding an all-time high exposure to crude oil. The Commodity Futures Trading Commission (CFTC) COT reports holdings data for various energy contracts and most of them show large speculators are record long.

  WTI broke out of an Inverted Head & Shoulders and tested it's measured move to $109. I began to pullback last week to just under $103, reversing @ the 38.2% Fib level (Twitter post)  The 108.80 (109) level presents resistance, is it a near term 'Double Top' & will crude break below $103 support head toward $98 (breakout). Or, has crude set up a 'Bull Flag' pattern with a measure move towards $119?

Ron William, technical analyst at Investors Intelligence, takes a technical peek at WTI crude oil, and looks at the spread between it and Brent oil.

 

Anthony Grisanti believes oil is badly overdone. He's betting big that a selloff will come in short order, with CNBC's Jackie DeAngelis and the Futures Now Traders.

More Downside For Crude Oil

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West Texas Intermediate fell for a second day, extending the biggest loss in more than a month as U.S. crude output surged to a 22-year high. READ

West Texas Intermediate fell for the second day in three after fluctuating amid data showing a slowdown in China’s manufacturing in July and shrinkage in crude stockpiles in the U.S., the world’s largest oil consumer. READ

In addition to pushing the WTI market into backwardation, these developments are helping to raise Midcontinent spot prices, narrowing the spreads between North Sea Brent and WTI and between Bakken and Light Louisiana Sweet (LLS) crude oils. However, the resumption of syncrude imports and an anticipated refinery switch by BP Whiting to heavier Canadian crude later this year could take upward pressure off prompt WTI prices, flattening the forward curve. LINK

click on chart to expand images

 

This Week In Petroleum EIA 

 

Apple Earnings Follow-up

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 Apple forecast revenue of $34 billion to $37 billion this quarter, slightly below Wall Street's average projection of $37.04 billion. Apple earned $6.9 billion, or $7.47 a share, on revenue of $35.3 billion. That compared with a profit of $8.8 billion, or $9.32 a share, on revenue of about $35 billion in the year-ago quarter.

 

Gross margins came in at 36.9% in the third quarter, sharply below 42.8% a year ago, as Apple sold more cheaper older model iPhones along with the new iPhone 5 model, sales rose 51% in the United States from a year earlier, and 66% in Japan.
Suggest entering long Apple position around $400.

Prior Apple Post

 

 

Apple Reports Earnings

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Apple  reported its first quarterly earnings decline in nearly a decade in April, and investors since then have been baking in a fair amount of weakness for the June period. It's expected to report another drop in earnings along with flat sales on Tuesday afternoon, as the iPhone 5 faces stronger competition from newer smartphones, with some consumers still flocking to older, lower-priced models.

For the June period, Apple is expected to report earnings of $7.34 per share on revenue of $35 billion, according to consensus estimates, it earned $9.32 per share on revenue of $35 billion for the same period last year. Apple itself projected gross margins in the 36%-37% range for the period. The company has not reported a quarterly gross margin below the 36% mark since the '09  March quarter.

On the technical side, the $380/$390 level looks like it has formed a 'Double Bottom' and most of the selling has been seen.   With reasonable expectations, low sentiment and compelling valuation traders/investors are looking for some positive news to move the stock.

 Schaeffer link

Crude Oil Heading Lower

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Oil at $50 by end of year Joe Petrowski, CEO of Gulf Oil, explains why he sees oil headed much lower than they are now.

John Kilduff, Again Capital, and Brian Levitt, Oppenheimer Funds, discuss the recent spike in oil and gasoline.

Fadel Gheit, Oppenheimer analyst, shares his top oil plays right now.

WTI Crude Oil- Short Position

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West Texas Intermediate Crude Oil had a volatile 10 days, after touching $99 a barrel- it dropped to $92.50 post FOMC, nearly testing it's 200 day moving average. Then rallying to a $98 intraday high this Friday, where ITZ entered a half-position in Proshares UltraShort Crude Oil ETF (SCO) @ $35.80.; it closed Friday @ $36.45 -  ITZ raised the stop to $36.20.

The move in crude has in part been driven by gold investors shifting money out of the precious metal, as it dropped, breaking the $1,200 an ounce level. Although the Weekly EIA showed no change in inventory levels for the week, the fact that crude held and that gold/silver plummeted was a bullish factor.

ITZ has noted over the past few weeks that gold, as per Commitment of Traders (COT) report was in a 'Bottoming Phase'- with commercial hedgers decreasing their short positions & large traders their long positions. So most people that are going to sell have sold... basically washed out. ITZ suggested entering silver via Silver Wheaton (SLW) on June 25th Link 

The near term view is that those have shifted money towards crude, will begin re-entering gold and silver. ITZ is looking at the Gold:WTI Crude Ratio, as well as the Crude Oil COT and Oil Futures Contango (OILZ) Link

Is Silver Wheaton A Buy?

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Those that follow ITZ on Twitter or on this blog, know that Silver Wheaton (SLW) is a favorite in the silver market. Having the highest margins, due to the fact that it doesn't mine, but simply enters into long-term silver purchase agreements with other actual miners. In the past year this has avoided the a 10% rise in mining costs.

Silver Wheaton fundamentals: Forward P/E 12.27, 5 year EPS growth of 20%, ROE of 18% & long term debt-to-equity ratio of 0.

Further Downside In Market Correction

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Federal Reserve Chairman Ben Bernanke took a major overhang off this market and reduced the uncertainty for investors moving forward, giving them more clarity on Fed policy through the end of the year. Bottom line means we'll see some near term downside, ITZ continues to see the 200ma- 1500 area being tested. But longer term stocks will be the place to be as the economy continues to improve and earnings rise.

Last month ITZ called for a decline in the $SPX & $COMPQ towards their respective 200 day moving averages LINK

Crude Oil Observations

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Just a few crude oil observations--

WTI Crude Oil Nears Pivotal Level

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WTI Crude Oil is knocking on $97 level...will it break higher or head lower? The Federal Reserve meets next week, will the continue with QE or taper? ITZ has called for a market correction, $SPX to decline to it's 200ma around 1,500 level.

WTI crude oil to around the $90 a barrel area, having entered Proshares Ultra Short Crude ETF (SCO) with two (1/4) positions @ $37.25 & $36.50. Next entry level $36, came close today. Here's a daily SCO chart, you can see a Head & Shoulders pattern with $36 neckline. ITZ will add to position @ $36 & set a $35 stop level on the entire position. SCO Chart

API & EIA inventory reports this week showed that there is more than adequate supply of crude oil.

Early this week, monthly forecasts from the Organization of the Petroleum Exporting Countries and the EIA gave a more pessimistic picture of the oil market. The EIA said Tuesday in its short-term energy outlook it expected the growth of oil demand in China, the world's second-biggest oil consumer, to slow to 4.1% this year, a drop from the 4.4% growth projected last month. OPEC modestly lowered its forecast for global oil-demand growth this year. Read Story

ITZ Weekend Review

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Stocks rose with the dollar and bond yields, as traders viewed the May jobs report as strong enough to signal continuing economic growth, but not so strong as to push the Fed toward a wind down of easing. The markets have been fixated on when the Fed will begin to slow down its bond purchases, and there's been a lot of volatile trading as Fed officials discussed "tapering" purchases in the past several weeks.

 *Note... We'll have three more employment numbers before the Fed meets in September.

Greenspan: Taper Now, Even If Economy Isn't Ready --- "The sooner we come to grips with this excessive level of assets on the balance sheet of the Federal Reserve—that everybody agrees is excessive—the better,"

Dollar-Yen Shake-Out Could Just Be the Start: A day after the U.S. dollar suffered its largest one-day fall in three years against the yen, strategists say the wild currency moves may be far from over and much is dependent on Friday's key U.S. jobs report. READ

 Economic growth in China slowed in May according to government reports released over the weekend. READ

'Hindenburg Omen' Revisited

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The 'Hindenburg Omen': Bear Signal Scares Market Read

Three years ago ITZ touched upon this signal READ

As of Friday...all five criteria have been met.

Below are the current Charts

#1 The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

#2 The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 69.

#3 The NYSE 10 Week moving average is rising.

#4 The McClellan Oscillator is negative on that same day.

#5 New 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.