Wednesday, May 13, 2009

Oil Inventory Report Super Bullish; Watch Silver and Gold

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Nymex oil was as high as $60.08 a barrel yesterday, another six month high. The oft quoted 'experts' are still bearish as they have been all the way up from $33 a barrel. While it has received little attention, silver has been rallying nicely and is approaching resistance around $14.40. It is likely to get sticky around that level before a breakout can take place. Gold has been trading above, but close to its 50-day moving average for the last four days and the moving average pattern is trying to become bullish. Nova gold (NG) mentioned in this blog yesterday was up 15%. It has strong resistance only 20 cents higher, so it's not likely to be at a great entry point at the moment.

Oil is a very seasonal commodity and on average the price peaks the first week of August. The peak can actually take place anywhere between June and September. If you wish to be as conservative as possible, there is at least another month left to the oil rally. There could be two or three. Points of strong resistance include $70, the high during hurricane Katrina; the $76-$78 range, which includes the 38% Fibonacci retracement of the sell off and oil's last major breakout point before it went to $147 a barrel (this combo makes this resistance area particularly formidable); and $90, which is the 50% Fibonacci retracement of the sell off. You might need a hurricane heading toward the Gulf of Mexico to get to that level on this go around.

The EIA storage report just came out and blew the bears out of the water. Oil analysts had predicted oil in U.S. storage would increase by 1.4 million barrels. Instead, oil in storage decreased by 4.7 million barrels. Gasoline supplies were supposed to be up 400,000 barrels, but dropped 4.1 million barrels. While there was an immediate market response on the upside for oil and oil companies, I suspect a bigger rally will not show up for a couple of more days (this has happened before).

It is my belief that as the stock market fades, and this should be happening within a month or so, that gold and silver will start to shine. While there are people who are predicting gold will fall to $600, there have been a number of supposed oil 'experts' that have remained bearish during the entire oil rally. You can expect the gold bears to remain vocal all the way up as well. Watch the charts if you want to know what is really going on. Moves to higher levels and breaking above resistance are bullish signs that will tell you that gold and silver want to continue to rally. For gold, 1000 is the key level and when that is broken, a significant move up should follow shortly thereafter.

NEXT: Market Pull Back or Top?

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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