Weekly Summary 7/6/09 - Correction in Progress

Crude finished the holiday week down -3.5% at 66.73. It was the perfect storm for crude. I’m still scratching my head on how I missed that top on 6/30/09.
Oh thats right, that night a rogue trader traded 9000 contracts on an unauthorized trade in the Asia overnight session. Anyways, that trade put in a double top in the 73 handle. A good bet if crude could have busted 74 who knows how high crude could have got on short covering and momo trading. He definately knew where my stop was at! However cheaters never win and crude retraced the entire rally and then some (cheaters never win). Both Wednesday and Thursday saw heavier trading volume with wed trading 331,550 contracts and thurs trading 304,636. The EU came out and said that their economy is weak and it is not getting better anytime soon. These economic weakness statements from Trichet sent the EUR tumbling. Crude has traded down 1.40 in Globex trading and now resides at 65.32 as I type.

No COT information available last week due to the holiday shortened week. Crude has busted the June Lows at 66.37 which should make some technicians squirm. Crude also put in a H&S pattern on the 60 min chart last week which projects down to 63.50. This week we get the G8 meeting and also rate decisions on the AUD and GBP currencies. The crude oil daily chart is deeply oversold. Crude has several layers of support here.

65.00 is pyschological support.
64.48 is the 200 daily EMA on the continuous chart.
64.25 is the 50 EMA on the continuous chart.
64.20 is the weekly S1 pivot.
63.50 is the 60 min H&S target
63.50 is minor trendline support (blue)
63.00 is weekly 13 EMA on continuous chart.
62.50 is trendline support (green)
61.00 is major trendline support and a magnet (black)

Up till now the story to buy crude was a weak dollar, fear of future inflation and improving economic funnymentals in the crude market. Is that story now dead? No, this pull back should be treated as a normal retracement as long as the trendline (black on daily chart below) at 61 holds. After this selling drys up Monday morning a bounce should be in order as crude is deeply oversold (-200 on daily CCI). Not sure how high crude bounces but first resistance will be the previous June lows at 66.37. You can see on the daily chart below that crude has several trend lines that offer support the first of which is at 63.50. On the other hand, if the SnP does not hold 870 then crude can go down and test lower prices as 50 SnP points roughly equals 7 points on crude futures. Ultimately that black trendline on the daily chart below will act as a magnet and should get tested on this correction which would equate to a normal 38.2% retracement from the yearly lows at 43.xx on the August contract (see below Aug Crude chart) to the recent yearly high at 73.xx. After we see crudes reaction at the black trendline we can make a better judgement about crudes direction. So I am looking for a bounce once the selling drys up Monday from about 64.20 and for a dead cat bounce to back test 66.37 then fail and retrace back down to test black trendline.

As for Natty, this is getting interesting as we approach the August Natty years low at 3.52. Up till now the story to buy Natty was that it is making higher swing lows. Well now that is not the case and that story is over. Will the price in Natty bottom before supply and and demand bottom? On the continuous chart the yearly low is at aprox 3.25. The last two EIA inventory report came in with injections with less than 100 bcf. If this weeks injection comes in less than 100 that may give Natty a much needed speculative bid that the bottom is near. On accuweather, the 1 -5 day national temperature forecast shows cooler weather which is not going to help. Technically Natty is deeply oversold and when the CCI hits -200 on the daily Natty bounces (see daily chart below). If 3.50 gets busted on Natty then the next support is at the weekly S1 pivot at 3.45. Below there a retest of 3.25 should be in order. Getting long near the 52 week low at around 3.3x with a stop below the yearly low seems like a good risk reward bet. This trade only works if a hard stop is put under the yearly low. I would not want to be long if the yearly lows at 3.25 gets busted. The next support level comes on the multi year long term monthly chart at 2.90 if 3.25 gets busted. Natty should remain weak as long as crude is weak.