Crude and Gold on a Wild Ride
By Richard Ilczyszyn and Phillip Streible ISSUE 601 | JAN 2007
The week of January 22nd was a wild one for crude oil, as NYMEX March futures topped $55 a barrel, but also saw some sharp intraday corrections to as low as $52. Clearly, there is a lot of volatility in this market right now, with $1 and $2 daily moves. From a technical perspective, the Moving Average Convergence/Divergence (MACD) is crossing, and we see a base forming. Our charts show support at $51 a barrel down to $48, where it appears some dip-buyers have been attracted.
As long as March crude trades above $51, we are inclined to remain long, but if we see a significant break to $50.95, we'd reverse and try to get short, with a possible $5 drop as a target on a correction.
From a fundamental perspective, we've had a lot of news this recently. The Department of Energy's weekly report on January 24, 2007, helped knock the market off its highs earlier in the week with some bearish supply data. On the bullish news side, we had the impact of a blast of cold weather propping the market, and word from OPEC that members may be acting on pledges to cut output. Given both the technical and fundamental picture, we still see this market as better buy at this stage, and are looking for opportunities to get long.
While the chilly weather may not have you thinking about road trips right now, we like to think ahead to the summer driving season and are also looking for opportunities to buy unleaded gas and natural gas. We are focusing the September and August contracts. You can either buy calls or go long the futures, strategies which we feel offer good long-term opportunities. While futures prices do by nature factor in seasonal aspects of supply and demand, we believe now is the time to start thinking about trading these markets. Consider the August RBOB gasoline $2/ $2.20 call spread. The cost on this spread right now is running about three cents, which is about $1,260 plus commissions. The profit objective would be $8,400 minus $1,260 (what you paid for it) minus commissions. This trade would expire July 26, 2007.
Gold
Gold has likewise been volatile. It appears to be making a break out, but the market needs a close above $648 per ounce to continue the rally. I'm targeting $657.30 for a move higher, which marks the high on Dec. 1, 2006. A close above there should provide continued fuel for this latest bullish run. If market participants get skittish, look for $632, the 50-day moving average, while support comes in at $630, the 21-day moving average.
Please feel free to call us with more details on specific trades to suit your individual needs.
Richard Ilczyszyn is a Senior Market Strategist with Lind Plus. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.
Futures trading involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
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