BRENT OUTPERFORMS WTI AND BREAKS RESISTANCE -- ENERGY ETFS HOLD THEIR BREAKOUTS -- EURO ETF STALLS AT FIBONACCI RETRACEMENT -- DOLLAR ETF FIRMS NEAR EARLY DECEMBER LOW -- GOLD BECOMES OVERBOUGHT AND TAKES A HIT
BRENT OUTPERFORMS WTI AND BREAKS RESISTANCE... Link for todays video. West Texas Intermediate Crude (WTI), also known as light sweet crude, is used to benchmark oil prices in the US. Light refers to the density and sweet refers to the sulfur content, both of which are low. Brent Crude, which is sourced in the North Sea, is the benchmark price for Europe. More than half the world uses Brent as their benchmark for crude oil prices. Even though both WTI and Brent are interchangeable commodities, they are geographically separated and their price spread has widened significantly in 2012. In the spot market, Brent is trading around $114.90 and WTI is around $97, which marks the biggest spread since early November. Brent crude goes mostly to Europe and is more affected by Iranian supplies, which could be curtailed due to sanctions. This is perhaps why Brent is stronger than WTI. Chart 1 shows the Brent Crude ETF (BNO) breaking out to a new high for the year today. BNO broke resistance in the 75-76 area and this level turned support in late January. The indicator window shows the Brent Crude ETF relative to the US Oil ETF as a ratio chart. This Price Relative rises when BNO outperforms USO and falls when BNO underperforms USO. The ratio moved back above 2 in January and above 2.10 in February as the spread between Brent and WTI widened.
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Chart 1
In contrast to BNO, chart 2 shows the US Oil Fund (USO) moving lower since early January. Given strength in US stocks this year, one would expect WTI to move higher on the prospects for stronger demand. Admittedly, relative weakness in oil is a concern when it comes to stocks. The indicator window confirms relative weakness in WTI this year. Notice how the $WTIC:$SPX ratio peaked in late November and moved lower the last 2+ months. On the price chart, USO broke resistance with a surge in October-November and broken resistance turned support around 35-36. After a resistance challenge in early January, the ETF declined with a falling flag. A move above 39 would reverse this fall and signal a continuation of the uptrend. Barring a breakout, USO could be headed for a test of its December low.
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Chart 2
ENERGY ETFS HOLD THEIR BREAKOUTS... Despite relative weakness West Texas Intermediate, the Energy SPDR (XLE) and the Oil & Gas Equipment/Services SPDR (XES) are holding their breakouts and challenging resistance. Rising prices for Brent may benefit international oil companies with exposure outside the US. Chart 3 shows the Energy SPDR breaking triangle resistance in early January and then oscillating around this breakout. Despite choppy trading, the six-week trend is up as XLE formed higher highs and higher lows this year. The bulls still have the edge here and support remains in the 68-69 area. Chart 4 shows the Oil & Gas Equipment/Services SPDR with similar characteristics.
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Chart 3
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Chart 4
EURO ETF STALLS AT FIBONACCI RETRACEMENT... The Euro surged to broken support in January and then stalled the past week as talks with Greece entered another make-or-break stage. Even though there seems to be one of these make-or-break stages every few weeks, this one may be particularly important to Greek debt holders and Euro. Just to keep things interesting, the biggest public and private sector unions are calling for a 24-hour general strike on Tuesday. Chart 5 shows the Euro Currency Trust (FXE) with at least five big swings the last four years. The current swing is down after the trendline break and support break at 140 in early September. Also notice that the general trajectory since July 2009 is down as FXE formed lower highs and lower lows. A large falling channel may be taking shape and this would project further weakness below the 2010 low. The lower trendline would extend to the 1.10 area over the next 6-9 months.
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Chart 5
Chart 6 shows daily candlesticks over the last six months. FXE broke the late October trendline with the January bounce, but is meeting resistance near broken support in the 131.50 area. Broken support turns resistance is a basic tenet of technical analysis that comes right from the books of Edwards & Magee and John Murphy. Also notice that the advance retraced 38.2% of the prior decline. This Fibonacci retracement is the minimum one would expect on an oversold bounce or countertrend bounce. The ETF has stalled the last eight trading days with a rather tight range unfolding. Watch consolidation support and resistance for the next directional clues. Before getting too bearish on Greece and the Euro, keep in mind that 11th hour deals are the norm and such a deal could lift the Euro.
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Chart 6
DOLLAR ETF FIRMS AT DECEMBER LOWS... Chart 7 shows the long-term picture for the US Dollar Fund (UUP). Notice how the ETF broke above resistance with a surge in early September and then battled this breakout zone the last 4-5 months. With a higher low in November and higher high in early January, the overall trend for the last six months is up. Chart 8 shows daily prices to focus on recent price action. The decline over the last few weeks was quite sharp, but retraced 50% of the prior advance, which is normal for a pullback within a bigger uptrend. Support in this area is also confirmed by the early December low. UUP firmed the last eight trading days and a break above resistance at 22.20 would reverse the 3-4 week slide.
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Chart 7
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Chart 8
GOLD BECOMES OVERBOUGHT AND TAKES A HIT... Even though stocks moved sharply higher on Friday, gold got clobbered and divorced itself the S&P 500. Up until Friday, both stocks and gold were moving higher in 2012 (positively correlated). Perhaps Fridays bounce in the Dollar weighed on gold. A decline in the Euro favors the risk-off trade and this pushes money out of riskier assets, like commodities. Second, gold and the Dollar have historically been negatively correlated. This relationship was out of whack in mid January, but could returning to normal after Fridays action. Even though strength in the Dollar is a concern for bullion bulls, GLD remains in bull mode on both the daily and weekly charts. Chart 9 shows the Gold SPDR (GLD) breaking wedge resistance with a big move on 25-Jan and extending above 170 in early February. The ETF was up some 13% in 5-6 weeks and overbought. Also notice that resistance from the November-December highs came into play. At this point, the wedge breakout has yet to be invalidated. The broken trendline extends back to the 160-162 area and this zone also marks s 38-50% retracement of the current advance.
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Chart 9
Chart 10 shows weekly prices over the last four years. Overall, the big trend remains up for GLD. After a blast above 180 this summer, the ETF corrected back to the 150 area with a falling wedge. Notice that this falling wedge retraced around 61.80% of the prior advance and GLD found support from the consolidation last spring. As long as the falling wedge breakout holds, an extension of the larger uptrend projects further strength above 180.
