Yellow Gold vs Crude Black Gold, Who's Ready to Rally

By: Chris Vermeulen | Tue, Jan 20, 2009
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While gold was extremely popular the past few years, I think it's safe to say crude oil is unbeatable for popularity, as it's a resource which almost everyone uses on a daily basis and it affects all of us in the wallet when oil prices rise as fuel, shipping costs and petroleum products start to cost more and more. This is the first time I have REALLY noticed everyone is following the price of oil. When kids start talking about it, then you know its being watched like a hawk from all types of individuals and traders.

When crude oil peaked at $147.90 back in July, people were starting to panic. The increase on fuel alone was really taking a toll on commuters and shipping costs went through the roof, which hurt almost every business in some way. That being said, oil is now back down at support and looking ready for a bounce. Let's take a look at the charts.

Crude Oil Monthly Chart Explained
The monthly chart is by far the most over looked chart, because it seems so far out of most people's trading time frame, that they just don't check to see what things look like from further distance. I will admit that is a boring chart to watch, as it moves as slow as molasses but it still provides excellent support and resistance levels, which we do not see on the weekly or daily chart. Currently the monthly chart of crude oil has pulled back to the 200 day moving average, which is generally a good place where buyers step in. Also to take that same price level and see that it's also a long-term support level, really starts making things look better for a possible bounce.

Crude Oil Monthly Trading Chart

Crude Oil (USO Fund) Weekly Chart Explained
The weekly chart is really exciting to look at because oil has sold off so hard and it's become the talk of the world, everyone wants to catch the bounce in oil price when it does finally bounce. I can see oil bouncing back up to the $60 level but only time will tell. I don't forecast or trade with a bias; I am strictly a technical trader. You can see how popular it has become simply by looking at the volume on the chart. Only 12 months ago it was trading an average of 30 million shares and now it's blasted higher to over 200 million shares each week, indicating we should see some type of reversal soon. This prolonged steep sell-off is starting to show signs of a bottom. The downward trend line has been tested as prices are starting to slow the speed of decline. Also the MACD is getting close to crossing over as the downward momentum is slowing.

Crude Oil Weekly Trading Chart

The Trading Time Frame - Crude Oil Daily Chart Explained
The daily chart of crude oil is what most traders use and it is also what I focus on for generating entry and exit points. A couple of weeks ago, I mentioned we needed oil to break higher above our down trend line and then correct (sell back down) to lower our risk, as we will be able to draw a support trend line once oil reverses and generates a reversal candle.

This daily oil chart shows us that oil is starting to find more buyers, as we had a nice bounce in price 2 weeks ago and heavy volume also shows interest is climbing. The MACD (momentum) has been on an up-trend for a couple of months indicating that we should see a shift in trend soon. And to top that off, stochastic has bottomed and started to head higher, which is bullish for the short term. Oil can also be traded using the leveraged exchange traded funds (ETF) DXO and DTO, if you want more bang for your buck.

Crude Oil (USO Fund) Daily Trading Chart

Crude Oil Conclusion:
Oil continues to be in a strong down trend and waiting for a low risk entry point is crucial. Picking bottoms or chasing rallies just doesn't perform well over the long run. Following a basket of ETF's like USO, DXO, DTO, XLE, GLD, DGP, GDX, XGD.TO and more, allows me to catch moves within the gold and oil sector.

My strategy is conservative and I do miss a number of good trades, because I need risk to be under 3% before I jump. Generally within the basket of ETF's I follow, I will get one or two signals when the market reverses or bounces off support. And that is the fund where I put my money. I prefer to trade GLD and USO, but if GDX gives a signal I trade it when the time is right. Quality trades are what I focus on finding/waiting for and I avoid a ton of high risk losing trades, which are the silent killers. One high-risk trade losing 7%+ will cripple your profits for the year quickly. I continue to wait for an entry point, which could be just around the corner if things work out.

What's Up with Gold Prices?

Gold has performed well after finding support and bouncing to the top of its descending trend line. The daily gold chart is full of noise and with everyone excited for the next big rally in gold, I am sure Fridays big up day really has you stressed out, in case this is the next gold bull, because you don't want to get left behind. During emotional times like this, I like to step back and take a look at gold from a distance.

The daily chart, which I use for trading gold, can sometimes raise my blood pressure, because of the noise (price swings) on the chart. As you can see in the chart below, it looks like gold is ready to continue its run higher. But what we forget to keep in mind is that the weekly chart is bearish giving gold down ward pressure.

Daily Gold Chart Filled with Noise and Emotions

The Relaxing Waves of the Weekly Gold Chart
After looking at the daily chart of gold and most definitely getting a little confused, we look at the weekly chart. This reminds us of the overall trend of gold, and allows us to see if it's under more buying, or selling pressure. Currently gold is in a downward trend and just finished hitting its head off resistance 3 weeks ago. This chart is what can keep you on the right side of the trade more often than not. While I am bullish on gold, I do not trade long when the overall trend is down and I must have a proper setup and low risk entry point. This weekly chart indicates that gold is under weekly selling pressure and is trading just below resistance. Also the stochastic topped and started heading lower last week. In my opinion this is not a good time to be going long gold.

Weekly Gold Trading Chart

Gold Conclusion:
Seems like everyone is excited and waiting for gold to start its next big rally, but from a short-term traders point of view like mine, Gold just does not look like a buy yet. Currently gold is in a downward trend on the weekly chart and near resistance. Also, the risk is more than double what I want, for me to enter a trade. I continue to wait for the dust to settle before our hard earned money is put back to work.

If you would like more information please visit my website: www.TheGoldAndOilGuy.com.

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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