Yellow Gold vs. Crude Black Gold: Who's Ready to Rally?

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 it's 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 it 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 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 ETFs 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 ETFs 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 Friday's 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 downward 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 trader's 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.

Comments

[Apple:]

how is reading a chart on past performance going to tell you what happens to gold next? it is like picking the same numbers as yesterday's lotto winners. it is all rear vision mirror.

Jan 20 06:37 AM

[bluepoppy:]

if money is the oxygen of the global financial system then oil is the blood

Jan 20 07:52 AM

[bartpr:]

you chart guys fail to acknowledge that an upward trend of macd in a down
market indicates that a change in downward momentum has occurred as
much as a change in trend may have occurred.

this is a basic flaw in the macd. it does not account for change in downward momentus by the very nature of its calculation. (short term ma-
long term ma) if st-lt<0 and both are trending down, st will decrease at a slower rate than lt, resulting in a postive trend.

Jan 20 07:53 AM

[Perry1961:]

Gold will be back near $300 in 18 months. People hoard gold for times like these. Especially Asians.

Jan 20 09:38 AM

[Doc 224899:]

That may all be true, Chris, but this morning there are only two things that are assertively positive: short market funds and gold miner stock.

Jan 20 10:05 AM

[GMiki1:]

Last week gold was adjusting to the change in the commodity indexes. Now gold looks to be in an uptrend. The author is a trader and that's one thing, but for long-term security, gold is a buy right here and now. So is oil. How much further down can it go?

Jan 20 11:18 AM

[Conan the B...:]

The question for me is how long can Gold stay up against weaker Oil and the Stronger USD?

Has Obama used up his Grace period?

Jan 20 11:44 AM

[Ishortyou:]

well let me think, hm...with a worthless currency, money being printed or counterfeited by the treasury, an unpayable natinal debt making treasury bonds unstrustworthy...hm..y... ...give the gold any time.

Jan 20 12:00 PM

[Mel Shapiro:]

During deflationary times, gold does not do well, cash remains king. As the price of oil plummets, those that use oil revenues to buy gold aren't. Even if there was a collapse of USA monetary system, gold would be next to impossible to use as a medium of exchange. In the event of inflation, useable commodities like oil and agriculture will at least stay pace.

Jan 20 12:55 PM

[Ishortyou:]

since ancient civilization, gold coins or gold was used as a tradable currency, even with a worthless dollar, people would like to be paid in some of gold or precious metal instead of sacks of wheat, soybean or oil.

Jan 20 02:08 PM

[Urbane Gori...:]

People are confused by charting. They think it's like reading 'chicken entrails' or 'consulting the Oracle and Delphi'.

If you look at the charts as he has clearly explained, you can see that price swings up and down and volume moves up and down as well. The fact is that there are also clear impediments to the up or down movement of price. Does price **always** do what it seems to be trending towards. No! But charts give you the best bet as to which directing price is moving (over different time frames), the better entry point, a clearer stop, a potential exit and advance notice as where you might have problems. I'm not sure why anyone feels that these are bad things, or even hard to understand...

jegan ;-)


On Jan 20 06:37 AM Apple wrote:

> how is reading a chart on past performance going to tell you what
> happens to gold next? it is like picking the same numbers as yesterday's
> lotto winners. it is all rear vision mirror.

Jan 20 06:59 PM

[Urbane Gori...:]

Well... Depending on your timeframe, I have noticed that different indicators work better. I find the MACD works best in short timeframes, such as 15 Minutes (because it lags a bit). I prefer a StochK/StchD cross below 20 as a **potential*8 move up on a daily, weekly and monthly chart. +DMI/ADX (as outlined by Dr. Schaap) seems to work on all timeframes and carries a margin of safety that the other two seem not to, but you lose some of the first leg up. Bollingers are great on any level, **if** you understand how they work. Kathy Lien has authored a couple of articles that she applies to interday Forex, but that can be applied to longer timeframes as well.

jegan


On Jan 20 07:53 AM bart2009 wrote:

> you chart guys fail to acknowledge that an upward trend of macd in
> a down
> market indicates that a change in downward momentum has occurred
> as
> much as a change in trend may have occurred.
>
> this is a basic flaw in the macd. it does not account for change
> in downward momentus by the very nature of its calculation. (short
> term ma-
> long term ma) if st-lt<0 and both are trending down, st will decrease
> at a slower rate than lt, resulting in a postive trend.

Jan 20 07:06 PM

[Jake2:]

"People are confused by charting. They think it's like reading 'chicken entrails' or 'consulting the Oracle and Delphi'. "

jegan: It's the "Oracle of Delphi." "The Oracle of Delphi was the most important shrine in all Greece, and in theory all Greeks respected its independence. ... " They (sic)--the Oracle and Delphi-- were not a vaudeville team. If you can't get the Oracle right why should anyone listen to you?

Jan 21 01:14 AM

[Jake2:]

From my perspective, charts are good if more than one indicator/oscillator is supporting another. I like to have three or four saying more or less the same thing, plus a strong price line trending up.

Jan 21 01:24 AM

[bearfund:]

The black stuff is high-risk, high-reward. Right now, once it's out of the ground, it gets sold and used and it's gone forever. If that remains true, it's probably unbeatable for the long-term investor. The yellow stuff is zero-risk, zero-reward. It's the only meaningful long-term standard of value, but there's no real demand for it in the ordinary sense, and it never goes away. People talk about the "gold/oil ratio" and all kinds of other stuff that makes these two assets seem related or even cross-substitutes, but the reality is they're as different as night and day; any apparent correlation reflects nothing but the change in value of whatever fiat paper you're measuring them in.

Jan 21 02:19 AM

[Conan the B...:]

Day trading is not my forte, quite obvious.

I'm quite sure all of you would be willing to live with 50%+ gains in less than 3 weeks, I certainly am.

The Obama rally started at the end of Nov. and extended itself through December and ended on Jan. 2nd. On Jan. 2nd, I bought 3 triple shorts which are up on average 50% or more and one which is up almost 200%. I will sell FAZ in its entirety, since pigs get slaughtered and since I plan to buy FAS and both HIG and JPM if I see JPM go to the $16 dollar area and HIG to $10.

Most People are only familiar with H&S tops. H&S bottoms, flags, pennants, diamonds(my favorite), measured moves, channels are never mentioned nor are the necessary confirmations to any move.

Support and resistance lines are slowly being accepted but usually incorrectly applied. Charting is an art form which requires an interpreter. To strengthen my views of what they tell me, I include MACD, Cash Flow, volume and Simple MAs. Bollinger Bands are very useful if a channel develops.

I hate to use less than one years' worth of data. I prefer a minimum of three. If I cannot find any support or resistance lines, I will go back until I find some and extend to present.

If January ends up being a Down month (January Effect is already negative)), How many that bought in December in anticipation will heed the Implied warning given by The January Barometer? Sell in May and go away? Or that the First Year of a new Presidential Cycle is usually the Worst.

When Historical Truisms are dismissed, they tend reappear. IMO

Jan 21 02:37 AM

[otbricki:]

The gold / oil price ratio is at historically high levels. It is much less risky to buy oil right now.

Jan 21 09:50 PM

[Conan the B...:]

I bought DXO at $3.00 a few months ago and watched it drop promptly below $2.00. The Gaza incursion drove it to $3+, but when oil hit $33 recently, DXO held in the $2.80 area.

The jury is still out as to when Oil starts moving up again but ETFs like DXO can be bought speculatively at Option-like prices for DXO. My opinion, others will disagree.

Jan 22 02:33 AM

[cubanstockp...:]

OIL GOING up has absolutely nothing to do with all these esoteric macd charts. The true sages wouldnt care to look at these kind of charts(look Buffet). The catalyst in the price of oil is the fact that major oil companies made MultiBillion dollar investments a the peak of 120-147 OIL. Short the oil producers and long the oil.
Oil companies would rather make no money than lose money per BBL produced. Also take into account the billions poured into Oil sands, all with the expectation that the new low in oil was 80.00 at the time.
Do you think oil companies will keep pumping at a loss? No, they will just stop pumping, countries will invent conflicts, Russia is now collapsing, UAE stopped plans to build come new outlandish buildings.

Short the pumpers, long the oil, there will be a supply crunch when OPEC halts production for one month to pickup the slack.

Jan 24 11:21 AM

[cubanstockp...:]

DXO is a wise investment, you should have kept buying at the 2.00 levels, the bullish is locked in between today and the SUMMER driving season.


On Jan 22 02:33 AM paultaut wrote:

> I bought DXO at $3.00 a few months ago and watched it drop promptly
> below $2.00. The Gaza incursion drove it to $3+, but when oil hit
> $33 recently, DXO held in the $2.80 area.
>
> The jury is still out as to when Oil starts moving up again but ETFs
> like DXO can be bought speculatively at Option-like prices for DXO.
> My opinion, others will disagree.

Jan 24 11:22 AM

[777:]

Compared with the yellow gold, the black gold is in the value pit. 40-50 is a good long-term level for winners. That's why some country begin its oil stock
activity.Should we stock a little bit as well?

Jan 29 05:37 AM