Crude Oil vs Gold, Whoýs Ready to Rally

While gold was extremely popular the past few years, I think its safe to say crude oil is unbeatable for popularity, as itýs a resource which almost everyone uses on a daily basis and it effects 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. Letýs 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 peopleýs trading time frame, that they just donýt 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 itýs also a long-term support level, really starts making things look better for a possible bounce.

Crude Oil (USO Fund) Weekly Chart Explained

The weekly chart is really exciting to look at because oil has sold off so hard and itýs 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 donýt 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 itýs 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.

The Trading Time Frame ý 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 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 doesnýt perform well over the long run. Following a basket of ETFýs 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 ETFýs 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.

Chris Vermeulen, Gold, Silver and Oil Trading Specialist. www.TheGoldAndOilGuy.com