Crude Oil Rising
By Colin Twiggs
October 12, 2009 10:00 p.m. ET (1:00 p.m. AET)
Crude oil broke out of its weak downward trend channel, rallying to penetrate medium-term resistance at $73 on the back of a weakening dollar. Expect a test of $75 in the short term. A marginal new high followed by reversal below $73, however, would form a rising wedge reversal pattern. In the long term, breakout above $75 would confirm a primary advance with a target of $86*, while failure of support at $65 would signal reversal to a primary down-trend.
* Target calculation: 73 + ( 73 - 60 ) = 86
The US Dollar Index is again testing support at 76; breakout would offer a short-term target of 74.50*. Reversal above 77.50 is unlikely, but would indicate that the down-trend has ended. A weakening dollar exerts upward pressure on gold, crude oil and general commodity prices.
* Target calculation: 76.00 - ( 77.50 - 76.00 ) = 74.50
Spot gold is consolidating between $1060 and $1040. Upward breakout is more likely and would indicate an advance to $1100*. Reversal below $1040 would retrace to test $1000; respect of support at $1020 would be a bullish sign. In the long term, breakout above $1000 offers a target of $1300*; failure of support at $985 is unlikely, but would warn of a primary trend reversal.
* Target calculations: 1000 + ( 1000 - 900 ) = 1100 and 1000 + ( 1000 - 700 ) = 1300
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The Market Vectors Gold Miners Index [GDX] breakout above $50 would confirm the rise in spot gold. Bearish divergence on Twiggs Money Flow (13-week), however, warns of selling pressure. Reversal below $43 would signal a secondary correction — a bearish sign for gold. Divergences between gold miners and physical gold often forewarn of changes in the spot price.
Spot silver is similarly testing its upper trend channel. The medium-term target is $19*, but reversal below $16 would warn of a secondary correction.
* Target calculation: 16 + ( 16 - 13 ) = 19
Platinum found support at $1250 before rallying to test resistance at $1350. Upward breakout is likely and would offer a medium-term target of 1450*, but reversal below $1250 would warn of a secondary correction. In the long term, expect a primary advance to $1500*, while breakout below the trend channel would warn that the up-trend is weakening.
* Target calculations: 1350 + ( 1350 - 1250 ) = 1450 and 1300 + ( 1300 - 1100 ) = 1500
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