Archive for the ‘Commodities Funds’ Category
To Read the Future in a Barrel of Oil: Part I
Today I intend to start a series of articles that will attempt to ascertain the direction that the economy is taking by examining a crucial market on which all of us depend on to some extent. That is the petroleum and petroleum products markets.
There are certain aspects here I would like to relate to but first I would like to address several fact concerning them that are worth to know:
1. There were not found any great fields of Light Crude Oil like those in Saudi Arabia or the North Sea for decades.
2. Atrophy of the fields is becoming widespread, like the Cantarell Fields in Mexico.
3. According to the financial statements of the big oil companies in the world, those that are not government owned, there is a constant struggle by them to renew their oil reserves.
4. In spite of the escalation of prices, there has not been an increase in the rate of production.
5. In spited of the formidable efforts to develop alternate sources of energy, wind, sun and the like, their contribution to our energy needs as substitutes remains very low, and is likely to remain so for many more years.
6. Almost every source of alternative energy is good to produce electricity. They are, however, unsuitable to drive engines or machinery that drive an economy. In this connection I will remind everyone that the vehicle industry is paving the way with battery-powered vehicles, though this effort is still in diapers.
7. The byproduct of the petroleum industry-the myriad of plastics has become a major material in durable goods that surround our daily lives.
With all the background reported here, I will continue in the next part of this series with the situation of supply and demand in the U.S. The third and last part will be included also in the Commodities Funds Category and will focus on the energy sector.
I will then focus on the concept “PEAK OIL” that is interpreted as the highest output level of liquid Light Crude Oil. The oil that is not from liquid sources is that produced from stones absorbed with it, or from other elements that are not liquid in nature. Additional liquid sources of oil exist in practice but they are situated in places like the depths of the oceans; particularly cold and especially hot areas all over the Earth and unstable areas from a political perspective. Oil production from them is expensive to the point of economic inexpediency.
If there is interest, I will add a fourth installment analyzing Market Sector Funds that describe what is happening in the energy sector through the eyes of Technical Analysis.
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The ProShares Ultra Oil and Gas Fund
This is a doubled up Fund, which means that if oil and gas prices go up 1 dollar, you gain 2 dollars and, understandably the converse is also true. This Commodity ETF is on a good upwards trend. The blue lines that demarcates the price line are Donchian Channels. When a security on its particular chart shows prices close to the upper bound of these channels for some time, as is the case here, this means that they will go down and do indeed at some point tend to go down past the Donchian Channel midpoint, that is the red line between the 2 blue channel lines. That was done in the last few days, and now the equity has broken its’ trend line, looking as if it is about to break into downwards pattern.
The ROC indicator has gone down to show a new downwards trend in the making, and so has the STOCH indicator, showing a clear sell after Wednesday trading. But the Weekly Charts show positive momentum on the ROC indicator and a buy signal has appeared on the STOCH, or Stochastics Indicator. Which is why I think that this is a good ETF to invest in only for a long period of time, taking into account that above the high s/r line in the daily chart, there is a whole lot of blank space with no horizontal lines in the horizon.
This is a long-term investment only. To profit from such investments, one must invest in the chosen equity for at least a year or more. I do beleive that Petrol Fuel prices are going to go up, but not soon. They have been down for the whole period of this last recession and, with the recovery in progress, and I still believe we are in a recovery with NO double-dip in sight and this is by all means an economically secure and fundamentally sound investment. It may stand still for a period, of even go down somewhat on the Daily Level, but on the Weekly and Monthly Charts, I see a lot of room for the thesis of a decent upwards trend developing.
For acting on this and positioning in this ETF, using the Monthly Chart is recommended in addition to the Weekly Chart. Though actions should be performed on a weekly basis with the Weekly Chart in mind.
This is the way the Daily Chart looks:
This is the way the Weekly Chart looks:
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The US Natural Gas Fund
The United States Natural Gas Fund (symbol UNG) is now in the process of testing the $7.7 price line that is acting as a resistance. The momentum indicator (MOM) is giving a positive value and that is a good sign; and the RSI is going into buying territory as well. There is a rectangular pattern, as seen in the Closing Line Chart below, that is emerging and is smaller at the right end of the scale and may break upwards, which is the likely way as market indicators show a chance for it to break upwards. The fact that the pattern is diminishing and is not on an upwards ascent and, in contrast the RSI and MOM indicators are showing an upwards trend starting means that there is here what we call a divergence between the indicators and the price line. This shows decision in favor of the upwards trend. This may come soon or later on, but this equity most probably will continue in this pattern for a while.
The indicators show us the way to a good opportunity, though not for certain. There is a high demand for Natural Gas in the US and prices are, fundamentally speaking, supposed to be going up. They may be, if this analysis proves correct and the pattern breaks in the right direction.
Below you see the Japanese Candlestick Chart showing the support/resistance line and the divergence in blue, the indicators going up and the prices down., and the Closing Line Chart showing the rectangular pattern. I picked the Line Chart because is many times makes clear ambiguous signals from the Candlestick Charts as to the placement of Line Studies.
This is the way the divergence looks on the Candle Chart:
This is the way the pattern looks on the Line Charts:
