In the following chart we plot the CRB and the CCI at the top, along with various commodity sectors. The CRB is 27% below its 2008 high while the CCI is 7.5% above its 2008 high. That is quite the disparity. Which is more representative of commodity prices?

To answer the question we looked at the various commodity sectors. Precious Metals are obviously well above their 2008 high. Livestock and Agriculture have exceeded their 2008 highs while Industrial Metals are within a hair of their 2008 high.

The only sector not to reach or exceed its 2008 high is the energy sector. We show that along with the CRB in the chart below. One can notice the strong similarity between the CRB and energy commodities.

Obviously the weightings between the CCI and CRB are significantly different. Here is a quick look at the weightings. The CCI is first, CRB second.

Softs- 23.5, 16.0
Energy- 17.6, 39.0
Grains- 17.6, 13.0
Precious Metals- 17.6, 7.0
Meats- 11.8, 7.0
Industrials- 11.8, 18.0

Energy’s weighting was jacked much higher while the weighting of the food related sectors (meats, grains, softs) was decreased. The weighting of metals decreased but this was achieved through a significant reduction in weightings of silver and platinum and a rise in the weighting for aluminum.

Overall, the energy sector is the only sector that is not at or above its 2008 highs. Yet because of its massive weighting, commodities as per the CRB, appear to be well-off their highs. This is a problem because most people have no idea that the CCI even exists. Here is a suggestion that commodities have been in a half-lost decade. The author would surely have the opposite conclusion if he looked at the CCI or looked at the various commodity sectors.

I hate to be critical but those who only follow the CRB are doing themselves and their followers a tremendous disservice. They are missing the obvious. The CRB as its presently weighted, is a joke and obfuscates the real happenings in the commodities markets. In the summer, colleague Dave Skarica and I discussed this and the breakout in the CCI, which happened at least a month prior to the CRB. Now we see the reverse. If one looks at the CRB they see a market that just broke higher and is well off its highs. Yet, the CCI suggests a market that is almost in blow-off mode.

In our premium service, we’ve focused entirely on the CCI and as a result, our aggressive portfolio has gained 27% (38% excluding cash) in just a few short months. Consider a free 14-day trial to our service and find out our current views on commodities!

Good Luck!

Jordan Roy-Byrne, CMT
Trendsman@Trendsman.com
Subscription Service

One of the nice things with ETFs is that is allows everyone to follow the price of a commodity or index using any charting website and can even apply indicators to help spot key support and resistance levels using volume by price analysis. There is no need for a expensive data feeds, charting programs and you don’t have to worry about contract expiration.

Below are a few charts of the trend and my short term forecast.

GLD – Gold Bullion ETF

As you can see gold broke out of its support zone this week and popped into the next resistance level. This is very typical price action in the stock market. It is important to look at the price charts like an apartment building. It’s nothing but a bunch of floors and ceilings.

How it works; if a ball breaks though a floor it will naturally fall to the next floor and bounce. The same for if a ball breaks through a ceiling, it will hit the next ceiling then bounce back down. This is essentially how the market moves.

SLV – Silver ETF

Silver is forming a large pennant and nearing its apex. With the amount of volume traded within this large volume channel I would expect a sharp breakout once a direction is made.

USO – Oil Traded Fund

Crude oil had a funky day. Early Wednesday morning in pre-market trading we saw virtually every investment drop at the same time which was strange. Anyways the US dollar dropped sharply and oil when down also. Normally as the dollar drops oil rockets higher but that was not the case today.

Currently oil is trading between two trendlines and is trying to hold up. If we get a breakdown then we could see a sharp drop in oil over the next 1-2 weeks.

SPY- SP500 ETF Trading Fund

The SP500 is trading within a high volume channel, similar to silver. Once a breakout in either direction is made I would expect a sizable move lasting a few w

Mid-Week Commodity and Index ETF Report:

In short, the market looks bearish for the short term of 5-10 trading sessions. This is because everything looks to be trading near resistance levels. That naturally brings sellers out of the woodwork putting pressure on prices.

Silver and gold stocks tend to lead the metals sector on breakouts so it will be important to keep an eye on them as we near a possible breakout or breakdown in the metals. If you see SLV or GDX ETFs out performing the GLD gold fund by 2-3x then I would expect to see gold move higher later that session or the following day.

The US dollar trend usually helps to identify if oil will have downward pressure or not. Also energy stocks tend to lead the price of oil by a few hours and some times a day. I keep an eye on XLE energy etf for a feel of how the energy stocks are doing and also UUP US dollar fund.

As for equities tech, financials and the Russell 2K (small cap stock) tend to lead the way for the broad market. Watching XLK, XLF and IWM help to confirm breakouts.

If you would like to Get My Trading Analysis and Alerts please join my free newsletter at:www.TheGoldAndOilGuy.com

Chris Vermeulen

Why Gold Will Beat the Market Manipulators Find out why gold is the one investment Wall Street manipulators can’t touch in this free report. We Value Your Privacy

Nearly 18 months after the 2008 financial crisis, central banks worldwide still maintain the loose monetary policy they each enacted to counter the financial problems that resulted.

In the United States, interest rates remain at zero while inflation is already nudging above the 3.0% level. In Britain and Japan, interest rates are also close to zero, although in Japan’s case the country has the excuse that inflation rates are negative. In the European Union (EU), the official short-term rate is 1.0%. China’s interest rates are higher, but the Asian giant’s M2 money supply rose 26% for the 12 months that ended in January. None of this monetary “stimulus” looks like it’s being removed any time soon. So the bull market in commodities and energy is likely to continue.

Don’t overlook the expansion in China and India’s automobile markets. China’s motor vehicle sales rose an astounding 46% last year to 13.6 million, leaving the United States – the world’s second-largest market – in the dust. This year in China, motor-vehicle sales are expected to rise past 15 million vehicles – equivalent to the U.S. market in a good year.

India’s motor vehicle sales have also been rising rapidly – topping 2.5 million in 2009 – and are expected to rise another 10% to 15% in 2010.  All those new cars need fuel, and that’s why demand for oil has continued to advance.

Conventionally, we played rises in oil prices by buying stock in the major oil companies. The problem today is that the majors don’t actually have all that much oil. Furthermore, much of the oil they produce is in difficult countries, and when prices go up, those countries tear up contracts to make sure they keep all but a thin sliver of the profits.

In country after country – including such attractive markets as Brazil – governments are continually renegotiating oil-production contracts to give themselves an ever-increasing share of the revenue.

A second possibility is to buy companies with access to high-cost reserves in stable regions. As the price of oil rises, the profits of those companies increase exponentially. The obvious example here is Suncor Energy Inc. (NYSE: SU).

Suncor is the largest producer of oil from the Alberta Tar Sands, with reserves of 1.7 trillion barrels of oil, as much as the entire Middle East. Suncor’s price has dropped from its 52-week high near $40 a share. At roughly $29 a share, the company’s stock is now trading at only 32 times trailing earnings, and even sports a dividend yield in excess of 1.0%. For a pure oil price play, Suncor is attractive at these levels.

A third possibility is to buy an oil-oriented exchange-traded fund (ETF). These have the disadvantage that the storage cost of oil is very considerable. So they can’t just buy the physical commodity like the SPDR Gold ETF (NYSE: GLD). One ETF that’s reasonably liquid is United States Oil Fund LP (NYSE: USO), which seeks to track the price of West Texas Intermediate Light, one of the main benchmark crudes. U.S. Oil has a market capitalization of $2.15 billion, so is reasonably liquid and has only moderate costs.

A final possibility is to buy shares in either one of the Canadian royalty trusts or one of the U.S. trusts whose primary function is to exploit known reserves of crude oil. These have the advantage of paying substantial dividends as the crude is extracted and sold. However, the tax regime of the Canadian royalty trusts will change in 2011. At present, it’s not entirely clear what effect this have on the dividends and earnings, but it will certainly reduce them. That means the U.S. trusts are generally more attractive.

One U.S. trust that I currently like is BreitBurn Energy Partners LP (Nasdaq: BBEP). BreitBurn is an oil-and-gas producer from properties in Michigan’s Antrim Shale, California, Wyoming, Florida, Indiana and Kentucky, so it’s pretty broadly spread.

BreitBurn suffered cash-flow difficulties early last year, so was forced to abandon its annual dividend of $2.08 per share. In addition, it was involved with a lawsuit of staggering incomprehensibility with another company, Quicksilver Resources Inc. (NYSE: KWK). However, the lawsuit has now been settled. And, in even-better news, BreitBurn has re-instituted its dividend at a level of $1.50 per share annually. That’s a yield of over 10% at the current share price, and those don’t grow on trees – the company is also selling at around two thirds of net asset value (NAV). Its only disadvantage as an oil play is that it hedges a substantial portion of its output, which makes earnings statements incomprehensible and can lead to record losses when oil prices rise. But a prolonged oil price rise is still good – it enables it to hedge future production at higher prices, thereby locking in operating profits.

Unlike the increase in gold and silver prices, which is primarily inflation- and speculator-driven, the increase in oil prices rise is largely demand-driven, caused by the explosion in automobile purchases and other oil use in the emerging markets.

If you ask me, that looks to be a pretty solid basis for expecting it to continue long-term -even if interest rates rise.

[Editor's Note: Martin Hutchinson has terrific foresight. He warned investors about the dangers of credit-default swaps - half a year before those deadly derivatives ignited the worldwide financial firestorm. Hutchinson even predicted where and when the U.S. stock market would bottom (a feat that won him substantial public recognition).

To find out more about The Permanent Wealth Investor, please just click here.]

Three weeks ago on February 5^th, we saw an extremely high level of fear in the market with selling vs. buying volume at a 9:1 ratio. We note that in 2009 this extreme level of fear occurred at the bottom of each significant pullback.

Since this panic selling low in February 2010 we have seen stocks and commodities work their way higher, which we expected. Overall the broad market looks as though it’s trying to make a move higher.

Below are some ETF charts of gold, silver, oil and the indexes.

GLD Gold ETF – Daily Trading Chart

Gold lead the market higher in 2009 and also lead the market lower in December of 2009. It looks as though gold could be starting a new trend higher.

You can see the clean breakout of the down channel and then a test of the channel at support.  This type of price action also forms an inverse head and shoulders pattern for those who like trading patterns. J This is very bullish price action.

SLV Silver ETF – Daily Trading Chart

Silver has much of the same chart features as gold, but is slightly skewed.  This is not particularly surprising though, as silver virtually always behaves with less defined chart patterns due to its characteristically funky price action.

USO Oil Fund – Daily Trading Chart

As with gold and silver, oil’s trading chart has formed a pivot low also, but the trend line is much steeper than what I am looking for. I prefer a flatter trend line as price growth is more sustainable.

As you can see in on the USO chart, back in December price rallied at almost the same angle as is currently the case, and then notice what happened. Once the momentum died out the price dropped straight back down. I call steep trends like this a Parabolic Rally.

Scroll up and look at the first chart (GLD) and observe the parabolic rally going into December.  It too suffered a sharp drop straight back down when momentum died out.

Stock Indexes – SP500, Dow Jones, Russell 2000

Last week the market sold down the first half of the week, then bounced back up forming a possible pivot low. The daily chart for these indexes look virtually the same as the GLD, SLV and USO charts above for the past 5 trading sessions.

But, one little thing has me concerned….

When looking at the 5 minute intraday charts (posted below) you can see at the very last minute before the market closed HUGE selling volume flooded the ETFs.  The market ended up losing all of its gain for the day.

With any luck this was just end-of-the-month hedge, mutual fund, etc. portfolio rebalancing.  But I am somewhat concerned that more of this selling could step back into the market Monday or Tuesday.

Weekend Trading Conclusion:

Overall, last week started on a negative note but ended strong after forming a reversal pattern.

It looks as though stocks and commodities have formed an ABC retrace pattern and are now ready to move higher.

How much higher you ask?

Well, I believe 2010 is going to be a traders market. I envision an 8-12 month sideways consolidation (large bull flag) forming. If this materializes then buying on over sold dips, as we did on Feb 5^th, and scaling out on strength at resistance levels will be our goal in the coming months.

A bunch of 4-8% trades is what I’m figuring, but with leveraged etfs we can double and triple those type of returns.  Now that is something to anticipate with delighted optimism!

If you would like to receive my free weekly trading reports please visit TheGoldAndOilGuy at: www.TheTechnicalTraders.com

Chris Vermeulen

Bloomberg also reports that China is eying investments into companies. They are interested in the iron-ore producers in Brazil as well as the silver producers in Mexico.

Understanding market psychology is crucial for a trader’s success. But so many people get caught up in the daily market volatility, media coverage and “noise” of the trading environment, it’s almost impossible to not think and trade in agreement with the majority of traders.

However, effective technical analysis allows us to use trends, patterns and other indicators to evaluate the market’s current psychological state. Fortunately, this analysis can both enable us to independently forecast whether the market is heading in an upward or downward trend and do so against the grain of the majority.

It takes a disciplined trader to be able to watch and listen to the market doing one thing, filter out the noise, then do the opposite – all in a controlled manner. To this day I still find myself fighting the herd mentality at times and that is when I step away from the computer and regroup.

I have a simple rule that has saved me thousands over the years. I would rather miss a trade and learn what caused me to get confused, then to take a loss.

Rule # 1 – When in Doubt, Stay Out!

There are two types of traders:

1. Herd Mentality Trader – Someone who trades off fear and greed buying near tops and panic selling out at the bottom with the masses.
2. Black Sheep Trader – A trader who stand out from the masses and trades opposite to the “herd” during extreme levels.

Last weeks market action really allowed us to see which way the masses were moving. The extremely high selling volume and sharp price decline notified us that the market was trading off FEAR. And, last Thursday we actually saw PANIC which tells us the balance of the market (retail investors, John Doe’s, The “Herd”) were exiting their positions.

When we see this happen, it’s generally a good time to start scaling into long positions, as most of the down side has already happened.

I have been talking about an ABC retrace pattern for the indexes and gold for some time and last week we got just that. An ABC retrace is when we have 3 waves which are, down, small up, then another leg down.
In short this wave breaks the uptrend of higher highs and lows, as it forms a lower low telling novice traders to sell and go short. This is what causes the high volume and sharp sell offs.

Below are a few charts showing the 2009 July lows and where we are now, February 2010:

SP500 – Daily Trading Chart

Gold – Daily Trading Chart

Silver – Daily Trading Chart

Oil – Daily Trading Chart

Intraday Price Action – If you want to see some exciting intraday trading charts check out the setups last week: http://www.thegoldandoilguy.com/articles/how-to-trade-intraday-gold-and-sp500/

Market Psychology Trading Conclusion:
Most get involved with the stock market because it looks like something they can quickly learn and start making money from home. But it doesn’t take long before they quickly realize there is more to trading than meets the eye.

While trading looks easy from a glance, in actuality I think its one of the toughest jobs out there.

Why? Well, this is what you are up against:
1. You are trying to predict something that is unpredictable
2. You are trading against millions of other highly skilled traders
3. You are trading against automated computers with complex algorithms
4. You are trading with your hard earned money which causes fear and greed
5. You must accept losing trades as that is part of the business
6. You must trade with a proven trading strategy and follow the system
7. You must understand money management and apply it to every trade
8. You must truly love the market cause it will break you down mentally

I don’t want to say you must be a contrarian, but in reality you must do the opposite of the masses during times of extreme price behavior.

These extremes happen on a daily basis when trading intraday charts and every 4-6 weeks when looking at daily charts. The toughest part is to pull the trigger when emotions are flying high in the market and you are looking to do the opposite. It takes several trades before you even start to get comfortable doing this.

I hope this helps shed some light on market psychology.

If you would like to Receive My Gold Trading Newsletter and Analysis please visit my website:

Chris Vermeulen
www.GoldAndOilGuy.com

The stock indexes have been trading very choppy making it difficult for swing/trend traders. It’s during times like this when seasoned traders rise above the herd of average traders.

If you only trade one strategy like swing trading or trend trading then you are likely finding it difficult to make money right now. On the other hand, day traders are having a blast right now as they take advantage of the powerful intraday rallies and sell offs.

I personally like swing trading but during times like this, when I know it will not work, I have to switch my strategy to day trading and focus on the 60 minute and 5 minute charts.

SP500 Index Fund – Intraday Setup

I posted this chart earlier this week and I want to be sure everyone takes something away from this chart as I believe it shows a perfect low risk setup for shorting the market, or you could buy a reverse fund which goes up as the market moves down.

At first glance this chart is noisy, but if you simply focus on the all the different color analysis separately you will notice how simple trading can be and what you should be looking for.

Red Analysis:

1. Overall market trend is down so we are looking for a short trade, signs of weakness.

2. First we see a light volume test of the previous high set earlier in the day. The low volume indicates there are not many participants in the move up and that is a weak sign.

3. Between 14:30- 15:30 we notice the price start to drift higher on very light volume. Also, the price moved up into a resistance level. This to me is a perfect setup.

4. You would sell short or buy a reverse index fund at this point hoping for the market to start selling. You could also wait until it started to drop before taking a position but when a chart looks this good I try to get in at the highest price possible.

Blue Analysis:

1. The price starts to drop forming several small bear flags going into 14:30 before bouncing. Also note the volume began to rise as more selling was happening. This tells us that trading activity is predominately selling and that we should also focus on shorting when the time is right.

2. Again, the price starts to drop forming several small bear flags going from 15:00 – 15:45 before bouncing. Also note the volume began to rise as more sellers took part in this short term trend.

Black Analysis:

1. This shows more or less the resistance level, area to short the index and the nice trend down.

Gold GLD ETF Trading

Gold has been under selling pressure since early December. That powerful drop and the chart pattern it has formed will generally resolves itself after an ABC retrace pattern. I have drawn this on the chart which is what I think will happen in the near term. This daily chart of GLD ETF has a small 4 day bear flag and bearish reversal candle which is pointing to lower prices in the near term.

Silver SLV ETF Trading

Silver has a funky looking chart. It has formed a large megaphone pattern and possible head & shoulders pattern. Both are bearish and if we use the Head & Shoulders to calculate where silver could end up trading if it continues to break down, then $14.00 would be a level to look for a bounce.

Natural Gas UNG Fund

The natural gas fund UNG has been in a down trend for over a year and the recent drop looks to be the start of another sell off. This could possibly form a reverse head & shoulders pattern with this drop moving UNG down to the $8.75 – $9.00 area. We will have to wait and watch things unfold for now.

Crude Oil USO Fund

USO looks to be trading at support. I am inclined to patiently wait another session before possibly taking a position.

Mid-Week Trading Conclusion:

In short, I feel the overall market could bounce including stocks and possibly commodities, but the selling is not over yet in my opinion. The drop we have seen in the past week is the half way mark. So this bounce would be the starting of an ABC retrace for stock indexes. During choppy times I like to be sitting in cash and or day trading for short term profits.

Precious metals do look oversold and ready for a small bounce or sideways move; I do think they will head lower. Too many traders are still holding on to their gold positions and until a large number of them get scared out of their positions, we will not see gold rocket higher.

Natural gas looks like it’s about to head much lower this week while oil looks ready for a solid bounce off support.

We continue to wait for new low risk setups as different investment scenarios unfold.

Get my Free Weekly ETF Trading Reports at www.GoldAndOilGuy.com

Chris Vermeulen

Tags: Chris Vermeulen, etf newsletter, gld etf trader, Gold Newsletter, index trader, slv trader