Update - Dollar, Gold, Oil, Natural Gas

The dollar has been trading in its range since March. Below is a recent chart of the dollar index:

The dollar tested its low in mid-July when Indy Mac Bank was taken over by regulators and concerns regarding Freddie Mac and Fannie Mae, the nations largest mortgage buyers, were the focus of the markets.

The markets have recovered from these major concerns as a few financials reported better than expected earnings and a major housing bill will probably be signed by President Busy any day now.

The bill does provide authority to the Treasury to buy Fannie Mae and Freddie Mac equity and other provisions that could provide stability in the housing market. Housing stability/recovery is key for the economy and markets to recover.

Gold ETF, Symbol GLD

Below is a current chart for GLD:

The banking fears that occurred earlier in the month certainly caused investors and speculator to buy gold. As regulators and the government work on policies, action, legislation to calm consumers and investors, the dollar rallied and gold fell.

Most analysts believe that there is more bad news to come and we agree. The dollar, gold and the markets will continue to be volatile.

Oil ETF, USO

Oil has pulled back about 16% from its highs. The financial media is giving several reasons for the pullback:

- Since oil is up substantially this year, it was ripe for profit-taking.

- The slowing global economy and high fuel cost is lowering the demand for oil, especially in the U.S.

- Pending legislation that will change the rules for market participants in the energy futures market. It’s thought that participants are selling their positions in anticipation of changes to the rules governing the energy futures markets.

-Energy trader SemGroup filed for bankruptcy and it’s thought that the firm had to unwind some of their positions. It took a $3.2 billion loss on oil futures.

- We’ve written many times, because the oil futures markets are so leveraged, once a trend gets started it gets exaggerated.

- Investors, traders rotated out of energy into financial stocks

Below is a chart for the USO:

We are starting to see an increase in shorts, first pane, so we may be close to finding a bottom.

The choppiness indicator is suggesting that the current trend is close to exhausting itself, but not yet.

We circled the pullbacks for oil in February and March; oil prices need to consolidate as they did then.

Once prices consolidate we can add to our positions. We will write more about this later in the week.

Natural Gas Futures ETF, Symbol UNG

UNG is an ETF that buys natural gas futures to mirror natural gas prices.

We normally don’t write much about natural gas because oil is much more important to the industrial world than natural gas. Also, oil has always been a global and less cyclical fuel.

The perception that natural gas is also becoming a global fuel, has caused natural gas to rally strongly this year. We didn’t quite buy this story, but as more and more reserves are replaced with natural gas, we need to start paying more attention to natural gas.

Below is a chart for the natural gas futures.

Natural gas had a dramatic rise in the first half of the year, and now it has an even more dramatic fall.

Below is a chart of the natural gas ETF, UNG:

We like looking at the ETF because we can get more trading data, especially the choppiness indicator.

Oil stocks are falling harder is because of their exposure to natural gas, and as we can see natural gas has had a dramatic fall.

The choppiness indicator is suggesting that the down trend is very close to be exhausted, but prices then need to consolidate.

We like to point out how powerful fear is. Notice that it took approximately 4 ½ months to go from the low 40s to a peak early this month. It only took a few weeks to lose all that gain.

The possibility of this happening is one of the reasons why were cautions most of the year.

We are very close to providing more recommendations, but we need to see some consolidation. Of course any news of supply disruptions could cause prices to quickly reverse.

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