Commodities Breaking Out of Range

That's despite the continued strength in US dollar.

This is a 1-year daily chart of crude oil. It has been in the ascending channel since June 2009, and I've been playing the horizontal range from October 2009 until now. Today it broke above the horizontal upper resistance, though still within the ascending channel.

The upper channel resistance will be somewhere near $97.5. I personally think crude oil is headed above $100 again.

When I sold my last UCO (double long crude ETF) call options when UCO hit $13.20, I flirted with the idea of buying puts on the pullback that I thought might happen. I didn't buy, for I had a feeling that the range would be broken someday soon to the direction of the prevailing trend, which was up. I was hesitant to buy another set of calls, so I lost on that. UCO ended today at $14.20, and I'm sitting with the gain of 18% on the ETF.

I'm at a loss right now what to do with crude oil. My comfort range may be gone. I'll wait and see if it comes down to test the breakout point ($84). If that holds, I do want to add to my holdings of UCO, either the ETF itself or call options.

Here's another commodity that's about to break out of nearly 2 years of consolidation. Do I see a huge cup and handle formation? If it is a cup and handle formation, the target price will be the depth of the cup added to the handle high breakout point: $788.

My play on palladium has been PAL (call options), which has gone absolutely nowhere because I bought them at a wrong time (when it was surging in the beginning of this year). But now it seems to be breaking out of the symmetrical triangle on a huge volume. I may be in the money by the option expiration (June), just like I lucked out on PCX calls...

If Oil Is To Bounce, It'd Better Do It Now...

Here's a daily chart of UCO, double-long crude oil ETF. It's been bouncing within the channel (black lines), and it hit the lower line, yet again. Will it bounce? My bet is on the bounce, as the U.S. dollar is short-term overbought, and commodities oversold.

So I figured this might be a low-risk entry, and bought January call options (strike at $11) for a quick swing trade. My target is a bounce up to $11.75 area. There is a zone right above that level, full of gaps. If the dollar corrects some more and if traders become more optimistic about the elusive "recovery", it may go through that thin zone to slightly above $13.

The uncertainty is, again, the Fed FOMC meeting that starts on Tuesday, with the announcement on Wednesday after 2:00 PM EST. That almost always screws up the stock market movement.

Deep-Water Oil Rig Companies to Replace My DXO?

Deutsche Bank is closing out DXO, double-long oil ETN, thanks to the government's regulatory crackdown that is more likely to come sooner than later (margin requirement change, particularly on commodities trading). I had no intention of selling my DXO, and was planning to hold long-term as I see a long inflationary period (even if the economy is in doldrums) ahead.

But as of September 9 (some say it's September 12), I will have no choice but sell my shares back to Deutsche Bank (I think this bank is way extended in commodities markets - soft (ag), oil, and precious metals). Other leveraged long oil ETFs may have a similar risk of being shut down. The very fact that DXO is being shut down but not DTO (double-short oil ETN, also from Deutsche Bank) indicates to me (I could be very wrong, but) that the oil price is going to go up very soon. In order for DBank to create a synthetic double-long position (DXO) someone has to take the other side, and that someone is less and less willing to take that position, either because the oil price will go up soon and he will get royally squeezed, or the new margin requirement is just too much, or both.

So, I am forced to look for alternative plays without using leveraged ETF/ETNs if I think oil is still going up. For that matter, without using any ETF to be extremely safe. (Look what happened to UNG.)

I've started looking for oil-related stocks that are still forming a base. The first batch of such companies are oil rig companies:

• Transocean (RIG)
• National Oilwell Varco (NOV)
• Pride International (PDE)
• Oceaneering International (OII)
• McDermott International (MDR)

RIG and PDE provides off-shore contract drilling and OII and MDR are engineering companies who coordinate off-shore oil rig operations. NOV manufactures actual hardware.

BP's newly discovered under-water oil field in Gulf of Mexico, the well was vertically dug 10,000 meters under 1,400 meters of water. It was a job by Transocean, and it is probably the deepest well ever dug in the world.

Anyway, here are the charts. I like RIG, NOV, and PDE, then OII and MDR.

Why Does Crude Oil Look Bullish In Global Recession?

This must be one of the questions that confound people who believe deflation is coming. I am not one of them, as I look at the 3-year weekly chart of crude oil.

The chart looks very bullish. On a weekly chart, exponential moving averages (13-EMA and 34-EMA) seem to work well; their crossovers seem to indicate a new trend well. The crossovers of these moving averages also coincides with very slow stochastics (60, 3) crossing 50.

Right now, 13-EMA is just about to cross above 34-EMA, and both EMAs are turning UPWARD. RSI looks well supported at the trend line. I don't like slow stochastics still very far from 50 and turning down slightly, but since this is a weekly chart I'm willing to give it several more weeks.

Besides, the formation since the last EMA crossover (September 2008) looks like a cup and handle, with the handle forming above 50% (barely, but still above) retracement from the bottom to the price immediately before it started to tank in earnest.

If this formation breaks out of the handle, the target price would be the handle high ($73.90) plus the depth of the cup ($38.77), which will take the crude oil to $112.67, a 69% increase from today's close at $66.73.

With dismal news all around us again, this number looks literally fantastic (i.e. that which exists only in fantasy). Or crude oil price movement is telling us it is inflation, not deflation, that's coming our way.