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UBS: How Stocks Respond To Fear
Comex Gold (GC)
Gold rises further to as high as 1681.5 so far today and is pressing 4 hours 55 EMA. In spite of the strength, there is no change in our view. We'd maintain that break of 1705.4 double top neckline is needed to indicate near term trend reversal. Otherwise, fall from 1923.7 is still expected to continue. On the downside, below 1585 minor support will flip bias to the downside for 1535 and break there will target 1500 psychological level next. Though, break of 1705.4 will argue that fall from 1923.7 might be over and will bring stronger rise towards this high.
In the bigger picture, current development indicates that gold has made a medium term top at 1923.7, ahead of long term projection level of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and 2000 psychological level. While the fall from 1923.7 is steep and deep, gold is still holding inside long term rising channel from 681 and above 55 weeks EMA at 1504.1. Hence, we're not too bearish in gold yet. Strong support is anticipated at 1478.3/1577.4 support zone to contained downside, at least initially, and bring rebound. However, note that sustained break of 1478.3 will strongly suggest that the long term up trend has already reversed.
Comex Gold Continuous Contract 4 Hours Chart
Comex Gold Continuous Contract Daily Chart
Nymex Crude Oil (CL)
Crude oil's break of 77.11 confirms that fall from 90.52 has resumed and intraday bias remains on the downside for 75.71 support first. Fall from 90.52 is tentatively treated as resumption of the whole decline from 114.83. Break of 75.71 will confirm this bearish case and target 70 psychological level next. On the upside, above 79.64 minor resistance will turn bias neutral and bring consolidations. But recovery should be limited below 84.77 resistance and bring fall resumption.
In the bigger picture, medium term rebound from 33.2 is treated as the second leg of consolidation pattern from 147.24 and should have finished at 114.83 already. Current decline should target next key cluster support at 64.23 (61.8% retracement of 33.2 to 114.83 at 64.38) next. Sustained break will pave the way to retest 33.2 low. On the upside, break of 90.52 resistance is needed to invalidate this view or we'll stay bearish in crude oil now.
Nymex Crude Oil Continuous Contract 4 Hours Chart
Nymex Crude Oil Continuous Contract Daily Chart
This is what I call good play... 
susan66 ( Date: 04-Oct-2011 17:04) Posted:
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Just shorted $3.13 still not too late. 
Comex Gold (GC)
Gold continued to engage in sideway consolidation last week and such consolidation might continue first. On the upside, we'd maintain that break of 1705.4 double top neckline is needed to indicate near term trend reversal. Otherwise, fall from 1923.7 is still expected to continue. Below 1535 will target 1500 psychological level next. Though, break of 1705.4 will argue that fall from 1923.7 might be over and will bring stronger rise towards this high.
In the bigger picture, current development indicates that gold has made a medium term top at 1923.7, ahead of long term projection level of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and 2000 psychological level. While the fall from 1923.7 is steep and deep, gold is still holding inside long term rising channel from 681 and above 55 weeks EMA at 1504.1. Hence, we're not too bearish in gold yet. Strong support is anticipated at 1478.3/1577.4 support zone to contained downside, at least initially, and bring rebound. However, note that sustained break of 1478.3 will strongly suggest that the long term up trend has already reversed.
In the long term picture, gold faced strong resistance ahead of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and dropped sharply. But there is no change in the long term up trend yet. As long as 1478.3 support holds. We'll stay bullish and expect an eventual break of 2000 psychological level in the long run. However, note that break of 1478.3 will be an important signal that whole up trend from 1999 low of 253 is completed. And, in such case, gold could drop through 1033.9 resistance turned support.
Comex Gold Continuous Contract 4 Hours Chart
Comex Gold Continuous Contract Daily Chart
Comex Gold Continuous Contract Weekly Chart
Comex Gold Continuous Contract Monthly Chart
While great volatility remained, commodities appeared to have stabilized modestly during the week. After extending the previous week's selloff on Monday, most commodities rebounded sharply on hopes that European leaders were about to deliver crucial measures to contain the sovereign debt crisis. On the macro-front, only second-tier data were released and many of them surprised to the upside. This also helped sustain the rebound in the near-term.
The focus of the week remained in the Eurozone. The annual World Bank/IMF meeting managed to push European finance ministers to work 'harder' in devising policies to restore confidence Eurozone's financial system. While leaders were divided in what means to use, the split was not as big as we previously anticipated. One example is that the lower house of the German parliament passed the new EFSF bill with a great margin. It's likely that all of the 17 Eurozone member nations will approve the plan agreed in July.
There will be several central bank meetings (RBA, BOJ, ECB and BOE) in the coming. Interesting, 2 banks, namely the RBA and the ECB, which had hiked interest rates over the past 12 months are currently facing increasing speculations of rate cuts in the upcoming meetings. We believe the RBA will adopt a wait and see mode, and leave the cash rate unchanged at 4.75%. Yet, a rate cut may be seen in November or December. The ECB will probably announce some easing measures although it is not necessarily a rate cut. The have been hopes of re-launch of the covered bond purchase program and reintroduction of the 12-month loans for the region's banks.
Crude Oil: While staying at wide level, the spread between WTI and Brent crude narrowed a tad as fears of sovereign crisis in the Eurozone and return of Libyan output damped prices of the latter. Italian oil company Eni said on Monday it has resumed oil production in the country, producing some 31.9K bpd. French company Total also said it had restarted some production last week. News reports indicated that the Al-Jurf field could produce up to 40K bpd in coming weeks. However, we are not too worried that resumption of Libyan crude production would result in oversupply. The above mentioned oil output should be benchmarked off Urals, instead of light, sweet crude benchmarked to Brent. Moreover, it takes time for a normalization of the Libya's oil market.
Key factors keeping oil on the defensive recently are concerns over global economic slowdown and heightened European debt crisis, as well as weakness in US stock markets and strength in the US dollar. These conditions will remain intact in coming months and should continue weighing on oil.
Price movement of natural gas was quite an inverse of that of crude oil. Nymex gas price rose earlier in the week but slumped on Wednesday and accelerated the fall on Thursday after the DOE/EIA reported a big increase in inventory. Gas storage jumped +111 bcf to 3 312 bcf in the week ended September 23. Stocks were -91 bcf below the same period last year and +5 bcf, or +0.2%, above the 5-year average of 3 307 bcf. It's the first time since April 2011 that gas inventory stayed above the 5-year average.
Baker Hughes reported that the number of gas rigs rose +11 units in 923 in the week ended September 30. Oil rigs fell -11 units to 1060 and miscellaneous rigs dipped -1 unit to 7, sending the total number of rigs -1 unit lower to 1 990. Directionally oriented combined oil, gas, and miscellaneous rigs fell 4 units to 238 while horizontal rigs dropped -5 units to 1135 and vertical soared +18 units to 617 during the week.
Precious Metals: Gold recorded losses for a 4th consecutive week as driven by CME's margin hike, strength in the US dollar and liquidation of long positions to cover losses in risky assets. The benchmark Comex contract plummeted below 1550 for the first time since July on Monday. Gold's outlook in the near-term is clouded. Hopes on QE3 have evaporated since the last FOMC meeting and investments for safe-haven bonds increased at the expense of gold and silver. As usual, silver experienced greater volatility than gold. While gold has corrected around -15% from the record higher of 1923.7 made 4 weeks ago, silver's decline over the period was almost -30%.
After falling to a bottom of 31/32 in later April, the gold/silver ratio has been rising and the recent selloff has sent the ratio back above 50, a level not seen since November 2010. As we mentioned in our previous articles, slowdown in advanced economies is more detrimental to precious metals with heavy industrial application (e.g.: silver and PGMs) than gold. The chart below shows that US ISM index below 50 is often accompanied with a rising gold /silver price ratio.
At the gold survey released in mid –September, GFMS forecast gold price will rise above 2000 before the end of the year. According to the consultancy, a confluence of problems: 'deterioration in prospects for the world economy over August, the maintenance of low interest rates, fears over the emergency of inflation in the industrialized world, a continuation of high levels of inflation in many emerging markets and the outbreak of conflict in MENA' created the 'perfect storm' for gold investments.
This coincides with our long-stated view that the recently correction in gold will be supported at some points (possibly 1500) and the long-term rally will resume as long as global economic uncertainty persists and/or intensifies and world central bankers leave interest rates low for an extended period.
Nymex Crude Oil (CL)
Crude oil's recovery was limited at 84.77 last week and failed to sustain above 4 hours 55 EMA after multiple attempt. Friday's sharp fall suggests that such recovery is possibly finished and recent decline might be resuming. Initial bias is mildly on the downside this week for 77.11 first. Break will likely send crude oil through 75.71 support to 70 psychological level On the upside, above 84.77 will delay the bearish case and bring more consolidative trading. But after all, we'd expect upside to be limited below 90.52 and bring downside break out eventually.
In the bigger picture, medium term rebound from 33.2 is treated as the second leg of consolidation pattern from 147.24 and should have finished at 114.83 already. Current decline should target next key cluster support at 64.23 (61.8% retracement of 33.2 to 114.83 at 64.38) next. Sustained break will pave the way to retest 33.2 low. On the upside, break of 90.52 resistance is needed to invalidate this view or we'll stay bearish in crude oil now.
In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2, second wave might be finished. Upon confirmation of medium term reversal, the third wave of the pattern should have started for a retest on 33.2 low.
Nymex Crude Oil Continuous Contract 4 Hours Chart
Nymex Crude Oil Continuous Contract Daily Chart
Nymex Crude Oil Continuous Contract Weekly Chart
Nymex Crude Oil Continuous Contract Monthly Chart
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