Crude and the Euro Standing at the Crossroads

Nothing frustrates an energy investor more than doing the homework on the fundamentals only to be outdone by technical price movements. All commodities eventually return to their supply and demand fundamentals, but the short term seemingly random price swings are driven by the technicals. With crude and the euro at critical technical levels, traders will need to watch for breakouts or containments to determine when to buy or sell.

The strengthening euro has been the main reason crude has been able to ignore over supply fundamentals and churn its way from $65 to $84. The euro is now facing strong resistance on the monthly charts, unable to plow its way past 1.4150 vs the US dollar. Euro bulls will have a few more goes at this barrier, but should it hold, the bears take control driving the US dollar higher and taking crude lower.

Crude also has been facing rather strong resistance unable to break and hold the $85 level. Having held its $81.45 200 day moving average on Friday, crude bulls will go into Monday with some momentum to try and take out this monthly resistance barrier.

Should the euro and crude resistance levels hold, be ready to position short positions for the ride lower. The fundamentals of oversupply will then kick into gear and the bears will be partying like its September 2008.

The Energy Complex and China's GDP

China, recently hailed as the largest energy consuming nation, always has the attention of energy traders when they release important economic data. This week traders will be flooded with economic reports flowing out of China. The culmination of which will be their gross domestic product release on Thursday.

Remarkably resilient, China has maintained double digit GDP growth despite a worldwide slowdown. However, the Shanghai Securities Journal is actually looking for a bit of a pull back in Q3 GDP from China. They are forecasting 9.9% GDP for Q3 and are anticipating 2011 yearly GDP to fall to 8.9%.

Should energy traders start anticipating a bear market trend reversal? Hardly. The Chinese government will be thrilled to see a slight downturn in GDP as this will eliminate and further need of economic policy tightening, allowing future growth to continue without major inflation concerns.

Should the Shanghai Securities Journal's prognostication of a down turn in China's GDP be accurate, crude and refined products likely to sell off. Good pricing values for long traders will likely become available when support levels are reached.

Virtually Weatherproof Petroleum Products

One of the nice benefits of being an energy trader is not having to worry about the weather wiping out or increasing supply, (hurricane season not withstanding). Rain or shine, hot or cold, crude oil continues to be pumped. Gas and diesel yields are not dependent upon rainfall amounts. Refineries continue to produce regardless of weather conditions.

While the agricultural commodities have had wild price swings this year, crude has kept a very tight $13 trading range since May between $72 and $85. The reason is very balanced fundamentals of slow growth industrialized economies and high supply stocks for the bears, and for the bulls, weakening US dollar and strong growth economies of China and India.

We are now in a seasonally slow period for energy with the end of the driving season and another month away from heating season to kick into gear. This should help to dampen crude's latest run to the high end of the trading range.

With these ideas in mind, traders will do well to continue selling option strangle positions and enjoy the cash cow for at least one more month.