The January crude-oil contract is trying to bottom in the $84-$86 area despite some wide intraday swings . A close back below the $85.30 level would weaken the base formation while a strong close above $90 would give the market a bullish bias.
Crude oil looks ready to close the year lower for the first time in three years, and I suggest everyone keep an eye on the yearly ranges for all of your key markets.
Both the Spyder Gold Trust (GLD) and the iShares Silver Trust (SLV) both closed the week lower, which has certainly weakened the outlook. GLD is still holding above the 20-week EMA, but it could be broken this week.
The weekly on-balance volume (OBV) has been in a tight range for the past few week and has dropped back below its WMA. This action suggests that the action this week will be important as the failure of price to close higher this week could set the stage for a drop back to the recent lows.
The Week Ahead
The rally has been strong enough to make the bears nervous but the real test will the first correction and Friday’s mixed close is a sign that the rally is stalling. The fact that the market did reach more important resistance was enough for me to recommend light hedges last week in an inverse ETF.
The extent of the rally makes a test of the recent lows or new lows less likely now in my opinion. If the bickering in Washington gets worse (is that really possible?) then we could see another wave of selling, but I think most of it has been exhausted.
For new buying, I think one has to look for zones of support that go back more than a few days as these lows would be vulnerable to a sharp downdraft in the market. I continue to like some of the overseas markets as their charts appear to offer better opportunities.
Now that the market has rallied nicely, take some time this weekend to evaluate each of your positions and the stops you are using. For those with 401k plans, evaluate your funds to see if any switching is warranted.