The Overall Fundamentals

Financial markets strengthened in US session Friday as investors expected that the G-20 summit would have success in formulating measures to resolve the sovereign debt crisis in the EuroZone.

Throughout last week, market sentiment improved despite downgrades of credit ratings in European countries and banks.

All of the member countries have now ratified the new EFSF. Now the focus is on the detailed plan set for a November 3 announcement.

Macro-economic data in the US was in line with consensus with some good surprises.

In China, Central Huijin purchased shares of 4 big banks earlier in the week and pledged to continue 'related market operations' when necessary. This pushed sentiment higher until the US Senate passed a bill to punish China for keeping Renminbi (RMB) Yuan undervalued. Pure politics IMO, not prudent and off of center.

This week, the RBA and the BOE will release minutes for the October meetings. US CPI likely rose to the highest level in 3 yrs while PPI peaked.

Canada's core inflation might have exceeded BOC's target of +2.0% for the 1st time in 20 months.

Gold

Gold gained for a 2nd consecutive week although price remained just South of 1700. I saw that Chinese buying has been Strong after National day holidays.

Gold demand from Chinese investors has been particularly Strong over the past 2 months when the precious Yellow metal saw the sharp sell off.

The volume of Gold, or number of contracts traded across the Shanghai Gold Exchanged rose in August and September. Year-to-Date, the volume of Gold traded has surpassed the same period last year in August.

Crude Oil

The energy complex strengthened last week with the front-month contract for Brent Crude (up +8.31%) leading the gains.

The equivalent WTI contract rose +4.60%, facilitating the WTI-Brent spread to widen to a record high of 27.88. The widening in spread indicated that traders believed the crisis in European can be resolved.

At the same time, it signals worries about the Iranian situation. Iran was accused of sponsoring to assassinate Saudi Arabia's Ambassador to the US and fueling speculation that additional sanctions may be posed against the Country. The US Treasury Department stated that economic sanctions imposed against Iran so far will cost the Oil producing country US$14-B of revenue a year.

As the 2nd largest Crude Oil producer after Saudi Arabia, Iran's economy depends heavily on Crude Oil exports with major destinations in Asia and OECD Europe. Sanctions not only would affect Iran's Crude Oil revenue but also Crude Oil supplies to these regions.

3 major Oil agencies released their Crude Oil demand forecasts during the week. Both the IEA and the OPEC lowered their estimates while the EIA revised them higher. OPEC production fell to 29.90 mmb in September while that by OPEC-11 also dropped to 27.24M bpd. Output from Nigeria and Saudi Arabia declined during the month while output from Libya and Angola increased.

The DOE/EIA reported that Nat Gas storage soared +112 bcf to 3 521 bcf in the week ended October 7. Stocks were -56 bcf less than the same period last year but +68 bcf, or +2.0%, above the 5-yr average of 3 453 bcf.

Separately, Baker Hughes reported that the number of Nat Gas rigs rose +1 units in 936 in the week ended October 14.

Crude Oil rigs added +10 units to 1080 and miscellaneous rigs were flat at 7 units, sending the total number of rigs to 2023 units.

Directionally oriented combined Oil, Gas, and Miscellaneous rigs increased +4 units to 250 while horizontal rigs climbed +5 units to 1153 and vertical soared +2 units to 620 during the week.

The Overall Technicals

Comex Gold (GC)

Gold is tracking around 38.2% retracement of 1923.7 to 1535 at 1683.5 last week but did not follow through, there is Strong resistance from 1705.4.

A break of that break of 1705.4 Double Top Neckline is needed to indicate the near term trend reversal IMO. Barring that, the fall from 1923.7 is still expected to continue.

On the Downside: a break below 1585, the minor support, will turn the bias to the Southside for 1535 and break there will target 1500, the psych mark, next. But, a clear break of 1705.4 augurs that fall from 1923.7 is over and will bring Stronger rise towards the high.

The Big Picture: this 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, the psych mark. Though the fall from 1923.7 was deep, Gold is still holding inside long term rising channel from 681 and above 55 weeks EMA at 1513.3. So, I am not too bearish Gold in here. Strong support is anticipated at 1478.3/1577.4 support Zone to contained any downside initially, and bring on a rebound.

Note: a clear break of 1478.3 will suggest that the long term up-trend has reversed.

The Long Term Picture: Gold faced Strong resistance ahead of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and fell sharply, but there is no change in the long term up-trend yet, as long as 1478.3 support holds. I will stay Bullish and expect an eventual break of 2000, the psych mark, in the long run. However,a 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 fall through 1033.9, the Key resistance turned support. Stay tuned...

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Comex Silver (SI)

Silver stayed range bound at 28.435/33.58 last week, and outlook is still Neutral.

On the Upside: a break above 33.58 extends the rebound from 26.15 and should target 38.76/44.275, the Key resistance Zone. But a break below 28.435 will turn focus back to 26.15 low.

The Big Picture: I am treating price actions from 49.82 as correction to the up-trend from the Y 2008 low of 8.4. Silver drew Strong support from 26.30 and 100% projection at 26.27 despite a brief break, thus retaining this view. And there remains the prospect of another high above 50, the psych mark. But a clear break of 26.30 will in turn argue that Silver is indeed correcting the whole up-trend from Y 2001 low of 4.01. In such case, deeper decline would be seen through 21.44, the Key resistance turned support.

The Long Term Picture: the steep sell off from 49.82 raises the possibility that long term up-trend from 4.01 is near to completion as it faced Strong resistance from 261.8% projection of 4.01 to 21.44 from 8.4 at 54.032. It is still too early to confirm long term reversal, but I believe that an important top is near, if not at 49.82. Upon confirmation of reversal, Silver will likely dive towards 55 months EMA at 22.135, and below IMO . Stay tuned...

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Nymex Crude Oil (CL)

Crude Oil's rebound form 74.95 extended to 87.40 last week despite interim retreat. Initial bias remains on the Northside, and further rise could still be seen. But I continue to expect upside to be limited below 90.52 resistance; 38.2% retracement of 114.83 to 74.95 at 90.18, and bring resumption of whole decline from 114.83.

A break below 83.17, the minor support, will turn that bias back to the Southside for retesting 74.95 low first.

Note: a clear break of 90.52 will argue that Crude Oil has completed a Double bottom reversal pattern at 75.71 and 74.95, and would bring on a Stronger rise through 100.62, the Key resistance.

The Big Picture: the medium term rebound from 33.2 is treated as the 2nd leg of consolidation pattern from 147.24 and should have finished at 114.83. Current decline should target the next Key cluster support at 64.23; 61.8% retracement of 33.2 to 114.83 at 64.38 next. A clear break there will show the way to retest 33.2 low.

On the other hand: the fall from 114.83 is not clearly displaying an impulsive structure in here. Break of 90.52 will argue that price actions from 114.83 could be forming a sideway consolidation pattern and rise from 33.2 might still extend beyond 114.83 before its completion.

The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with the 1st wave completed at 33.2, and the 2nd wave might be finished too. Upon confirmation of medium term reversal, the 3rd wave of the pattern should have started for a retest on 33.2 low. Stay tuned...

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Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.