Mad Money

Gold vs. oil: Which should bounce first?

After the sharp drop in gold and oil, you may be inclined to think both are buys. But they're not.

According to analysis from Carley Garner, a colleague of Jim Cramer's at as well as the author of "A Trader's First Book on Commodities", only pullbacks in gold are buyable. She thinks the path of least resistance in oil remains lower.

Following is her analysis:

Adam Jeffery | CNBC

Crude Oil

Looking at patterns in the charts of WTI, Garner sees several reasons for caution.

First Garner finds that the Commodity Futures Trading Commission's weekly commitments of traders report shows too many pros are bullish.

That may seem counterintuitive, but "Too many bulls spoil the pot," Cramer explained. "If too many pros are already long oil, then there's nobody left to buy it, which suggests upside is pretty much exhausted."

Also Garner says at 35, the Williams %R oscillator does not yet show that oil has been oversold. Although that's not necessarily bearish, it's not bullish either.

In addition, she notes that oil has sold-off in a somewhat orderly fashion. That may sound civilized but it's the erratic patterns created by panic that are more typical of a bottom.

On top of all that, Garner says, the seasonal factor works against energy bulls, historically oil makes a seasonal low in early December.

All told, Garner sees every reason for oil to drop more.

In the near-term Garner wouldn't be surprised to see WTI test $90, which she thinks may be a floor of support. And if it's not, she thinks oil could drop as low as $86 before it bounces.

"Too many bulls just isn't bullish," Cramer noted.


Gold bulls however, may have reason to celebrate. Garner says chart patterns look constructive for the precious metal.

Looking at the commitments of traders report from the CFTC, Garner notes that far fewer pros are long than the norm. That's bullish because it means there's room for byers.

Also, looking at the Williams % R oscillator, Garner sees signs that the precious metal is oversold.

In addition, she believes chart patterns in gold may signal a double bottom right around $1200, also a typically bullish pattern.

Read More from Mad Money with Jim Cramer
Cramer's accentuate the positive market
New surge in healthy eating?
Golden opportunity in gold miner

All told, Garner believes pullbacks in gold present opportunity. She thinks patterns from the summer could repeat themselves, therefore she believes it's reasonable for gold to rally significantly, up to $1,364 before it runs into any resistance. And Garner believes gold could advance beyond that.

"Holy smokes," said Cramer, "what a contrary, bold call."

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the "Mad Money" website?