On 6/18 with Crude oil futures within 1.25% of $100/barrel I made a bold prediction that Crude would not cross $100 this time and instead it would retreat $3-5 in the coming weeks. An interim high was made in August futures the very next day at $99.21 and as of this post futures are nearly 6% off those levels. We are finding mild support at the 50% Fibonacci level at $92.75. In my opinion we may see modest selling in the coming sessions but the easy money has been made on bearish positioning and I think profits should be taken on the trade.
I will likely have bullish recommendations in Crude in the coming sessions…stay tuned. Outside of Crude on my radar in the energy sector is natural gas and the August crack spreads; long RBOB/short heating oil. Let’s touch on those below…
Since putting in a top on 5/1 August natural gas is lower by 16% completing 61.8% Fibonacci retracement. It appears we are finding some buying interest just above the $3.70 level. It will take a trade back above the 8 (orange line) and 18 (dark blue line) day MAs to confirm an interim bottom so are speculating until that happens. As long as we remain above support just under $3.70 bullish trades can be probed in my opinion. My suggestion is either outright long futures in August with stops below support (green line) or gaining long exposure in September and selling calls 1:1 against your futures. Upside objective in August comes in at the 50 day MA (green line) currently at $4.10.
August RBOB/heating oil:
Click to enlarge.
This is not for the faint of heart as you routinely see $1,500-2,500 of movement on this spread in 24-36 hours. The trade recommendation is buying August RBOB and selling August heating oil. Both contracts are 42, 000 gallon contracts which mean every 1 cent move in the spread is a gain/loss of $420. For the last five months when RBOB traded at 12-13 cent discount to heating oil this spread found support (see bottom red line.). Past performance is not indicative of future results. I am targeting 5-7 cents on this spread (top red line).
By. Matthew Bradbard