After a very profitable rally across the oil complex over the past 4 weeks, it is time to tighten up stops to secure profits and position on the short side. At present we don't know whether this pullback will be a Wave 2 correction and will make a higher low in a ongoing uptrend, or whether the current rally was merely a bear rally that ended at a lower high which means we are looking at new lows.
The good news is that we don't have to know - We only need know that it's time to position for a down-leg. Our focus for this down-leg will be on Gasoline, as there are numerous indicators aligning that favor a short trade here. Here is the setup:
1) Seasonals for Gasoline turn extremely bearish is the Aug - Oct period. Since 2005, Gasoline posts a miserable 2-9 record in the upcoming month. Further, Average losses are 18cents vs winning months posting gains of 9cents, so you are getting pot odds of 2-1 to short in August on top of your 82% win rate. Very compelling.
2) COT showing Commercials reversing their extremely bullish positioning from 5 weeks ago. We score Commercial and Fund positioning and activity factoring in a volatility component, and then scoring them as a Relative Strength Score. On June 20 Commercials Net Position scored a impressive 92% on a 18m basis, and this was now down to 67% as of the latest reporting period. This was courtesy of 4week net selling of over 19k contracts, and this 4wk reduction scored a very low 15% over the past 18months & 26% over the last 5 years. Conclusion, Commercials were aggressive sellers into this rally - Perhaps you might want to join them?
3) The Dollar wipeout, while still able to continue lower, is approaching very formidable 3 year support levels of 91.5 - 93 level.. Once the USD bottoms and begins retracing some of this wipeout, you can bet the algos will be pressuring the entire energy complex.
4) Chart Action - A very bearish weekly candle formed this week indicating this rally has run out of steam and it is time to retrace a % of this very nice 25cent rally we just witnessed. Fib levels target the 1.48-1.50 area for a first stop which offers us adequate upside to place a bet here.
Here is how to play it:
1 -Sell Sep RB Futures at current levels : 1.5323
2 -Buy the Sep 1.53-1.61 Bull Call Spread - This should cost you approx 3.5 cents, but we'll have to confirm exact levels tomorrow as options are not trading currently (sunday night)
3 - Sell the Sep 1.45 Put for approx 2 cents
Your upside is 8cents, while downside is 2 centsffor R/R of 4-1. This trade gives us 36days to work, giving us time to allow the exoected Aug sell-off to materialise.
Good Trading
The good news is that we don't have to know - We only need know that it's time to position for a down-leg. Our focus for this down-leg will be on Gasoline, as there are numerous indicators aligning that favor a short trade here. Here is the setup:
1) Seasonals for Gasoline turn extremely bearish is the Aug - Oct period. Since 2005, Gasoline posts a miserable 2-9 record in the upcoming month. Further, Average losses are 18cents vs winning months posting gains of 9cents, so you are getting pot odds of 2-1 to short in August on top of your 82% win rate. Very compelling.
2) COT showing Commercials reversing their extremely bullish positioning from 5 weeks ago. We score Commercial and Fund positioning and activity factoring in a volatility component, and then scoring them as a Relative Strength Score. On June 20 Commercials Net Position scored a impressive 92% on a 18m basis, and this was now down to 67% as of the latest reporting period. This was courtesy of 4week net selling of over 19k contracts, and this 4wk reduction scored a very low 15% over the past 18months & 26% over the last 5 years. Conclusion, Commercials were aggressive sellers into this rally - Perhaps you might want to join them?
3) The Dollar wipeout, while still able to continue lower, is approaching very formidable 3 year support levels of 91.5 - 93 level.. Once the USD bottoms and begins retracing some of this wipeout, you can bet the algos will be pressuring the entire energy complex.
4) Chart Action - A very bearish weekly candle formed this week indicating this rally has run out of steam and it is time to retrace a % of this very nice 25cent rally we just witnessed. Fib levels target the 1.48-1.50 area for a first stop which offers us adequate upside to place a bet here.
Here is how to play it:
1 -Sell Sep RB Futures at current levels : 1.5323
2 -Buy the Sep 1.53-1.61 Bull Call Spread - This should cost you approx 3.5 cents, but we'll have to confirm exact levels tomorrow as options are not trading currently (sunday night)
3 - Sell the Sep 1.45 Put for approx 2 cents
Your upside is 8cents, while downside is 2 centsffor R/R of 4-1. This trade gives us 36days to work, giving us time to allow the exoected Aug sell-off to materialise.
Good Trading