February RBOB futures appreciated 1.85% yesterday and have gained in the last three sessions after finding support at the 50 day MA; the green line that acted as support as seen in the daily chart. Next upside resistance is seen at the 38.2% Fibonacci level at $2.73 and above that the red horizontal line drawn on the chart coming in at $2.77 in this contract. I expect a penetration of both levels and a trade back to levels not seen since late August. Below you will also see a weekly chart with two red horizontal lines. Taking a longer term viewpoint, $2.50 appears to be the line in the sand which has acted as support for the last two years. As for upside, $3.10 is your upper band.
Energy futures picked up gains yesterday, likely influenced by the fact that the Federal Reserve announced its decision to scale back its key bond purchasing program, sending a signal that they see signs of economic growth and potential increasing demand for energy. If the Fed is willing to taper, the interpretation from market participants yesterday was there must be stability in the economy and economic growth is always conducive for higher energy demand.
Let's strengthen the case for higher gasoline prices:
There is generally a rally in the gasoline futures market that typically begins in November/December after prices bottom. As an aside, purchasing March RBOB futures on or near 12/10 and holding until on or near 1/30 has been a profitable trade 14 out of the last 15 years. Past performance is not indicative of future results. Additionally not for the faint of heart as this could be a bumpy ride. The current bull stock market may provide fuel and provide upward momentum, but remember, risk on. Gasoline demand remains unseasonably strong for this time of year.
Weekly RBOB:
Daily RBOB:
Trade ideas:
- Buy dips in February RBOB futures that approach their 50 day MA with a stop under that pivot point, currently that level is $2.6450. Use $2.76 as your upside objective.
- Buy a 6-10 cent bull call spread in March. For example as of today's settlement one could buy a $2.80/2.90 for ball park $1,250. This represent a $4,200 spread and has 69 days until expiration.
- Long March futures and sell 1:1 a $2.75 call. This would give you a 7 1/2 cent cushion or $3,150. If futures close under the 50 day MA cut losses on the trade. Target $2.80/2.85 in the next 30-45 days for an exit.
Disclaimer:This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.