Energy Prices Content To Consolidate And Wait For Direction

On March 25, 2013 by TradingDesk

A last minute deal to bail out Cyprus, without sacrificing insured deposits in its troubled banks, send global stock markets surging higher overnight. The EUR/USD led the charge, breaking back above 1.30 as it appeared that the Euro-zone had dodged another financial bullet. Over the past hour however, the currency has reversed course and is now lower for the day, taking some steam out of the gains in US equities and energy futures.

Now that this drama may be over, the major story this week looks to be whether the S&P 500 can join the DJIA in record-high territory. With the index just 1 solid day away from breaking new ground, opinions vary greatly as to where we go from here. Many have argued that higher prices are inevitable as the US continues its slow journey towards growth, while several technicians are suggesting we are approaching a multi-year top.

Energy prices seem content to consolidate and wait for direction elsewhere. Non-commercial long positions shrunk dramatically again in HO and Brent last week, while WTI did not change much and RBOB buyers returned, and speculative long positions remain near record highs, proving that many funds are content betting that a real spring rally in gasoline prices is still to come. While HO looks the weakest of all the energy contracts on the charts, it should be noted that the last time the Non-Commercial position was this low, it proved its value as a contrarian indicator and the contract rallied more than 40 cents over the next month and a half.

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