Momentum Appears to Favor the Bears

On May 22, 2013 by TradingDesk

RBOB gasoline prices dropped by 6 cents Tuesday, after the contract failed to hold support at the 200 and 14 day MA support levels, and have continued to sell-off overnight, dropping by another 4.5 cents in the early morning hours. The contract has found support at a short term trend line which began on the first trading session of May when prices rebounded from $2.70. With time & crack spreads also breaking down technically – and Midwest cash markets rapidly coming back to earth after setting record highs last week – the momentum at the moment appears to favor the bears. With that said, each week in May so far has witnessed gas prices bottom on Wednesdays and rally in the back half of the week, so unless RBOB can break its trend at $2.81, expect the neutral trade to hold for now, and don’t be surprised if prices drift higher ahead of Memorial day.

Similarly, ULSD futures are down nearly a nickel from Friday’s close, but remain in the middle of a wide, aimless trading range. The contract did stall out exactly at a 61.8% resistance level that would suggest the rally from April’s lows in the $2.70s is just a corrective action in a larger bear market, but values must now drop another dime to confirm this point. This morning’s DOE report is expected to show stock gains across the board as demand remains weak across the country. The real market mover today may not come until this afternoon however, when the FED releases their minutes and the free money debate begins anew.

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