Momentum Continues Into Today’s Trading Session

On February 18, 2014 by TradingDesk

RBOB and ULSD both broke through technical resistance levels on Friday, and have carried that momentum through the holiday and into today’s trading session. RBOB is now just a penny away from completing its “W” formation at $2.85, while WTI is already through $3.10 and testing $3.12. Both contracts have many bullish technical indicators, suggesting higher prices are coming, but they both are also showing to be over-bought and vulnerable to a short term correction.

As the charts below show, both the “noncommercial” and “managed” classes of trader, often referred to as “speculative” money (as opposed to commercial “hedgers”) poured into WTI and Brent last week, and WTI is now at a record high net-long position for that category of trader. While the extra funds appear to have helped push both contracts to their highest levels so far in 2014, traditional lessons on market theory suggest that when positions reach extreme levels on either side of the ledger, the market is ready to change course. Or, to put it more simply, “when everyone gets on one side of the boat, that’s when it tips over”.

CLICK HERE for a PDF of today’s charts

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