About That Monster Base In Heating Oil

Our series of Energy related blog posts continues with a longer-term look at Heating Oil Futures. I don't mean to keep focusing in on this space, but when I find something interesting, I can't help but point it out. We've mostly been discussing the relative strength out of Energy stocks, but today I want to look at Heating Oil, the actual commodity itself.

Let's start by putting things into perspective. Heating Oil has literally done nothing for 3 years. Although this might seem frustrating to some investors, I see this base as a potential springboard to launch a new uptrend. As they say, "The bigger the base, the higher in space":

The best part about these huge bases is that once they do break out, the trends that develop as a result tend to last longer than most would expect. Traditional resistance levels that prices might run into often get taken out with less of a struggle than under normal circumstances.

The initial target should take Heating Oil prices up to those 2008 highs near 4.15, which represents almost 40% from current levels. We want to see a breakout above that 3-year downtrend line as confirmation that a new uptrend has begun.

From a seasonality perspective, this is typically the best time of the year to be in Heating Oil. Look how much better the returns are during the period between March and September compared with the rest of the year. We don't put on positions strictly based on what month we're in, but it is nice to know that we have seasonality on our side:

There's nothing out there I like more than a nice long clean base. I believe this is one of them. We've been stuck in this range for 3 years. The resolution out of this should be extremely powerful and I want to be a part of it. (See Dow Transports in Q4 2012 and look at the result).

Source:

Heating Oil Seasonality (SentimentTrader)

Tags: $HO_F $UHN