From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Crude Oil has been the Lone Ranger within the energy complex since early June, relentlessly pushing to new highs while other energy-related commodities have been stuck below overhead supply.
But that’s all changing this week as Heating Oil and Gasoline just broke above key resistance levels to new multi-year highs.
The recent strength from Energy also comes as Base Metals continue to cool off and correct. Copper, Tin, and Aluminum are all rangebound below logical levels of resistance after explosive moves off their 2020 lows. This is yet further evidence of the bifurcated market environment we're in right now. All we can do is focus on finding opportunities in areas that are trending... So, let's talk more about Energy.
What started out as a questionable breakout in Crude is now potentially turning into a burgeoning rotation into the entire space.
Let’s take a look at the Crude Oil derivatives and highlight the recent breakouts taking place within Commodities’ newest hot spot.
First up we have Gasoline Futures:
After pressing on resistance around 2.18 for the past three months, Gasoline has finally resolved upwards from a massive base and is currently trading at fresh 6-year highs. As long as this breakout is valid, the risk is to the upside.
Big base breakouts are what get us out of bed in the morning. And this setup in Gasoline futures is right in our wheelhouse.
If we're above 2.18, we want to be long Gasoline futures with an objective of 3.13 over the next 3-6 months.
Next, we have Heating Oil:
At first glance, it’s apparent that Heating Oil is the laggard among crude oil derivatives. Unlike gasoline, It’s still well below its former 2018 highs.
Regardless, Heating Oil has been showing strength and is starting to catch up to the pack as it just broke above a key shelf of resistance at its 2019 highs ~2.12.
While we aren't looking at much in terms of upside here, we can’t deny the clear risk level near 2.12. And at the end of the day risk management is all that matters.
So given that we have such a well-defined level to trade against, we're buyers of Heating Oil above 2.12 with a 1-3 month target at the 2018 highs near 2.45.
These breakouts from Heating Oil and Gasoline not only support higher Crude Oil prices but also support the newfound strength from Energy stocks.
And now with Crude Oil nearing our upside objective of 76, we can branch out and put capital to work in its peers which are now offering well-defined and favorable risk/reward setups.
Bottom line: We like Energy right now. Things are beginning to fire on all cylinders for this sector. And not just in Commodities Markets but we're also seeing plenty of bullish developments from Equities. Look out for a deep dive into the space in the coming days.
