Commodities Are Set Up To Play

From the Desk of Ian Culley @IanCulley

Energy stocks refuse to lose.

We can’t deny the relative strength of the energy space, whether we’re talking about stocks or commodities. But it’s been equities over the raw materials for months now.

It doesn’t look like that will change any time soon. However, I doubt energy contracts will be left behind.

Let’s run down the most actively traded contracts for crude, gasoline, and heating oil. First, crude oil:

The December contract has chopped around a key level of former support at 85. Despite the sloppy nature of the chart, I don’t hate a long position here. But that's only if it’s above 85.

Keep in mind crude oil has been messy, so you’ll want to give it room to breathe. Plus, potential resistance comes in at the July and August pivot highs around 96. 

I’d much rather trade gasoline or heating oil for two reasons:

• Crude oil futures have been a frustrating trade.
• The gasoline and heating oil charts present cleaner, more well-defined levels to trade against. 

I always have to protect my emotional capital. Taking on risk in crude oil does not suit me at the moment, even though I believe the path of least resistance is higher.

It’s hard to imagine crude oil breaking down in an environment where Exxon Mobil $XOM is printing new all-time highs.

Regardless, these next two charts are where it’s at for me!

Check out the December contract for gasoline futures:

We have a multi-month inverted head-and-shoulders reversal pattern with a well-respected horizontal neckline. It doesn’t get much better than this!

I like taking a swing as long as it’s above 2.615, targeting the contract high of 3.27.

Heating oil also presents a great level to trade against.

Here’s another multi-month base churning below the June highs with two clear contact points finding resistance.

If and when demand is able to absorb overhead supply, we’re buying on strength with an upside objective of 4.38.  But we can’t get long until a close above 3.85. That’s our level, not the June highs. 

Buyers and sellers have shown us supply exists at the August and October pivot highs. Prices peaked in June on the heels of a speculative blow-off. 

We’ll have to wait to see if those former contract highs come into play. For now, keep your eye on 3.85.

That’s it for today, just a quick review of a few energy contracts. With the unrelenting strength of energy stocks, these short-term bases will likely launch crude and its distillates on a fresh leg higher.

Stay tuned!

COT Heatmap Highlights

• Commercial hedgers more than doubled their long position in cocoa, holding near a three-year extreme.
• Commercials are buying gold again as they're back within 5% of their largest net-long position in three years.
• And commercials favor the yen, coming within 10% of a three-year net-long record.

Click here to download the All Star Charts COT Heatmap.