Energy commodities are holding up despite last week’s selling pressure.
No, I’m not talking about natural gas – that rope snapped months ago.
But the rest of the main players – crude oil, heating oil, and gasoline – rebounded heading into the weekend. And when I look at the charts, Friday’s strength might be the beginning of a more sustained advance for energy.
Check out the equal-weight energy index:
It’s finding support where I would expect – the prior-cycle highs from 2018 and a key retracement level off the 2020 low.
Notice the index found support at this level in late 2021. This is the polarity principle in action.
A bounce here makes sense for energy contracts. It doesn’t mean they will, of course.
The index is also retesting a critical level versus the base and industrial metals index.
Check it out:
Crude oil and the gang are holding the line versus Dr. Copper and his crew at a contested boundary.
This level has acted as support for almost a decade (aside from the 2020 sell-off), marking a logical level to see energy contracts begin to outperform their procyclical peers.
I have to give these energy contracts the benefit of the doubt based on Friday’s strength and critical support levels coming into play on absolute and relative terms.
Friday is the most important close of the week, as it reveals what risks investors are willing to take home over the weekend.
On the other hand, these support levels could fail at any moment.
If they do, I imagine commodities in general – not just energy – are experiencing increased selling pressure.
Stay tuned.
COT Heatmap Highlights
Commercial hedgers hold their largest net-long position for the Canadian dollar in three years.
The commercial long positioning in cotton approaches a three-year extreme.
And commercials are within nine percent of carrying their largest net-long position for Chicago wheat in years.
( *The data is as of February 21st and will be updated as soon as COT releases current data*)
