- New Science in old markets -

Compressions in energy and in the commodity index too

There have been some compressions in energy to report. Brent crude oil compressed at a daily scale yesterday and seems to be breaking upward today. This compression supersedes the older compression in WTI crude futures that has been the most recent signal until now:

In addition there was a weekly-scale compression in Rbob gasoline last week that has not yet broken:

In all cases of compression signals, it is better to wait until the end of the period to be certain of a break, at the risk of missing a ‘runaway’ move that can happen inside a single period – anticipating the break mid-session is only for the brave (or committed) and can be expensive. Please be aware of these new signals however and be very careful with existing shorts. Close protective buy-stops would be sensible now and we will advise taking long positions if the Brent compression breaks upward today or in the next day or so.

Weekly-scale compressions are much more difficult to deal with as it is very hard to wait until the end of a week to ensure that a break has occurred. In this case we will use the daily Brent signal as a trigger and the weekly Rbob signal to tell us how long we should hold the position – if it also breaks upward we will have a bullish view that should last for several months. All energy futures are range-trading and have been doing so for many quarters, so this will probably continue but the range highs are quite far above here, so there is room for a decent profit on the long side, if we get the upward break in the next few days.

There has also been a series of compressions in the Daily Commodity index that broke upward yesterday:

This apparent new trend in commodities fits well with the idea that stocks will now bounce after yesterdays expected turn, so we will look to find other long positions to add to our current recommendation in wheat, as of the Sept 25th edition.