There was a compression in Rbob gasoline futures yesterday that appears to be breaking upward so far today. This is more evidence that a rally will continue in energy markets - the first was a bottom extension in December WTI crude futures as reported in the 6th November edition and now there is this new compression (and apparent break). Here is an update:
Trends end with extensions but usually start with compressions so this is a good reason to stay long of energy markets. Our particular suggestion was to buy crude oil (particularly Brent futures) that day but all have rallied since and should continue to do so from here. It is always prudent to wait for a close above a new compression before acting but in this case we assume you are already long. You can add Rbob to the portfolio if this break is confirmed.
We also advised buying Natural gas futures in the 5th November edition and these too have since rallied – here is an update; stay long:
Elsewhere, this Swedish equity index compressed yesterday:
Ordinarily this would not be significant as Sweden is a minor market in Europe’s oversupplied continent. We think it is more important right here and now as many European markets have been range-trading recently after top extensions marked the end of prior uptrends. Now that this compression has appeared, it presumably shows that others are also getting ready to compress and so a new trend is imminent. We have been expecting this to be a downtrend, as we have written often lately, but compressions can break either way so this is a time for caution. The range-trading has become quite violent ‘churning’ in recent days which may continue for a little longer. This makes it difficult to hold any position, long or short, so expect more uncertainty. As we warned at the start of this process the best posture is to hold a ‘core’ short, to cover some on dips and to re-sell on rallies. You should now stop doing that as any downward break is likely to lead to more sustained weakness. Similarly, an upward break would probably signal ‘one more rally’ in this long climb toward the highs that we have already been warned are about to occur by the occurence of longer-term top extensions.