- New Science in old markets -

Energy markets breaking down from compressions – sell short

There have been some compressions in energy markets in the last few weeks - part of the prolonged process in which pressure has built up in various assets for a new move. The most recent of these compressions have been in heating oil and Brent crude futures, both of which appear to be breaking down today. If energy markets are still weak toward the close, this will be a signal to sell short.

The bottom two charts show weekly prices. These too are compressed but those compressions will probably not break today – although it is possible, it would require much more weakness. Accordingly, this may be a chance to get short on a daily signal that confers a ‘running start’ on a short with a weekly time frame – one that lasts months.

We have written several times in the past year about the potential feedback loop in energy caused by Saudi Arabia’s present  inability to hold back production if prices start to slip and that one day there will be a great chance to sell short these expensive materials with the prospect of a severe drop in price. We cannot say if this is that moment as it may just be another routine 'trading' short-sale but one day that opportunity will come and there is always the chance that this is it…