Several energy futures contracts have compressed in the last few days and a downward move may already have begun. This needs to be confirmed by a close at or below present levels today or in the next few days, to reduce the risk of this recent drop being a false break – these are all too common in commodity markets. Here we show crude and heating oil:
The decision that must be made is: sell short now and risk that false break or sell later after a weak close which risks a much bigger drop having occurred before seeing that this is a ‘clear’ signal. Our notional portfolio will sell now but partly that is because we have other commodity positions, all of which are ‘long’ so a short is a welcome diversification. Please note that we still have longer-term reasons to be either neutral (our favoured view) or bullish (less likely).
