There was a top extension in December delivery Rbob gasoline yesterday. This market was most affected by the hurricane that hit Huston a month ago, which knocked-out some refining capacity. The caused a fear of shortages and the price of the nearest delivery months pushed up quickly. This also stretched the ‘normal’ spreads between neighbouring deliveries and pushed the market into a strong ‘backwardation’ where near prices are higher than those more distant. Backwardation is not unusual in energy markets, which usually flip between this condition and its reverse (called ‘contango’ where prices get higher the further forward they are) because of the tight margins that are normal in the complex refining business but this was an unusually violent episode:
Now things have calmed and the ‘bulge of demand’ has passed along the subsequent market deliveries as stocks are gradually rebuilt. This has pushed up the medium-distant months and now we have a top extension in December. There is also a top extension in Brent crude, again at a daily scale:
There are also daily-scale tops in these other instruments, indicating that sentiment in anything involving energy has now veered into ‘overbought’ territory:
We would not be frightened of selling hereabouts but as usual we add a health warning whenever we see a top extension – they usually mark the end of up moves but there may need to be a period of ‘churning’ before a down move can begin. The risks have skewed from upward to sideways/downward for the next two to three weeks, that’s all so please trade accordingly…
All signals courtesy of software supplied by our friends at Parallax Financial Research of
