DAY HAGAN TECH TALK MAY 29, 2018

 

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Crude Oil ($WTIC/$67.88 based on the continuous contract) declined almost 5 percent last week. The weakness in $WTIC was mainly due to reports that Russia and Saudi Arabia are increasing production. Initial support for $WTIC Crude exists in and around $66-$65 followed by a pocket of support between $62 and $58. With the start of the summer driving season, I want to also discuss the bullish chart configuration of Unleaded Gasoline ($GASO/$2.17 – continuous contract) and potential support levels, as shown below.

Given the uptrend, what important support levels need to be held? In light of the weakness in the price of $WTIC last week, $GASO declined almost 2.5 percent last week. A previous price low (support) exists at $2.05. If this level is decisively violated, various trendlines and another previous price low offer support in the area between approximately $1.95 and $1.90.

When I drove around Maine, North Carolina, and Virginia last week, I paid the following prices per gallon for Gasoline (retail price at the pump): $2.99, $2.88 and $2.66 respectively. According to my good friend and former colleague Dr. Scott Brown, the Chief Economist at Raymond James Financial, “$0.70 is the approximate spread between the retail gasoline price (what you and I pay at the pump) and the futures price (the price shown in the previous chart).” What does this mean for your bottom line? By adding $0.70 to the support levels listed above, and depending on where you purchase, you may see Gasoline prices at the pump between $2.75 and $2.60, and possibly $2.53.

As shown below, on a year-to-date basis, $GASO, $WTIC, Bloomberg Commodity Index, S&P 500, and Gold have performed as follows (rounded figures): +21 percent, +12 percent, +3 percent, +1.8 percent, and -0.45 percent. Given Gasoline’s strong uptrend, we would expect periodic retracements. Now we’re watching to see if the support levels hold.

Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies. Please let us know if we can do any additional work for you.      

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written on 05.28.2018. Chart sources: Stockcharts.com.

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