Last week, we looked at the recent action in oil. It looks like a reversal may have already started.
So, today we’ll look at a different energy market. One that looks primed for a big move…
Refined gas is used in vehicles, appliances, and even in products like paints and pesticides.
While it’s widely used, it’s not exactly widely traded…
See, many traders have profited from the well-known crude oil and natural gas markets. You may have even traded these volatile markets before.
But there are comparably fewer traders who have dipped their toes into the gasoline market.
So, what makes gas (technically, refined gas) so attractive to technical traders?
It’s the nature of the price action and the lucrative opportunities it presents.
Gas certainly has moments where the price chart looks like a complete mess. But in my experience, the market eventually settles down. When it does, the opportunities are epic.
And we’re right on the cusp of such an opportunity right now…
As you see below, gasoline has recently broken out of a classic chart pattern. At the same time, the market has broken below a very important technical indicator.
Let’s take a closer look at the chart below:
The chart pattern mentioned earlier is known as a rising wedge (blue lines). This is a continuation pattern, where price consolidates before following its trend. In the case of gasoline futures, the dominant trend is to the downside.
Gas is a lot cheaper today than it was in June 2022. Back then, gas was trading around $4.30 per gallon. Today, the price is much closer to $2.40.
That’s nearly a 45% decline in price… And it could still fall further.
Supporting this view is that gas has broken out of the wedge and is holding below the 200-period moving average (MA).
The 200 MA is a powerful trend indicator. Refined gas breaking out of the wedge and trading below the 200 MA should put traders on notice.
The next downside support is the weekly timeframe’s 200 MA. That level comes in at $2.16, which is a further decline of over 9% from current prices.
What’s going on with gasoline right now is a textbook example of a bearish breakout, and traders should look at this as an opportunity to play a further fall.
But remember: Nobody takes a trade expecting it to lose. Even the very best setups will fail.
Risk management is the most important part of trading. That’s regardless of whether you’re trading a commodity like gasoline, a tech stock like Microsoft, or the EUR/USD currency pair.
You should never risk more than you’re willing to lose on any single trade. No matter how tempting the setup.
Happy trading.
Imre Gams
READER MAILBAG
Have you explored these markets?
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