For around six weeks these contracts have traded in a range, but this may be all about to end.
A trade is now presenting itself with great risk / reward which have potential to spike prices to new highs and a 100% profit.
Geo Political Concerns
Forget all the talk about supply and demand and inflation – Geo political reasons are the main reason crude prices are high and could spike higher.
From Iran, there were reports that Tehran wants “unconditional” talks on the incentive package western governments are offering it in an effort to persuade it to stop its uranium enrichment.
Iran’s deputy foreign minister said Tehran will “very soon announce our position.”
We don’t really hold much hope the Iranians will do anything to pacify the USA with their “position”.
Therefore, any interruption or perceived interruption in supplies is a distinct possibility if the dispute drags on, which it looks likely to.
It’s hard to see a compromise as Iran and the USA, do not want to lose face and there is no common ground. The 35-nation board of the International Atomic Energy Agency is scheduled to meet in Vienna on Thursday to debate the situation and prices will should remain firm into the meeting.
While there has been a lot of debate about the inflationary impact of high oil prices its minor and the global economy can still expand with prices at higher levels than they are now.
So how can this move be traded?
Well firstly let’s put the fundamentals aside and look at the technical picture.
Below we are going to focus on unleaded gasoline, although a similar picture is present in crude.
Unleaded gasoline – Technical picture
The trend:
Is sideways at present and prices are trading in a range.
Short term trend:
Is down, prices have declined to the bottom of the range and bounced from the bottom Bollinger band.
Momentum:
Has been down, but prices after dipping lower on Friday, recovered and settled off the lows. Stochastic momentum is now set to cross with bullish divergence.
Resistance & Support:
Support is at the bottom of the channel and resistance at the top of the channel. Near term support is at Friday’s lows and resistance at the centre of the Bollinger band.
How the move may develop
The bottom of the channel is support and prices held it on Friday. A strong open on Monday points to higher prices. If prices hurdle the middle of the Bollinger band then a test of the highs could unfold.
The risk reward is pretty clear here. If we have strong move up on Monday odds favor the bulls and open below support negates the trend short term.
It’s got great risk reward as the charts show. If we see a good strong open we should see a run up to the highs and beyond again.
Monday looks to be an important day and will set near term price trends. As with any technical picture dont try and predict let the price action tell you the odds of where prices will go next.
Final words
Do you think Iran and the USA are going to settle their differences?
We don’t and this will be the major driving force that could push energies to new highs and a great profit opportunity is presenting itself.
