Thursday, January 7, 2010

Energy cracks 1.8.10

Lets start with the heating oil crack:

Crude oil found support at $82.50, while heating oil weakened and could not stay above $2.19. At around 11:15, the crack broke through a multi-day support near 925, coinciding with HO's inability to sustain the price level of $2.19.

Heating oil appears to be running out of steam sooner than crude. The past 3 days have seen HO failing to make new highs, while crude is still strong. Both markets have rallied hard, and a general correction is not out of the question. If crude reverses, the relative weakness of HO could see the crack experiencing a sharp drop. The past three days have seen the crack sell off as HO stalls:See the 720 min chart to see the crack's recent collapse:

HOCL is approaching a previous resistance in the 885-890 range. Going forward, a new range may be established between 890-940, or the sell off will continue with the next logical stop being 50 points lower in the 840 area. If the HOCL breaks below 880, it would appear to be a smart sell.

Now lets take a look at RBCL:

RB appears to have significant support in the 640-650 region. It is keeping pace with crude's advance, in contrast to HO. The uptrend was broken as the market closed below 700 yesterday. However, in light of today's action and the failure to break below support in the 650 area, the most likely scenarios for tomorrow are either retesting the 725-730 top, or the 650 low. I think a breakout in either direction is unlikely, though a breakout to the upside seems more likely than the downside.