As we round out September and start to head into October, it may seem a little early for some to think about winter. However, Heating Oil is poised for breakout potential and with the winter months closing in, it might be a great time to focus on its bullish potential.
You will often find that Heating Oil prices rise naturally during the winter months due to increased demand. As such, we are coming into the perfect season to evaluate this type of trade. I am looking now at the November contracts as they have the heaviest current volume, but you can look at whatever contract suits you best for your personal time horizon.
Here on the Daily chart I have placed a bold red line under a territory that could act as a near term support level for us which is around the 2.93 level give or take. Now this is not the only support level that we need to focus on, but right now it could easily act as a pivot point for us after a number of days worth of failure in pricing.
As we move forward to our Weekly chart:
We can see that there is a bigger picture, and with this chart I would like to highlight the concerns with taking a bullish position. Another major level of support needs to be considered around the 2.5 territory. Heating Oil could find failure to this level and still be within a broader range of its behavioral pattern. In addition, we have had a recent ascending channel and trendline within the broader pattern for the last number of weeks and we have failed a bit below that trendline. These are the caution flags that I would pay attention to at this point.
However, those being acknowledged, I want to show you what I am really watching and excited about and that is the Monthly chart:
On the Monthly chart you can see that you have a large triangular pattern that stretches from lows around 1.12 upwards to highs around 4.15. This lets us know that there is pleanty of breadth for motion in Heating Oil and the fact that we are looking at not only the potential for a triangular pattern breakout, but also a channel break has my full attention.
The 2.5 territory that I mentioned off of the Weekly chart was actually a bit of a test of the channel support levels shown here on the Monthly chart. The spike down on the Monthly chart within this channel was with a low of 2.51. You can see however, that we tend to turn upwards from a more true channel base a bit above 2.6.
With the combination of these patterns and the oncoming winter season, I believe that we will find a bullish break on Heating Oil. The triangle is very close to a break and the channel illustrated on the Monthly chart is very long in the tooth. All channels break and this one has been building pretty cleanly in a sideways motion for some time. We may end up with not only a seasonal break on this, but potentially a multi-year break.
As we are looking at coming up from the bottom of the channel and waiting for a breakout, you may consider utilizing Options on Heating Oil to be involved in this potential move early, but with a fixed risk instead of full blown exposure via other vehicles. Don’t get left out in the cold this winter, let us help you customize your play in Heating Oil with strategies that fit your personal goals and time horizons.
Remember, that we are here to keep your options clear.
Lindsay Hall is Chief Market Strategist with commodities specialists RMB Group. Get the latest futures and commodities commentary from Lindsay and the RMB Group on our Big Move Trades--an online report offering trading ideas backed by research. Questions about this report or trading futures? Contact us online or follow us on Twitter @RMBGroupFutures. Read disclaimers here.
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