In the last two weeks heating oil prices have collapsed falling by 20 cents gallon. As you can see on the chart above as of this post futures are challenging their 100 day MA; identified by the light blue line. Prices have been above that pivot point for five weeks–the last time April futures were under $3.00. There appears to be more downside and I?ve suggested clients tracking energies to use the Fibonacci levels as their objective on any bearish trade. I think it is possible to see a trade 10-15 cents lower but I do not think prices will stay at those levels for any extended period if we even get that low.
I have advised larger more aggressive clients to be looking for bullish trade entries if we see further 3-5% deprecation from current levels. There are several different strategies that one can trade heating oil from, an outright long/short via futures or options or one of my favorites as most readers know is trading your bias in the futures and then selling calls/puts against the futures 1:1. There are relationships that you can trade as well trading Crude oil and RBOB against heating oil.
In a normal trading week inventory reports come out on Wednesday so expect fireworks tomorrow that could dictate the immediate direction. Before putting on any size on bullish trade please do yourself a favor and look at a weekly chart as this is the third consecutive week prices have been in the red and for the last 10 months we?ve been unable to get above the same levels we topped out 2/3 weeks ago. I?m not trying to talk you out of the trade but just trade comfortable size is the message.