Gasoline Nearing Short Term Resistance (And Its Effect On Markets)

Hopefully you're busy basking in the wealth effect of the Russell 2k and DJIA making new all time highs.

Hopefully you could care less about the explosive move lower in Treasuries (higher in rates) over the past month.

Hopefully your main concern is how many days of sun you'll get on your summer vacation.

However, the Energies, Treasuries, Currencies, Metals, Grains, and Soft markets are most certainly not in lazy summer ranges. Over the past 2+ weeks the Energy complex has moved higher with a precarious velocity.

WTI Crude moved from $92.67 to $107.45 from high to low (August futures) over that time frame. Up 16% quickly. It's not unprecedented, but it's concerning.

In the same 2+ weeks, Gasoline (RBOB - August futures) has moved from 267.65 to 309.25. Up 16%. Again, not record breaking moves, but Gasoline acts as a tax on consumers and we're very much flirting with a point where history has shown Gasoline prices to be a drag on consumption.

I try to point this out every now and again: There are about 137 million automobiles in the US. Avg MPG = 18. Avg miles/year = 12,000. The rule of thumb = 1 penny move at the pump removes $1 billion in disposable income in the US.

Prices at the pump are moving (and will likely continue to move) up FAST.

In my opinion, Gasoline is nearing short term resistance (highs from Feb around 312.00). I also believe this is a short term squeeze because the spread between August and September Gasoline futures have blown out. Visually.

This is highly reminiscent of the moves (distorted spreads) from earlier this year. RINs (Renewably Identification Numbers - blending/Ethanol) have also been moving quickly (like they were in Jan/Feb).

Big Picture - Gasoline (futures) have traded between 320 and 260 for a long time now. With a few short lived exceptions (Arab Spring on the top side and European Sovereign/US debt downgrade on the downside) the Gasoline market has traded in that 60 cent range.

Crude oil looks like it made highs two days ago. In June Crude bottomed two days in advance of RBOB. Perhaps I'm grasping at straws, but I believe we're significantly closer to a trading top in the Energies than a bottom. Very aggressive types could sell calls or call spreads in front month RBOB. The 320 calls with about 2 weeks until expiration are trading for 2.30 cents or $966.00. Implied vols are up across the Energies but by no means very high. You could also fade the move in the Aug/Sept RBOB spread, but you MUST be comfortable with considerable volatility.

At 10 AM Chicago time here's how commodities have performed on the week. This will likely be remembered as the week Bernanke backtracked on the Taper talk. Time will tell. Next week, starting on Weds and ending on Thursday, Bernanke gives his semi annual testimony (Humphrey Hawkins) before Congress. Last year the Feb testimony coincided with a Dollar bottom (top in Silver and Gold). His July testimony coincided with a Dollar top and the now famous Schumer bloviating and telling Ben to "get to work" (implicitly saying, weaken the Dollar because Fiscal Policy is hampered by a broken Congress). The Sequestration was the only thing that altered discretionary spending. This year, his Feb testimony also coincided (within a few days) with the lows on the Dollar. In other words, it's a big deal.

https://www.youtube.com/watch?v=sfwsrQeaSFA

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