RBOB Gasoline/Crude Oil Spread
The September crude oil contract expires in a week, so we are going to switch from stalking the September RBOB gasoline/crude oil spread to stalking the October spread. Although the October spread is trading at a discount to the September spread, it still qualifies as a short sale candidate. The ratio for the October contracts is closing in on 1.5:1. Remember, anytime the ratio hits 1.4:1 or higher it is at historically unsustainable levels.
We are continuing to use a two-day close below the rising 75-day Moving Average as our short sale signal. This has not occurred since late January. Furthermore, a break below a prior month’s low for the first time since early April low will alter the current bullish price structure and confirm the bearish trend change.
Cancel the current hypothetical order in the September RBOB gasoline/crude oil spread and replace it with a new order to sell one 42,000 gallon October RBOB gasoline contract and simultaneously buy one 1,000 barrel October crude oil contract if the spread makes a two-day close below the rising 75-day MA (currently around $16.43). If filled, the spread will initially be liquidated on a two-consecutive day close 20 cents above the 2015 high that precedes the entry.