Batten the Hatches
The IMC blog is holding a hypothetical short position in the August RBOB gasoline/crude oil spread that was entered at the equivalent of $21.19 (premium gasoline) on January 15th.
Price support for this spread was located between the January 13, 2015 low of $13.24 and the February 9, 2016 low of $13.20. Last week this price level was breached and the spread closed below these lows for three days straight. This cleared the way for a decline to the current 2016 low of $9.92 on the weekly nearest-futures chart. If that low is breached, the spread could even drop a few dollars more as it heads for the 2011 and 2013 lows that were established either side of six dollars.
However, a close back above the similar January 2015 and February 2016 lows would trigger a Wash & Rinse buy signal. This could spark a bear market rally that could potentially run the RBOB gasoline/crude oil spread up a few dollars more. In light of this potential, we are going to revise our exit criteria to bail out if that scenario materializes.
On the short August RBOB gasoline/crude oil spread entered at the equivalent of $21.19 (premium gasoline), exit on a close above $13.30.