Heating oil futures rallied on Wednesday (3.4%) and Thursday (0.5%) with 'trend day' patterns following declines on Monday and Tuesday. The nearby contract closed at 142.83, up 5.9% over the last five trading days, and looking at the Commitments of Traders numbers from last Friday, Small Traders are net long, Large Speculators are extremely net short, and Commercial Hedgers are net short.
Q: How has Heating Oil performed in the past when it has seen two daily declines, followed by two 'trend day' pattern rallies when small traders are net long?
A: According to the 18 previous occurrences of this event, EventEdge indicates that NYM.HO has shown a weak bullish edge that peaks 18 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Thursday, Jan. 29, 2009) is Wednesday, Feb. 25, 2009. NYM.HO rallies in 72% of the cases (13 of 18) by an average of 11.7% relative to the close on the event date. The average of the five declines is 2.8%. The overall return of the 18 cases is 7.6%, which, based on the close of NYM.HO on the event date (142.83), provides a target price of 153.69.
This is a redux trading idea, which was first published in December, 2007, and it didn't perform spectacularly in that case. The event conditions have re-occurred three times since then with pretty good results (see table below.)
If you'd like to see this trading idea in EventEdge to explore other event combinations, click here.
Gibbons Burke is editor of MarketHistory.com.
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Heating Oil Futures - Trending Up - December 13, 2007
