The Futures / Inter Market Report

Trading the World’s Markets                             

September 28, 2007

                                            
Matthew Caruso, CMT                                  
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Seasonal Road  to heating oil and the British pound

Seasonal tendencies are very common in the commodity markets. This week we will look at what typically
happens for heating oil and the British pound in October each year and at the same time what they are likely
to do this year.

Heating oil which has been climbing since the beginning of this year is finally approaching its seasonal
top. Take a look at figure 1 and you will notice that it is not uncommon for heating oil to rally from February
until October. Past years have seen similar strong up moves. However, each year has subsequently had a top in
October and then a correction. The trend up until recently has been strong up however the strong seasonal tendency
helps traders to remember that every bull market has to pause somewhere. There are several factors that support
the probability of an October top this year. Firstly, commercial traders are bearish on the commodity. The dark
green line in figure 1 is the index of the commercial traders. The last time these traders were bearish as they
are now was in July of this year and a correction ensued. The correction that may possibly occur in the coming
months is likely to be more severe given the strong up move and the over head resistance which is shown with
the blue up trendline which can be viewed in figure 1 as well.

Figure 1 Chart by genesisft.com

Despite these bearish factors, every big move starts with a small move. By that I mean that before we
see a correction in heating oil, we need to see a change in the short term trend. Friday had a bearish outside
bar that failed to hold new highs as can be seen in figure 2. However, the trend is still strong up until the
low at 2.1725 is breached. If prices fall below that level it will signify that the demand for heating oil is
no longer greater than the available supply. It would take a move below 2.1725 before a large move down can
commence.

Figure 2 Chart by genesisft.com

The British Pound

The recent stock market correction that occurred in August had many implications for the currency
markets. The prevailing uptrend in foreign currencies and downtrend in the U.S. dollar was reversed and
currencies like the Pound and Aussie corrected while the dollar climbed. The correction that the British
pound experienced was technically necessary and healthy.  As you can see in figure 3, the pound corrected
the uptrend line that has been in force now for over a year. The pound typically rallies from the beginning
of October to the beginning of January which can be seen in the bottom of figure 3 which shows the seasonal
trend.

Figure 3 chart by genesisft.com
 
The pound has also broken above a key resistance Friday as can be seen in figure 4, and has now begun
a series of higher highs and higher lows, typical of an uptrend. If history is any guide we will see the pound
rally throughout the remainder of the year and make new highs for the year.

Figure 4 chart by genesisft.com
 
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