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Gasoline Consolidation: Trade the Breakout


March RBOB Gasoline futures fell from a 2.7868 high in June to a low of 1.2605 in January. The price pushed higher, reaching 1.626 on February 3. Since then the price has consolidated between 1.626 and 1.4642. A breakout of this consolidation provides a trading opportunity.

The trend is down despite the recent rally. Consider taking a short just below the consolidation low. Initial target is 1.30, above the former low. Next target is 1.10.

A more aggressive entry is going short just below the 1.5142 February 11 low.

Figure 1. March RBOB Gasoline Futures (RB) - Daily Chart

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While the trend is down, this is the biggest rally seen during the decline. That indicates something has changed. An upside breakout of the consolidation and a continued move higher--even a full reversal--is possible from here.

The price is moving in a pennant formation--watch for a break above the February 9 high at 1.6064. Alternatively, wait for the price to move above the high of the consolidation at 1.626. Targets are 1.80 and 2.0.

Stop losses can be placed just outside the opposite side of the flag from the breakout. To give a bit more room, place a stop loss outside the consolidation high/low in the event of a break lower/higher.

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