The Annual Gouging Is Coming

Memorial Day weekend is just two weeks away. And you know what that means…

Gas prices are going higher.

It’s the annual gouging of the American consumer. It happens just about every year – starting in late April and going into Memorial Day. Oil prices rise. Gas prices rise. And, we empty our pockets in order to fill up our tanks.

It didn’t start so early this year. Indeed, the price of oil actually fell during the first week of May. But, don’t let that fool you. The annual gas gouging will happen.

And, if the chart is any indication, the price of oil looks ready to make a big move higher. Take a look…

The price of oil fell hard in early April – dropping from a high of just over $71 per barrel to the recent low near $57. Fears of a trade war causing a global economic slowdown had traders hitting the “sell” button on oil.

But, that action created positive divergence on the chart. In other words, as the price of oil fell to a lower low, the momentum indicators at the bottom of the chart made higher lows. This sort of positive divergence is often an early warning sign of an impending rally.

Even after last week’s bounce, the price of oil is still down about 15% since early April. It’s down more than 20% from the January high. And now, we’re starting the summertime driving season.

Bearish traders might argue that we have a supply glut. OPEC is opening up their spigots. And, President Trump’s “drill baby drill” policies will keep the oil price low.

 All of that is true. But, the seasonal tendency is for oil to rally this time of year.

When you combine that seasonal factor with the positive divergence on the chart, the odds favor the bulls on this trade. So, get ready to be gouged at the pump over the next few weeks…

It looks to me like the price of oil is headed higher.

Best regards and good trading,

Jeff Clark
Editor, Market Minute