Have gasoline prices reached a tipping point?
According to the NYTimes, Prices for a gallon of regular unleaded gas are topping $4 at more service stations nationwide, revisiting the bleak territory of three years ago, when the average price for a gallon of regular gas reached a peak of $4.11 on July 17, 2008. A survey of about 100,000 stations showed gas prices were now averaging $3.77 a gallon nationwide. The average is already more than $4 in California, Hawaii and Alaska, and analysts at the oil information service said drivers were paying more than $4 at some stations in at least three other states — Illinois, Connecticut and New York.
I explained in detail why the economy could not withstand $4 gas in Friday’s post. We had already been short on oil and we doubled down on our short position on USO as oil hit $113 a barrel and yesterday morning, in the early am comments from my “Investing for Income” article, I added a suggestion to short silver futures as they touched $42 and, of course, we hit the oil futures shorts, which I reminded Members we could take as oil crossed below either the $112.50 or $111.50 lines. As it turned out, they crossed both and we rode those puppies all the way down to $110 – finally catching the wave we’ve been PATIENTLY waiting for for ages.
For our non-futures players, my trade idea was the USO April $44 puts at .35, those finished the day at .85, up 142% on the day trade (not bad either!) with each $350 contract returning $850. This is a great example of how we can keep taking 20% losses (nickel losses on the futures) as we poke at various lines of resistance but, as long as we stay in the game and limit our losses – all it takes is one nice win to more than make up for it.
Of course we took the money and ran on our day trades – we have our SDS and TZA hedges that make ridiculous amounts of money if we keep heading lower and we can jump back on the oil shorts while the market is open – it’s too scary to play the very thinly traded overnights (when they are not silly toppy).
$108.50 is our first major bounce target in oil and we already hit $107.85 in the futures but oil crossed back over $110 at 6 this morning and gives us another shorting opportunity below that line – which acted as weak support yesterday. We’ll look for a bounce back at $108-$108.50 and will probably take a long play over that line but with very tight stops as we do hope it fails and oil heads back to $95 to prevent the rest of the market from collapsing although that will collapse the energy sector and maybe the other commodities too – a fine illustration of why I was banging the table to go short on Friday!
IN PROGRESS
