Good and bad news about gasoline.

by Jay Pestrichelli on June 8th, 2012

On May 29th, just a little over a week ago, I wrote about how Gasoline was going to stay range bound in a post titled: Expect Gasoline to Stay Range Bound. The write up gave two ETFs as potential ways to invest in this trade. Those were UGA and ERX and wow, it could not have moved any faster against me.

The premise was that energy prices should be stay steady if one of 3 things happened:

1. Any good news out of Europe (which I admitted was a total crap shoot)
2. There were no outbreaks of escalated violence in the Middle East
3. China didn’t report anything terrible
4. US data supported a moderate recovery

Well one week later and we’ve almost had something happen to every one of those categories.

1. Europe has shown no sign of revovery and actually bad news is continuing to flow.
2. Syria has escalated the violence against its people
3. China unexpectedly cut rates for the first time in 4 years
4. The US Jobs number from last Friday was flat out terrible.

Besides the Syria news, which the market has not reacted to yet, 3 out of 4 of those events all drove down the price of crude and gasoline this week.

As a disciplined investor, all of my positions have been hedged, but there are times its good to exit before the hedges really kick in. While the same criteria for success remain, this hypothesis was so wrong so quickly, its probably worth exiting any sideways plays made on these ETFs and save the pain of further losses.

Sometimes your inner guru can be wrong and that’s why we keep track of the losers as well as the winners.

The good news, of course is that we were able to identify ahead of time the factors that were going to make the trade fail. And, oh yeah, there’s a little benefit that we’re all paying less at the pump these days.


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