Consumers and drivers probably do not want hear it, but if the United States Gasoline Fund (NYSEArca: UGA) is an accurate harbinger of things to come, higher prices at the pump are on the way.
UGA, which tracks the price of front month unleaded gasoline futures, is up 4.4% Tuesday on volume that is nearly six times the trailing three-month daily average. That brings the ETF’s five-day spike to almost 16% and over the past three days, UGA has notched its best three-day spike since 2009.
“UGA has gained 12% in the past 3-days. This is the strongest 3-day rally since 2009 (left chart). The chart graphs out the different times UGA has had large 3-day bounces since 2008. The Dow has done well the past couple of days, to match the rally of Gasoline, the Dow would have to be up over 2,000 points! Nice bounce in UGA at this time,” according to Chris Kimble of Kimble Charting Solutions.
Gasoline futures are currently in contango, meaning longer-dated contracts currently trade at higher prices than the front month or March contract.
Ordinarily, futures contracts with a longer expiration date have a higher price, compared to the spot price – this may be attributed to pricing for storage of the physical commodity or other financing costs in today’s price.
In a contangoed market, the ETF loses money each time it rolls contracts to a costlier later-dated contract. Additionally, potential investors should note that in a contangoed market, futures-based commodity ETFs can experience heavy losses even if the underlying commodity’s spot price rises. [How Contango Affects Commodity ETFs
Investors have allocated $4.7 million to UGA over the past week and nearly $17 million to the ETF since the start of 2015.
United States Gasoline Fund
Chart Courtesy: Kimble Charting Solutions
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.