Oil Prices in a Slippery Spot: Part Deux
Tuesday, December 29, 2009 at 03:31PM In my epic debut, returning to the blogosphere after a year long contractual hiatus, I returned to put a handful of readers in front of a monster breakdown in crude oil prices. Remember?
From that point on, oil went on to correct nearly 13% over the course of the next 20 trading days. This event was critical, as it put oil prices on to a sell signal. After crude bottomed, I used that as an opportunity to get long a few energy names, including NEP, which I closed out for a 50% return today, and BAS, which I still hold, up 23%.
This rally hasn't been much more than a correction in a newly established downward trend, and the time is near to start considering shorts in this space. I think the USO paints a wonderful picture as to what the technical set-up suggests:
After the year long upward trend was broken, prices have rallied to re-test the underside of this trendline, making for a very manageable put position heading into the New Year. Another way to look at it is to review the sell signal on crude oil, and how we are testing that signal as we speak, at a very low risk spot.
A print of $80.00 would put oil back onto a buy signal. That's what I'd use to manage a short position in this group. According to the bullish percent values, energy has the second lowest reading, next to telecom, but remains in bear confirmed status.
In short: Sell the Rip. And have a Happy New Year.
Long: Trading Addicts
Short: RIG, SLB, WFT, OIH and USO
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Reader Comments (17)
Actually I feel you could have more readers than you think, just that your comment system is not geared to facilitate more communication.
Yup, I foresee too that some sought of correction will come between Jan - Mar.... The sooner the better...but I yer know S&P500 hit the bottom between Feb- March. So a correction that marks the 1 year anniversary of the bottom will be perfect.
Hey Jeff, if you ever find yourself without anything to write about, do a series of posts about point and figure charts. I've read about them, and I think you've even explained them before (maybe even in a video?) but I still don't have a very good grasp of how they work.
Check out the Oil Services (OIH) - channel top here, and RIG looks to be a short set up into inventory data
Thanks, I need to start getting more delta neutral. This is a great starting point towards evening out my holdings.
Jeff how does the OI on oil look now compared to on Nov 13. There is a heavy bullish skew to Feb calls vs puts it appears on USO.
looking for some strength in the treasury market to give further boost to the bearish case in CL, dont see too much in a commodities short at the moment...; in addition, the middle east fiasco seems to be heating up, especially since the supposed deadline for Iran is coming.
check out the price action in HYG yesterday; pretty interesting... its one of my assumptions- that HYG has to accompany a sell off within equities for "downside confirmation".
Luvvinit,
Great point, but hard to dissect intention behind open interest.
I look at this as a 50/50 probability set-up, but a big reward if it pans out; at a small risk.
OA
This may be the only bearish post on the web at this time.
Grand munchkins went back to California, sitting on piles of cash, no volume, a boring market – what’s a person to do? Not to look too far, I found it! For me, my short term goal is all about set plays with tonights Nebraska’s Suh ready to decimate the Arizona Cat’s quarterback. Anyway, off to BWLD to watch tonights bowl game. My take I do not need to trade every day (cash is green and greed is blood red) so, maybe next Monday (2010) …
Well there is the 80 print.
I'll be watching for a closing print of 80... myself.
Luvvinit,
How can you see a print of 80 when the $WTIC is an EOD graph...your post was at 7:52 a.m. and the market has not closed...what am I missing??
based on the intraday chart of Crude futures ( /cl )
As I watch the Air Force take out Houston, I bought some PUTs on CRM - back June 08 it topped out and I view this as a low risk trade. AVB hit the 1K DMA with an RSI > 90 & down it went. Then there is SBUX, SMH, BWA, HES LRCX, GLW and more all around the 1K dma & a high RSI. Plus, CAT is riding the 1K tight wire.
Air Force just scored- for me, can't beat trading and college football.
Cool, what a great way to go into the New Year. My Puts were working; I established some more naked puts on UNH (at the last minutes), did buy-rights on MS right at the last minute and just had some fun.
Anyway, Happy New Year Jeff and all; btw, Jeff from your days on Master Talk, "excoriating me on some bone head trades (as you once told me, buyers & sellers)", to how I trade today - 'cheers'.
It’s lonely here at OA – does anyone visit this site anymore? So, let’s talk football – the ole’ guy, ‘Brett Farve’ did his job in football today, that said, in Arizona it would have been nice to see the ole’guy Kurt Warner come up with a win. After football today…
I switched to the Shadow Trader (good stuff) and laughed at the Slope of Hope video. Anyway, I’m looking for ideals into this new year (decade). Bottom line; let’s have some more fun this year.
What happened here? With or with-out OAs, I plan to make money and have fun this year – do you?
Free2Trade,
You'd be surprised if I told you how many hits this little site gets per day...but out of the visits, not too many leave comments.
I'm sure as I get into a groove, the participation will blossom...but I won't hold my breath.
OA