Thursday, August 8, 2013
It isn't just the stock market that looks toppy right now. Oil looks ready to turn lower, too.
The price of a barrel of West Texas Intermediate crude oil (WTIC) is up almost 20% this year. But by the look of the following chart, those gains may start slipping away. Take a look...
This chart displays a "double top" pattern with the high at about $108 in mid-July and then again in early August. The double top is a bearish pattern with an "M" shape. It often leads to at least a short-term reversal in price.
WTIC has support at $103 – which is the lowest price between the two tops. If that support breaks, the pattern projects a move down toward the next support line near $98.
Oil stocks tend to rise and fall with the fluctuations in the price of oil. So traders might want to consider a short sale in the energy sector. A more direct trade would be to bet on the decline of the United States Oil Fund (USO), which is designed to mimic the action in the price of oil.
You can see the correlation in this chart...
Aggressive traders can sell short USO right now near $37.50 per share with a downside target at $35. If we're wrong on this trade and USO pushes above $37.50, traders should cover the short position.
Best regards and good trading,
Many investors have never shorted stocks because they believe it's too difficult or too risky. But Jeff Clark says they're missing an important opportunity: "Shorting is an ideal way to both hedge your portfolio and profit directly from declines in the market." Learn how to short sell in this interview with Jeff.
As a trader, your top focus should be limiting risk. Fortunately, there's a simple, safe way to do that… without giving up any further gains if the market continues higher. Get the details here.
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