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How to Profit from Oil's Next Move Higher

By Jeff Clark
Tuesday, January 14, 2014

Get ready for a bounce in oil.
 
After falling 8% over the past three weeks, the price of West Texas Intermediate crude oil (WTIC) is oversold and may be ready for a short-term move higher...
 
Take a look at this daily chart of WTIC...
 
 
The price of oil broke down from a bearish rising-wedge pattern in late December. It has retraced the entire height of the wedge and is now resting on support at about $92 per barrel. This is a logical place to look for an oversold bounce.
 
Aggressive traders might consider buying oil here and betting on a move back up to resistance at about the $96 level.
 
But be sure to take profits quickly. The longer-term outlook for oil is bearish... And the real money is going to be made by shorting it on any oversold bounce.
 
Here's another way to look at the chart...
 
 
The price of oil has fallen below its longer-term blue uptrend line. By itself, that's a bearish development. And it indicates WTIC could trend lower toward its 2013 low of $86, or even down to 2012's low water-mark of $79.
 
But there's an even more bearish development happening on the chart. WTIC appears to be breaking down from a long-term "head and shoulders" top formation. This is a bearish pattern that often signals the reversal from a bull market to a bear market.
 
If the "head and shoulders" pattern plays out, the price target would fall down to $74 per barrel. That's a 19% drop from Monday's closing price.
 
Rather than trying to trade oil in the commodity market, aggressive traders should look to sell short shares of the United States Oil Fund (USO) on any bounce that takes the price of WTIC up near the $95-$96 area. USO is an exchange-traded fund designed to track the price of WTIC. So it will follow the price of WTIC lower.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Jeff believes two other commodities are setting up for a move higher. Get all the details here:
 
Get Ready for the Next Bullish Move in Gold Stocks
"We've seen several bullish gold-stock setups fizzle out over the past year... But that doesn't mean we should ignore today's setup."
 
This Commodity Looks Set for a Reversal
"2014 may be the year of the coffee trade..."

In The Daily Crux
Market Notes
Another sign of Europe's recovery... big European banks Barclays and BBVA break out to 52-week highs.
 
Booze businesses continue their long-term uptrend... Constellation Brands and Brown-Foreman soar to new all-time highs.
 
Gold stocks are trying to start a new uptrend... gold-miner fund GDX jumps to a six-week high.
 
"Offense" contractors Lockheed Martin and Northrop Grumman hit new all-time highs.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1819.20 -1.3% +23.6%
Oil (USO) 32.81 -1.1% -3.7%
Gold (GLD) 121.01 +0.6% -24.9%
Silver (SLV) 19.68 +1.6% -33.2%
U.S. Dollar 80.54 -0.1% +1.2%
Euro 1.37 +0.3% +2.7%
Volatility (^VIX) 13.28 +9.4% -0.6%
Gold Stocks (^HUI) 210.22 +3.0% -51.5%
10-Year Yield 2.83 -1.1% +50.5%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 181.69 -1.3% +26.0%
Israel (ISL) 16.82 +0.2% +23.8%
Japan (EWJ) 12.00 -0.7% +22.9%
Taiwan (EWT) 13.90 -0.9% +4.1%
Russia (TRF) 14.99 -0.9% +2.4%
Canada (EWC) 28.64 -0.1% -0.1%
India (IFN) 20.08 +0.7% +0.0%
S. Korea (EWY) 60.51 -0.2% -2.7%
Singapore (EWS) 12.81 -1.0% -4.7%
S. Africa (EZA) 60.82 -2.2% -9.0%
China (FXI) 35.72 -2.0% -10.3%
Lat.America (ILF) 35.21 -1.1% -19.3%

Sector ETFs
Symbol Price
Change
52-Wk
Biotech (PBE) 39.55 -0.9% +62.9%
Alt. Energy (PBW) 6.51 -3.0% +52.7%
Media (PBS) 25.70 -2.0% +49.9%
Defense (PPA) 31.08 -1.0% +46.9%
Health Care (IYH) 118.65 -0.7% +37.5%
Consumer Svcs (IYC) 118.88 -2.0% +34.1%
Transportation (IYT) 131.92 -1.4% +34.1%
Retail (PMR) 33.24 -1.7% +33.3%
Industrials (IYJ) 99.47 -1.3% +33.2%
Big Tech (QQQQ) 85.75 -1.8% +29.0%
Software (PSJ) 35.75 -1.7% +27.2%
Financials (IYF) 79.50 -1.6% +26.9%
Semis (PSI) 18.38 -0.7% +25.0%
Construction (PKB) 22.06 -1.6% +22.6%
Nanotech (PXN) 7.66 -2.1% +21.4%
Telecom (IYZ) 29.08 -0.7% +20.9%
Water (PHO) 25.61 -1.2% +19.5%
Insurance (PIC) 19.01 +0.1% +18.3%
Basic Mat (IYM) 79.11 -1.7% +12.9%
Utilities (XLU) 37.81 -1.1% +11.1%
Real Estate (IYR) 64.04 -0.7% -0.1%

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