Saturday, July 25, 2009

Oil Headed Higher

I recently attempted to short oil by going long the DTO. This now appears to be a losing trade for several reasons: 1) oil is moving almost in lock step with the stock market which is moving higher, 2) oil has moved up in 5 waves from its July low, 3) oil service stocks have moved up in a very clear pattern of 5 waves from the July low, 4) the elliott wave pattern in oil is now more clearly showing a potential 5th wave after having completed a zig zag which alternated in form from the 2nd wave flat in March and April, and 5) an analysis of gold in accordance with methods described by Tom McClellan in his book on liquidity waves now projects a high in oil in late September.

So, that being the case, I will be looking to exit the DTO trade on a pullback if I am not stopped out first. I will then look to go long the DXO with a view of exiting half the position at the median line and trailing a stop on the second half. I will also be looking to take a stock trade on an oil service stock if there is a clear setup. The initial stop on the DXO trade will be just below the July low.

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