This post was just published on ZYX Short Sell Change Alert.
Oil moved up a lot first on API inventory draw (please see the Morning Capsule), then took a second leg up on EIA inventory draw. EIA draw came at -14.5 million barrels vs. consensus of a build of +0.5 million barrels.
Less knowledgeable traders are buying on the headlines without looking below the surface. These are backward looking sets of data for a week when a significant amount of production in the Gulf of Mexico was shut down on the threat of a hurricane. All of the shut down production has been resumed and there has been no damage to oil rigs.
Theoretically, next week there will not be draw downs like this week and oil will reverse.
Further, there are a lot of smart people in the oil market. Sooner or later an institution with enough horse power will figure out the foregoing and start selling.
Only if it was so simple. The problem with the trade is that a rumor or news can come at any moment from OPEC or Russia, cause a short squeeze and move oil even higher. For this reason, this trade is suitable only for very aggressive experienced investors. Further consider not using futures due to high volatility. In stead, consider short selling ETF USO in the zone of $11 to $11.48. Stop zone is $11.56 to $11.76. Target zone is $9.70 to $10.31. As of this writing USO is trading at $11.02. The maximum recommended quantity is 35% of the full core position size but consider reducing the quantity based on your own risk preference.
Those who are not able to short may consider inverse ETF SCO but reduce the quantity to 1/2 due to 100% leverage. SCO is trading at $82.50 as of this writing.
Triple leveraged ETF DWTI and UWTI are suitable only for most aggressive traders with lots of experience.
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