In the last 6 weeks, crude oil has appreciated H/L 13.7%. Prices did get within $2 of $100/barrel but fell shy, and it appears prices are starting to roll over. I have voiced in recent sessions that we will need to trade under the 8 day MA for a signal that prices are headed south. That has happened, and prices are below that pivot point as of this post -- see the orange line above. The next hurdle is the 18 day MA, which prices are also below -- see the dark blue line above. I suggest using the Fibonacci levels on the chart above as your downside objective on bearish trades.
My favored play is short futures while simultaneously selling out of the money puts 1:1. The U.S. dollar is above the 50 day MA, advancing 1.6% this week and poised to move higher. An inverse relationship should exist with the greenback and a number of commodities.
Tensions have started to ease in the Middle East, and prices may have gotten to a point where demand destruction has started to take place. While crude took the stairs higher in recent months, I would not rule out an escalator ride down. It took 2 months to climb better than 10%, and it would not astonish me to see half that move given back in the next 30 days.
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