How Long Can Oil Stay Perched at the Brink?

Oil, as I mentioned, kissed the $68 level, but got rescued by frenzied buying that came out of nowhere for no reason.

It is taking a greater effort every day to pump up the price of oil. You can see from the 5-day chart how unnatural buying is not really good for a stock, as the United States Oil Fund ETF (USO) was pumped from slightly oversold to massively overbought in just 4 hours (notice what happened to them last Friday when it opened at this level!).

USO ETF 5-day 15-min Chart

You can also see how volume is increasing each day, with heavy selling each morning, followed by pump action buying to reel in the next round of suckers, or bagholders, to use the official jargon.

ExxonMobil (XOM) had the strongest volume in two weeks and did not follow oil back up, as 24M shares were traded around $68, just 3 days after posting a new all-time high of $71 on 18M shares. This brings XOM below the 20 dma (displaced moving average — now $69) for the first time since 6/29, when it traded at $61 and oil was at $74. Note the serious (20%) divergence of Exxon from the price of oil since 7/17:

XOM vs. USO 5m Daily Chart

So since topping out, just 100M of the 5B outstanding Exxon shareholders have gotten out. If funds want to lighten up just 5% on XOM, they have no choice but to sell into any strength, as it would take 10 days of double average volume to work off 5% of the shares!

Our oil plays went phenomenally well if you followed the Valero Rule, and maybe so-so if you didn't. We got an early sell signal from USO at 11:30 that was followed by our majors at 1pm, so we will use 1pm exit pricing on our oil plays — we called it officially dead at 1:45 in comments.

Our master plan to sell XOM $67.50 puts yesterday at .55 and rebuy at the open saved us a dime, and the .45 entry went all the way to .90 (up 100%) before finishing the day back at .75. The $70 puts peaked out at $2.45 (up 225%), and that was just too much for me to leave on the table as it bobbed up and down a dime from there around 1:15.