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First let's revisit the chart of WTI from last weekend's post:

http://static.seekingalpha.com/uploads/2011/2/11/saupload_wti_daily_2_4_11_thumb1.png

My comment at that time: "...we have a convergence of the bottom of the rising wedge pattern, the key $90 mark, and Friday’s closing price. My suspicion is that this is significant, and the next move could give us a profitable trading opportunity."

Oil has broken to the downside, as it did just a couple of weeks ago, so why would we go short here when we didn't then? There are a couple of hints:

1. Commitment of traders data is off and money flow turned down.

2. The $90 mark has broken pretty decisively.

3. Since last summer each pullback has moved to a new closing basis high, except the most recent one.

4. 50 day EMA has rolled over and is now downward sloping.

5. bearish 50/200 day SMA cross.

In summary, the risk reward profile for a short oil trade has finally become attractive, even with ongoing strife in the Middle East.


Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SCO over the next 72 hours.

Source: Five Reasons We're Seeing a Short Signal on Oil