Oil is About to Collapse. Here's How to Trade It.
There is confluence of signals brewing; a big sell-off is in the works.
A big sell-off is brewing in oil. But if you Google “Oil Supply”, the headlines are very bullish:
Oil prices climb $2 on strong demand, tight supply (CNBC, 6/21/22)
Oil swings higher as tight supply overshadows demand destruction (Reuters, 6/20/22)
ExxonMobil CEO predicts years of tight oil supply (NCB News, 6/21/22)
Here is a classic example of how the news, at the top of the market, is super bullish.
The media is telling us to buy, buy, buy.
But oil is a very crowded trade, meaning there isn’t much upside left.
Most importantly, the charts are painting a different story…
Recent Oil Charts are Very Bearish
Recently in oil, we’ve seen confluence of multiple signals.
A double top formed…
On weakened momentum,
And Monday, the uptrend line was broken.
In fact, the same confluence I saw in the Philly Housing Index about housing prices - talk about a phenomena. The index has fallen to January, 2018 levels recently… and oil has an almost identical set-up.
The stage is set for a big price drop in oil.
This “alignment” of technical signals increases the probability of a successful short trade.
And it’s still a very quiet trade (just Google “oil supply” and read more bullish headlines). No one is talking about a collapse. Remember the Heisenberg Principle.
BUT, behind the scenes… from Tokyo to New York City, traders who trade double tops, weakened momentum and/or trend line breaks will all act on their signals.
This increases the probability of a successful short trade.
Widening our view to the weekly chart, we see price broke down and has had trouble getting above the trend line. This confirms the daily action spoken to above.
How I’m Taking Advantage of This Opportunity
It’s one thing to identify an opportunity; it’s another to act on it.
To get action on oil plays, you can do one of three things: short, buy puts, or inverse ETFs. I detail each of those below for paid subscribers. I conclude with the strategy I’m using to exploit this opportunity, and how I plan to enter, exit and reinvest.