wicked oil

Jul 5th, 2008 | By | Category: Gilbert Mendez's (Gman's) Blogs
Share on StockTwits


I am spending my fourth of july weekend in Boston visiting my college roommate.
While at a BBQ last night I got a chance to speak with a few wicked smart MIT kids. Not surprinsingly these kids have an IQ comparable to the price of oil but when it comes to the stock market most make the same mistakes as the average investor.

This brings me to the point of this entry. As of late Oil has been getting a lot of media attention. The perception is that oil will go through $150 and will hit $200 pretty soon. Normally as traders we find that the easier money is found by following the trend. However, we are starting to see plenty of signs that are screaming for a correction before and if we go higher:

1. Oil has had a nice 90 point up move in its last leg with no major pullbacks
2. Volatility has increased dramatically at these levels
3. There is a divergence between the price of crude oil making new highs and the oil stocks not following through
4. The general public talking about buying oil stocks at these levels because they are going higher
5. The up moves are getting shallower and shallower on the new breakouts
6. The oil sector sold off on heavy volume last week

With this said it seems to me that the path of least resistance is for a correction in the price of oil. The risk versus reward of a long at these levels is definitely not favorable. This doesn’t mean to go out on monday and short oil futures or your favorite oil stock. We need confirmation from the box and much more importantly we need a catalyst. So here is what i will be looking for as a catalyst:

1. a blow off top: a sharp up move (6-7 point) in one session on heavy volume
2. a struggle for oil to get through $150
3. Oil stocks showing a poor bounce from the sell off last week (pattern seen in the gold stocks a couple months ago)
4. a sharp move through the important $150 psychological level with very little to no support on its retest.
5. a large exhaustion gap through the $150 level

Let’s wait and see what happens next week. In the meantime I’m gonna go enjoy the rest of my weekend here in Boston. Cheers!

Tags: , ,
smb newsletter
Options Risk Disclaimer    Forex Risk Disclaimer

1. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a number of products and services, both electronical (over the internet through smbtraining.com) and in person. SMB TRAINING also offers web-based, interactive training courses on demand.

2. The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.

3. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.

4. SMB Training and SMB Capital Management, LLC are separate but affiliated companies.

5. No relevant positions

6. Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

Log in | 80 queries. 1.380 seconds.