Opinion: After oil’s big run, it might soon be time to bet on a decline in prices

By

THOMASH. KEE JR.

Oil prices have been on a tear since early December.

West Texas intermediate (WTI) crude rose from about $56 to around $65, a 16% gain, and it took only a little over a month to happen.

In our oil-trading strategy, we trade UCO, -0.61%  and SCO, +0.83% and the performance of UCO was about double that of WTI during that time frame. We were not in UCO the whole time. In fact, based on technical charts, the runup in oil prices may very well reverse itself.

Remember, oil traders are short-term traders, and they respect technical indicators as a result. That’s why oil-trading strategies often rely solely on technical triggers rather than an attempted assessment of fundamental conditions.

Technical indicators suggested a breakout in WTI recently — part of the fuel of the recent rally — but WTI prices may finally be prepared to fall. If WTI declines slightly and breaks below the neutral downside confirmation trend line in the chart pattern below, which is near $63.7, a decline to under $59 would be supported by the technical pattern.

“Sell” signals have already surfaced, but this downside indicator would also need to break for short signals to be confirmed again.

Downside opportunities, therefore, may be attractive soon.

Monitor WTI for those opportunities accordingly.

Thomas H. Kee Jr. is a former Morgan Stanley broker and founder of Stock Traders Daily. Kee managed the fourth-best-performing strategy in the world in 2016, according toHedgeCo.