Oil volatility is likely to remain running wild this week. On Friday, oil had nearly its biggest price move in three years as the more than 8.0% rally was triggered by both a report that showed rig counts were at a three year low and some traders covered their short positions.
Price action during end of last week saw oil prices rebound from the 6 year low made on Thursday at $43.58 a barrel to the Friday high of $48.35. The sharp rise is now being sold into to start off this trading and week and price is finding tentative support around $46.90.
While the recent rebound was significant, many American and foreign oil companies are still anticipating lower prices to last for several months. Critical resistance will remain the $50.00 handle and unless disruptions with production from the Middle East region occur, any bounces towards that noted level could be sold into.
Over the next couple of months, downside targets may include the $40 handle with the line in the sand of any collapse coming from the January 2009 low of $33.20. A fall to that key low could be an ideal entry for a long-term bullish bet.
The trade: Sell US Oil at $47.00 with a stop loss at $47.75 and a take profit at $44.00. The Risk/Reward Ratio is almost 1:4
Edward J. Moya
WorldWideMarkets Online Trading