Back In Oil

It stinks getting stopped out of a position you believe in, but to be stopped out by two one hundredths of a point makes it hurt.  As I looked at oil over the weekend, it still should complete out as I had originally planned.    The trade I had laid out has been using December oil.  The nearby contracts are the vehicle most traders use.  The nearby crude contract retraced exactly 50%.   I had set the stop below the 50% level on the Dec contract to account for something like this but was still kicked out. 

Enough of looking back.  The original premise of the oil trade is still in tact.  We just got caught in a steep correction into a mid cycle low.  I recommended earlier today to re-enter December oil at $50.00 with a $49.60 stop. 

The steep retracement gives a good reference point for which we can construct our trend line.  As the first daily cycle out of a yearly cycle low, I think surely the market will produce enough follow through to send oil above its previous cycle high which had peaked at 55.  This cycle will top at 55 to 60 at a minimum.  That means oil should have some insanely big days.   Sentiment levels have retreated, but possibly most importantly, this trade will be easy to manage here at the bottom of a mid cycle low.  With the stop at $49.60, we are only risking $400 but have the potential to make another $6,000.  Those are good odds.

​The larger picture shows oil has a long way to trade to before this intermediate cycle is tops.  The weekly chart shows that oil still has a LOT of room to trade higher before the RSI and Stochastics reach oversold conditions as it has the past three intermediate cycles.

If you missed getting on board the train the first time, you should consider getting on now.  It will leave the station at any moment and this will be the last chance you get to participate.