Here’s why I’m still short oil and my target price
I have received more comments and e-mails about my short oil
position than almost anything else I have ever written about. Please allow
this weekend update to shed a little more light on my reasoning for being short
in the face of such alleged contradictory evidence.
The current up wave in oil started on May 23, 2005 when oil
broke its 200 day MA at $50.00 a barrel. It was at near the end of May when the
Goldman analyst made the “super spike” comment predicting $105.00 a
barrel crude.  The next technically significant event occurred on
June 6th when oil shattered its 50day MA at approximately $53.00 a barrel.Â
It has not looked back since, despite several small retreats, creating a buying
frenzy among the trend funds and trading public ,who by default, are generally
trend followers. This rise and Goldman’s doom and gloom sound bite,Â
in turn triggered the financial media to take notice, placing oil prices on the
cover of several influential magazines and newspapers. Katrina, the
hurricane (not my ex girlfriend), further added to this doom and gloom hyper
bullish scenario.
What one needs to understand it that this extreme bullish
sentiment creates failure in classic trend theory causing a breakdown of trend
at exactly the time that everyone is on board for the expected continued
rise. Oil prices are high above both its 200 day MA which is 53.26 and its
50 day MA at 62.19. I am expecting a dip to at least the 50 day MA level
of 62 within the next 4 weeks. I can see no compelling reason for a
continued rise at this time. The implied demand for gasoline over the last
4 weeks was 9.4 million barrels per day, this is up only 1.2% from last year at
this time. This is no way indicates a shortage or other
“environmental” cause for the rapid rise. It is my contention that
this rally is purely fed by speculation and is doomed to fail very soon.
I am holding shorts here at an average price of 66.23 in the
QM contract.
Have a great labor day weekend!
Dave G
David S. Goodboy (marketsurfer) has been
trading professionally for over 14 years. Mr. Goodboy trades ETF’s, stocks,
index futures, energy futures and options. His primary focus is a unique
multi-time frame index trading system based on a combination of time/price
cyclical studies and statistical models. David was a trader/partner with
Biltmore Capital, traded with an option arbitrage firm, and is currently in the
launch stages of IntrendX, a global multi-strategy fund.