Thursday, December 8, 2011

New Trade - DTO (2x Short Oil ETF)

Click on Chart to Enlarge

What I am going to do here is to post an inverse trade on oil because it is giving a really nice signal here, and everything is clear that it should lead to a nice decline. The dark lines on the chart above are projections of the typical declining legs in oil down from the recent high.

While I won't get into the chart here, on this rally open interest in oil has been falling as the price has been rising, and that is a short-covering pattern which implies that the larger trend is NOT up. Also, the commercial (smart money) traders have been selling on this rally as price has been rising. So that also suggests this is a sucker's rally.

Today's price break and MACD formation look to me like a "hook" on the MACD that should lead to continued selling with no new rally high. Since this pattern is very clear, and the possible reward on the 2x short ETF is around 100%, then I will post this trade, and give stocks some more time to develop and possibly post a trade if/when a more clear downtrend emerges. For those interested I would still suggest taking bearish technical trade signals on the stock indexes any day now.

New Trade:

Buy DTO with a market order at tomorrow's open. Place a GTC sell stop at 37.67 immediately after entry, and use that stop for position sizing also.