Has Crude Oil Rebounded at $71.50?

Looking at the markets today so far as of August 21st. The Dow is up about 49 points, Amex is a headwind as it's an underperformer, Nasdaq is up six-tenths of a percent, the Russell up about 1% today. As a trader who thinks the recent sell-off has left crude oil too weak in an economy that's still relatively strong. So, how would I play oil here?

I would be buying crude oil as a reversal trade from this bottom at $71.50. We're still at the bottom of the year-to-date low, the 52-week low, so I want to get back into the middle of that range target therefore would be $74.25, and the stop we're always going to trade with a stop at $70.75. Again, crude oil has been hurt by fears of economic weakness, it was down more than 2% early today on the revision to the jobless number but, economic growth is still decent if not great. Growth was one and a half percent in Q1 nearly double that in Q2. Specifically with crude oil, inventories were down 4.5 million barrels last week. That more than reverses the surprise bill in the week before that.

And again, if you look at the chart, you'll see crude oil near the bottom of the year to date in 52-week lows. And given the fact, decent economic growth, and the potential for geopolitical problems through oil supply here.

Although what's interesting about that is that demand has been weak. In fact, crude oil markets have been flashing weakness in the industrial economy and in China in particular. And so even if you like the better US potential, don't you still have those headwinds to fight?

Economic weakness in China is certainly a problem, but I think that's outweighed by the fact that we're now looking past the likelihood of geopolitical problems, and so I think those two balance each other, and we get to look more or less at what's going on in the US economy as far as what's going to drive crude oil.

Giovanni Betancourt

Premium Client Manager

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