Yesterday I initiated a position to short Oil via the ETF: DNO.
Oil is nearing $50/barrel because of supply disruptions in western Canada (wildfires) and Nigeria (militant attacks). I believe these circumstances to be transitory. Systemic supply exceeds demand and it’s likely that Oil will fall back to its 50 or 100dma.
Oil is trying to hold above its 200dma. (see below chart which uses USO as a proxy) This is a critical resistance level because it’s rarely been breached over the past 7 years.
A move back to the 50dma would be a short profit of ~10% and a move to the 100dma would be ~15%.
Shorting Oil is always a risky trade…as such, I’ve taken a very small position and only with clients that have the appropriate risk/capital requirements.
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