I have never been big on trading commodities. It seems like the price of them is intertwined with to many other various factors that I have yet to figure out. The one commodity that gets the most press and I hear about the most is the price of oil. As a regular watcher of CNBC it seems that they talk about the price of oil every 5 minutes. From what I have been hearing and from the way people are reacting it is my belief that the price of oil is topping out. The guys on FastMoney have even referred to the chart below as "going parabolic".
Oil has had an unbelievable run this year doubling from $60 a barrel to a new high of roughly $135 last night. I am going to avoid the technical reasons all together and explain my three simple psychological reasons as to why we have had such a huge run up in oil.
1) Bush and his republican buddies are leaving the White House. I can't help but think about Bush's connections as a Texas oil man and all he is doing in the middle east and around the world with regards to oil. It is almost as if this is the last chance Bush and all his oil buddies have to reap the rewards of the high price of oil.
2) The Democrats are going to be pro alternative and renewable energy and from this point forward, oil will play a less important role in transportation. Demand is going to slow and supply/demand will no longer be an excuse for speculators to lean on.
3) This might be the last chance to rally oil for as long as we live. That's right. This might very well be the last run oil ever makes if we are able to convert the world to alternative energies.
With this in mind, the only thing we can do at this point is try and call a top and get short oil. The most likely candidate for doing so is DUG, The ProShares UltraShort Oil & Gas Fund. This ETF shorts roughly 80 various oil and gas companies with half of the fund being made up of companies like ExxonMobil (XOM), Chevron (CVX), and ConocoPhillips (COP). The fund has seen explosive volume in recent days up roughly 400%. I am going to start building a position now, because once oil starts to drop, it is going to be a slippery slope.
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I have never been big on trading commodities. It seems like the price of them is intertwined with to many other various factors that I have yet to figure out. The one commodity that gets the most press and I hear about the most is the price of oil. As a regular watcher of CNBC it seems that they talk about the price of oil every 5 minutes. From what I have been hearing and from the way people are reacting it is my belief that the price of oil is topping out. The guys on FastMoney have even referred to the chart below as "going parabolic".
