The price of oil has given up a good chunk of the gains it made going into Independence Day.

You probably still can’t fill up your gas tank with $75 (gas prices never seem to fall as quickly as they rise). But if you took my advice and shorted oil last week, then you should have a nice gain on the trade today.

It’s time to close the short position and take that gain.

No, I don’t think oil is going to rebound immediately and press sharply higher. But, the decline in price over the past week has met my objective. Oil is now sitting right on its 50-day moving average (MA) line – which is likely to provide some support for the price in the short term.

Here’s the chart…

The 50-day MA has provided support for the price of oil for an entire year.

Yes, oil did breach that support line briefly following the run up into Memorial Day. But the breakdown didn’t gain any momentum. And with Independence Day coming up, that break below the 50-day MA in June presented a buying opportunity in oil in advance of another holiday run-up.

If we see similar action this time – with oil dropping below its 50-day MA – I’ll be using that as an opportunity to buy. After all, we’re not too far away from Labor Day weekend.

If the pre-holiday pattern of gouging consumers at the gas pumps continues, then look for oil to start ramping higher again in a few weeks.

For now, traders should take their profits on the short oil trade and just move to the sidelines.

Best regards and good trading,

Jeff Clark

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