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<\/p>\n“Why didn’t you fill up the tank all the way?” I asked my son, who had taken my convertible out for drive with his girlfriend on the one condition that he put gas in the car.<\/p>\n
“I tried, Dad,” Grant responded, “But the pump shut off at $75.”<\/p>\n
Welcome to the summer driving season.<\/p>\n
It was only a few months ago when a $50 bill would fill up the gas tank and leave enough left over for a Slurpee. But that was back when oil was trading for about $48 a barrel.<\/p>\n
But on Tuesday, with oil near $75 per barrel, the maximum purchase allowed at the gas station wouldn’t even buy me a full tank.<\/p>\n
Have you noticed, though, that that’s just about typical right before a holiday?<\/p>\n
Think back to Memorial Day – the first big weekend of the summer. The price of oil shot up 10% in the three weeks prior to the holiday. Then, it quickly gave up all of those gains, and then some, one week afterwards.<\/p>\n
It looks like oil is set to play out the exact same sort of pattern for Independence Day.<\/p>\n
Take a look at this 60-minute chart of the United States Oil Fund (USO) – an ETF designed to track the price of oil….<\/p>\n
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USO has gained 15% over the past two weeks. The price peaked at $15.25 per share Tuesday morning – probably just as my son was filling up the gas tank. By mid-day Tuesday, however, USO reversed. It gave up its gains and actually closed lower on the day.<\/p>\n
This sort of reversal – after making a new high – often signals at least a short-term top is in place. It’s often the start of a short-term correction phase. And in the case of oil, it falls in line with the traditional post-holiday pattern.<\/p>\n
My bet is oil (and USO) is headed lower from here.<\/p>\n
Aggressive traders can short USO right here and set a stop on the trade above Tuesday’s high of $15.25. If USO rallies above that level, then it’s bucking the normal trend, and there’s something else going on. Traders can exit the position for a small loss.<\/p>\n
Otherwise, look for USO to give up a good chunk of the gains it made over the past two weeks.<\/p>\n
Best regards and good trading,<\/p>\n
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<\/p>\n
Jeff Clark<\/p>\n
What other ways are you planning to trade the potential oil breakdown?<\/p>\n