Crude Oil - Oversold or on the way down to $32.50?

Ilan Levy-Mayer |

Is crude oil currently oversold, or headed as low as $32.50? The answer could be yes to both, depending on the time frame one looks at.

The selloff in crude oil has been sharp, fast and powerful. Six months ago we were trading at $107! This week's low was $53.50 - EXACTLY HALF the value from June 2014.

Warfare with Markets Instead of Bombs?

It is my pure speculation that we are seeing a "new era warfare" - and again, I emphasize, my pure speculation - rather than missiles and bombs, nations of the earth are using economics and technology. If by chance I am correct, then right now the US/West is winning: Low crude oil prices are allowing the U.S. to help defeat ISIS, Iran and Russia in a number of ways that are arguably far more effective than conventional war.

From the trading perspective, the daily chart is extremely oversold, and I think a bounce of $3 to $5 can happen any time. However, the trend is down on the daily, weekly and the monthly and looking at the monthly chart below, I cannot rule out a test of $32.50 within the next few months.

 

CLE Crude Light (Globex) Monthly Continuation Heikin Ashi

 

Depending on one's risk capital and preferences, short term options may be a "lighter way" to speculate. If you are only buying the option, then your risk is limited. Crude oil futures have monthly options with good volume on many strike prices. Another way is to use vertical call or put spreads and take advantage of the high premium, some out of the money options have because of recent volatility.

There are many ways to trade any market, many ways to lose money in any market, and only a very few ways to lock in gains - and this one is not different. If you need help creating a trading plan, visit our broker assist services.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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