Oil Getting Frothy?
First of all, don’t take this post as a suggestion to run out and short oil. It’s never smart to trade against a trend as strong as this one, but if you have major profits it may be time to start thinking about taking some of them off the table. A classic bump and run pattern on the oil weekly chart (the monthly chart shows the same thing) suggests that we could see a decent drop while still keeping a strong long term pattern intact. Often times a bump and run leads to a bubble popping and a reversal, but usually it will at least pull back to the bottom trend line if it’s in an unsustainable run as I believe oil is in now.
Keep looking for the typical bubble signs like those you saw with the housing market, i.e. normal joe schmoe friend that knows nothing about investing starts asking you how to trade oil futures since he heard they’re an easy way to make lots of money. Again, don’t get bearish on oil yet. You never want to be the first or the last one in on a trend. Or at least don’t blame me if you do and it runs up over $200. Just start watching for the signs…
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