by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report and Editor of Triple-Zone Profit Trader
Whether it’s heading up or down, the oil market usually asserts itself as the leader of the commodities world.
Having plunged from levels around $130 per barrel this time last year all the way down to the $40s, the market has spent the last couple of months striking to the upside again.
As I’ve mentioned in recent issues, oil had near-term targets of $70 in its sights. It hasn’t disappointed, shooting past the $73 mark late last week - a level not seen since the first week of November 2008.
On a technical basis, because oil has not only moved above, but also stayed above all the major moving averages (including the all-important 200-day average), it’s now got $80 in its sights. If any pullback is going to occur, which should happen after solid runs like this, the move down should hold at the $65 per barrel range.
On a fundamental note, we’ve got three reasons for the recent price rise…
- Hedge funds seem to be pumping more money into the market again.
- OPEC has decreased oil supply levels.
- There seems to be some consensus that oil demand might be picking up from the slack levels seen over the past six months.
For now, the market looks strong and any pullbacks should be met with more buying. Here’s how you can play it…
How To Play Oil With Minimum Fuss
The chart below shows the daily movements of the front-month futures contract (July)…
The easiest way to play the broad oil market (either to the upside or downside) is to go for the very popular and highly liquid exchange traded fund, United States Oil (NYSE: USO). The fund mimics the moves of crude oil futures that trade on the NYMEX.
You can trade USO like a normal stock in a regular stock brokerage account and the ETF has options contracts available, too.
Since we first went bullish on oil, USO traded around $32. It’s now around $38.80 and is a very effective “cheaper” alternative to the high-priced arena of futures and futures options, while still profiting from the same moves as the underlying oil market.
