The set-up: We saw a bearish hourly crossover in the iPath S&P GSCI Crude Oil ETN (OIL) on Thursday, and when I see a crossover pattern in oil, I am looking to play it with leverage. This time, for technical reasons, that puts me back on the short side of with the VelocityShares 3x Inverse Crude Oil ETN (DTW), which tracks OIL but gives me the leverage to generate the gains I want from small moves in crude prices.
My play: I bought 1,000 shares of DWT yesterday at $33.15, thinking it has $5 of potential upside short-term, meaning I think there is a move of almost 15 percent that could happen in the next week.
I expect to start selling around $37. My stop is pegged to United States Oil (USO); if it trades above $9.65, I’m out. That would be a new high for USO and would suggest that a rally is continuing for USO that I don’t want to fight.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs. At the time this article was published on RagingBull.com, he held 1,000 shares of DTW that were purchased Thursday, and was planning to trade them in accordance with this commentary. He had no other options or orders on DTW.