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Is Oil Another Bubble?


How to handle the moves in crude.

I highlighted months back that the Shanghai Shenzen Index looked like a parabolic top. I was mostly greeted with "It's different this time," and that China was immune to the rest of the world's problems. Apparently not, as it's fallen 50%.

However, take a look at the chart below. China is possibly in a spot where it could bounce, but still within the context of a bear market in which all rallies should be sold.

Click to enlarge

But how about oil, called "Earl" in my neck of the woods? It's still parabolic and I'm not yet trading it. Here's why (this is something Minyan Peter and I were chatting about yesterday): Markets can remain irrational longer than you can be solvent. So you don't just short during a parabolic move. Sell your longs? Absolutely, because when they turn, it's usually a vicious move, particularly with a commodity.

The key is to wait for a sharp reaction down, an unsuccessful retest and then short it with a stop above the old high. The chart below is an updated version of crude from yesterday versus the Naz.

Click to enlarge
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