Oil – Topping Out & Down Next Week
This coming week will be a down week for Oil. We view Oil is at a top here and view this as a decent shorting opportunity for Oil. The best investment vehicle to short oil is the USO ETF (USO, $102.12); however many brokers prohibit the shorting of this ETF. An alternative means to play a short in oil is the Ultrashares Short Oil & Gas ETF DUG (DUG, $29.72).
At this stage, keep your stops tight. We do believe that Friday’s move in Oil was an exhaustion move and expect at the very least for the USO to come back to its 20 moving average, which is roughly 95. Oil’s move last week was a blowoff intended to squeeze the shorts and with option expiration scheduled next week, we expect to see downward pressure on the USO and oil.
We also expect a catalyst for a drop next week for Oil, could be government news and we expect to see a topping move Mon or Tuesday followed by a down day.
Related Oil Plays: Tesoro TSO (TSO, $21.96) & Continental Airlines (CAL, $$17.38)
We expect the oil refiners and airlines to benefit from a topping pattern in oil. Tesoro has been beaten down due to the lack of pass through pricing power and a decline in oil prices will help this company tremendously. Stock is selling at a Price/Sales of 0.12 and the stock is down almost 60%. We expect the refiners to boom as oil prices come down.
The airlines are another group that has been significantly beaten down and we expect any pull back in oil prices to benefit the airlines. Again, this stock too is selling at 0.12 times sales, way lower than the industry average.
