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How To Capitalize On The Latest Oil Drop

As those who have been reading my ramblings over the last few weeks will be aware, I have been saying that the failure of WTI to break above the $62 resistance level left oil vulnerable to a sharp move down to test support levels in the mid to upper $40s. That move started this week, prompted by the Greek “no” vote and the continuing woes in China, and when it came, it was pretty spectacular. Hopefully you have all been listening and have trimmed positions, leaving you sitting on some cash. The question now, of course, if should you start deploying that cash?

Unfortunately, the answer to that question is a somewhat unsatisfying “maybe”; a qualified yes, if you will. As you can see from the chart below, WTI’s most recent decline has halted at around $52. As a result, many of the stocks that you might consider buying into, or back into in some cases, will have bounced somewhat on that halt and fear of missing the boat makes rushing in now a strong temptation.

As somebody with a trading desk background, however, when I look at that chart the temptation I see comes from the proximity to the January and March lows of around $49. I am sure others see it the same way, so any hint of more bad news should prompt a test of those levels, and there is a lot of potential for bad news.

Firstly, a deal of some kind that ends sanctions on Iran looks extremely likely as talks continue. It should be noted that even if a deal is struck it…

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