Jeff Clark's Market Minute

The Post-Holiday Oil Trade

“Why didn’t you fill up the tank all the way?” I asked my son, who had taken my convertible out for drive with his girlfriend on the one condition that he put gas in the car.

“I tried, Dad,” Grant responded, “But the pump shut off at $75.”

Welcome to the summer driving season.

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It was only a few months ago when a $50 bill would fill up the gas tank and leave enough left over for a Slurpee. But that was back when oil was trading for about $48 a barrel.

But on Tuesday, with oil near $75 per barrel, the maximum purchase allowed at the gas station wouldn’t even buy me a full tank.

Have you noticed, though, that that’s just about typical right before a holiday?

Think back to Memorial Day – the first big weekend of the summer. The price of oil shot up 10% in the three weeks prior to the holiday. Then, it quickly gave up all of those gains, and then some, one week afterwards.

It looks like oil is set to play out the exact same sort of pattern for Independence Day.

Take a look at this 60-minute chart of the United States Oil Fund (USO) – an ETF designed to track the price of oil….

USO has gained 15% over the past two weeks. The price peaked at $15.25 per share Tuesday morning – probably just as my son was filling up the gas tank. By mid-day Tuesday, however, USO reversed. It gave up its gains and actually closed lower on the day.

This sort of reversal – after making a new high – often signals at least a short-term top is in place. It’s often the start of a short-term correction phase. And in the case of oil, it falls in line with the traditional post-holiday pattern.

My bet is oil (and USO) is headed lower from here.

Aggressive traders can short USO right here and set a stop on the trade above Tuesday’s high of $15.25. If USO rallies above that level, then it’s bucking the normal trend, and there’s something else going on. Traders can exit the position for a small loss.

Otherwise, look for USO to give up a good chunk of the gains it made over the past two weeks.

Best regards and good trading,

Jeff Clark

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