Up 25% in 3 Days! Here's How to Play Oil's Dramatic Bounce

“How low can oil go?”

That’s the question all the worrywarts in the mainstream media were gurgling as oil broke below $40 last week. Their answer? Plenty lower. Maybe even down to $10.

So what happened?

Oil’s shot up like a missile. (Sorry, but you just have to laugh at these guys.)

So today we’re going to continue to play this crazy bounce for some sweet short-term gains that’ll put some juice into your trading account…

If you thought there was something fishy about all these predictions of oil sinking to ridiculously low levels, then go ahead and pat yourself on the back. Because we won’t be seeing $10 crude anytime soon—thanks to oil posting its biggest rally in three years to close out last week.

Black gold’s sharp U-turn horrified the short sellers who played Press Your Luck with their positions. Now crude’s third straight leap higher is biting them on the fanny.

Just as we discussed Friday, all eyes were on the stock market’s schizophrenia last week. But while everyone else chewed their fingers to the bone as stocks swung violently from one mood to the other, you had a clear shot at some ridiculous gains in just a few hours betting on a quick oil rebound.

That’s when the insanity started…

After the smoke cleared Monday morning, the latest round of this oversold bounce pushed crude’s 3-day gain over 25%, after dipping below $44 early on. It ripped higher by midday, gaining 6% by early afternoon. So oil’s unexpected rebound is stealing all the headlines heading into a brand new trading month.

The stock market’s performance over the same timeframe? Let’s just say it fell a tad short…

Crude Cruises to Huge Gains

So we got our wicked oversold bounce. Now the news cycle is beginning to help fuel crude’s run-up.

“The market turned around on two pieces of news,” Phil Flynn, senior market analyst for Price Futures Group Inc. tells Bloomberg “The EIA cut its U.S. output estimates and OPEC says its ready to talk to others about cutting output.”

There ya go…

So we have a completely unexpected pop and news that OPEC might be ready to play ball by cutting output. That’s bullish for crude, my friend. Sorry, shorties…

As I told you last week, I don’t think crude’s shooting back toward $100 this month – or even this time next year. Heck, it might need to drop a bit from here just to cool off after this monster run higher. But make no mistake: the energy sector is looking like a strong player while the rest of the market’s trapped in Purgatory.

This oil rebound will be volatile (crude is down more than 3% this morning). Traders will continue to jockey for position this week as the magnitude of the recent move sinks in. Just one more reason to expect the opposite of what the mainstream media says…


Greg Guenthner
for The Daily Reckoning

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