December Crude Oil is up 36 cents per barrel at $80.86 this morning as I write. The enclosed chart shows that December Crude Oil continues to trend higher. The weekly charts suggest that over the next year a move up to $120 is very possible. That may be hard to believe but that is what the measurement of the weekly chart shows. The directional movement indicators are bullish, but narrowing, and the ADX line is still rising with plenty of room to go before it gets overbought.

Followers of this letter should have the following positions:

Long one December Crude Oil from $72.30

Short one December Crude Oil ($73.00 strike) call option from $4.25

Long one December Crude Oil ($74.50 strike) call option from $4.18

Short one December Crude Oil ($80.00 strike) call option from $2.08

Long one December Crude Oil ($82.00 strike) call option from $2.49

Short 2 December Crude Oil ($87.00 strike) call options from $1.32 each.

Long one December Crude Oil ($62.00 strike) put option from $2.11

Short 2 December Crude Oil ($58.00 strike) put options from $1.23 each.

There are 22 days left until option expiration.

The key right now is to watch to progress of the $74.50/$80.00 call spread. We entered that trade at a cost of $2.10 per barrel and it is now around $3.70. The maximum the spread can get to is $5.50. If we could speed up the 22 days, we would already be at our maximum gain. I see that overnight, December Crude made an attempt to begin correction to the downside but prices have retraced back into the high range. I believe that last night’s lows are important to hold. That price level is in the $79.50 area. So I may want to liquidate the spread if prices begin to drop and test those lows again.

It would really be nice if prices head up towards the $87.00 area, so that the $82/$87 spread wakes up. Stay tuned.

Oct. 26, 2009
David Hall