December Crude Oil is up 20 cents at $78.88 per barrel this morning as I write. The enclosed chart shows that December Crude Oil suffered a sharp setback yesterday as the dollar rallied. Keep in mind that crude oil has just completed at $16 per barrel non-stop run to the upside over the last two weeks. So, a sharp correction should be expected. But, that rally of the last two weeks is a precursor for more rallies to come, in my view. The weekly chart shows an enormous break out suggesting prices could reach up into the $120 per barrel area within the next year. The daily chart shows that some sort of correction is underway. The directional movement indicators are still bullish and the ADX line has only flattened out from its rise. With only a few weeks left until expiration, I put out a special report yesterday to liquidate the December $74.50/$80.00 call spread before the market took all the profit built up away. The result of the liquidation was an overall gross gain of $850 which to me was disappointing since we were on the verge of a much larger gain if prices could have held out a few days longer. I am glad that I took profits on the naked short $68.50 put last week, which was part of this overall trade in the first place. I am looking for a place to add to our long bias trades out into February or March.

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 ($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 21 days left until option expiration.

Oct. 27, 2009
David Hall