December Crude Oil is down 85 cents at $79.02 per barrel this morning as I write. The enclosed chart shows that despite the recent price set back, crude oil remains in a major uptrend. The weekly charts suggest that crude oil could reach $120 per barrel within a year from now, based on some measurements. The directional movement indicators are bullish and the ADX line is now beginning to meander sideways. Just as in the case of many other commodities, yesterday crude oil prices rebounded sharply as the dollar weakened sharply. The question is whether this reversal was the beginning of the next bull market leg up, or just a bounce before more correction sets in. Who knows, but I would keep an eye on what the dollar does in the near term for clues. If we get more corrective price action over the next several days, then I will be watching for a place to put on some bullish biased February or later trades. I recommend staying with our existing positions.

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 18 days left until option expiration.

Oct. 30, 2009
David Hall