Don't Catch Oils Falling Knife Yet: ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO), Proshares Trust II (NYSEARCA:SCO)

We made a killing early this year with Oil; we traded ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO) as a primary.  Our ‘buy and hold’ recommendation was made when UCO was at about $7.5, that was in January and February, and I said ‘Stop Trading Oil’ during the week leading up to June 14, which just so happened to be the recent peak in UCO too.  READ THE STOP TRADING OIL ARTICLE FOR DETAILS

Although UCO dipped a little below $7.5 when we were buying it, and moved a little above $13.5 when we said to stop trading it, that 66% differential was fabulous, even better when conjoined with Proshares Trust II (NYSEARCA:SCO) as we did in our LETS Strategy, which made about 85% over that same timeframe, and since that ‘stop trading’ notice Oil and UCO have pulled back aggressively.

UCO is about $9.40, which represents a 29% decline since we said ‘stop trading’ a little over a month ago, and now I am fielding tons of questions about buying UCO again.

I will summarize my answer to all of those questions with this statement:

Although I like Oil as a longer term play and love the position in UCO that was established at $7.5, I see additional downside risk as the obtuse bullish interested in the Oil Space that existed during the bounce back from the early year lows reverts to bearish.  Capitulation in the space, or a scramble to exit bullish bets that were not closed earlier, would be a notable sign that new ‘buy and hold’ positions be considered in UCO, but I am in no rush, I am not enticed by the technicals, and I see additional downside risk in UCO as well, and I find it to still be rather irrational from a prudent trading standpoint. 

Recall, that it was this irrational behavior that prompted me to tell you to stop Trading Oil back in early June, and thus far that has not changed.