The light sweet crude oil market was all over the place on Monday, as retail traders most certainly got blown up.
Light Sweet Crude Oil
This is going to end up being a horrific blow-off top if it holds and could send oil crashing right back down. This is one of those situations where you have to be very careful and quite frankly this is a market that you cannot get too cute with and at this point recognizes that it is solely moving on the latest headlines and not any real logic at all.
This may have been kicked off by Donald Trump suggesting that he is nowhere near sending troops into Iran but really this fell before that too. I think there was a realization that perhaps there was plenty of oil in the world, Straits of Hormuz or not. Furthermore, the damage is somewhat limited and while there is a bit of a bottleneck at the moment, the reality is that sooner or later the oil will get to where it wants to go.
All parties involved will want to see that and I think you have to keep in mind that if you bought crude oil a couple of days ago and it went from $76 to $120 in a couple of quick sessions, it makes sense to take profits. I think that is part of what is going on here as well. Ultimately, this is a market that I think you are looking to buy dips at least until the war situation changes but I would be lying to you if I told you I knew exactly how to do that.
Extreme Volatility and Retail Risk
You need to see a fall and then a bounce, but I cannot think of a more dangerous place to be. Quite frankly, the only reason I am covering this right now is to tell retail traders to stay out. I guarantee you by tonight my email box will be full of people asking me what to do because they bought crude oil at $114 a barrel.
This is how people get blown out playing games in markets like this that are far too volatile to get your hands on and of course will require significant amounts of margin. This is very much like when silver imploded after initially spiking a month ago or whenever that was and we watched everybody get wiped out there as well.
Crude oil will continue to have a bit of a bid, but a headline could cross the wire at any moment that sends it straight back down or straight back up. In other words, there is no way to calculate your risk and therefore it is a bad place to be.