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In recent days, one particular point of frustration for me has been XOP, the oil and gas producers fund, which lurched higher on a daily basis for weeks. I am confident, however, that this rally has ceased, and I am amping up my bearish position on XOP as well as the individual stock COP.

Take a look at the relationship between the price of XOP and its trio of exponential moving averages (50/100/200). I’d say the risk/reward on a bearish trade is appealing right here.

Taking a much longer-term view, over the entire history of XOP, yet with nothing but the aforementioned moving averages, we see the fascinating series of pulses over many years. My opinion is that we’re in the midst of a major, and multi-year, reversal in which prices head far lower. I have a simple short-sale position in XOP, whereas my position in COP is by way of August $105 puts.

Bringing back in the drawn objects and historical prices, but eliminating the moving averages, you can see the rounded top I have been following. In recent weeks, we have penetrated deeply into this top, but I don’t think the move has been ruinous. Completing the price action under that pink pattern would, I believe, set in motion a steady push lower.

Oh, and on an unrelated note – – go, go, gold! $3100 is just around the corner!

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