Phil Davis: Why I'm Shorting Crude

On Benzinga's #PreMarket Prep show, Phil Davis was asked to share his take after the market’s rally Friday and Monday, with crude oil futures moving up as well.

To this, Davis responded, “I am getting a little bearish because frankly it was a low volume rally compared to the selloff that we had; it was essentially a balance. We are still significantly below where we were a few weeks ago.

“We are heading into a declining 50-day moving average, where the S&P 50-day moving average is crossing below 2,000,” the investor shared, “when you run into a 50-day moving average that’s declining there ends up being significant overhead resistance.”

Related Link: Crude Rally Ended By Greater-Than-Expected Inventory Build

How To Play This

The expert then went into how he is playing this situation – listen to the show, embedded below, for a complete explanation on how and why he is shorting the current market and why he believes the current rally is not justified nor sustainable.

Bearish On Crude

Davis is also bearish on crude, which he is shorting. The investor declared that he is “thrilled to be able to short oil near the $50 level.” He continued to explain he put a short on $49.50 on Wednesday morning, and, on Tuesday, he started accumulating United States Oil Fund LP (ETF) USO short positions as well.

“The thing about oil is, why are we up?” the investor asked. “The TA people do not understand this… We are fundamentalists,” he added.

“We were in a range [which] was basically $44.50 to $48.50 – and it was a very tight range that’s been going on for a couple of months, we broke over it, because the Dollar fell 1 percent, and that allowed oil to rise.

“So, in part, the price reset because the dollar fell. Also in part, though, you have rumors of Russia is coordinating with OPEC to lower prices… These rumors are BS, but it’s the kind of thing you float when you want to rally oil. And, they are also talking about production cuts in the U.S., which is true, but they are not going to have a very quick impact on what is going on,” Davis explained.

“So, you take the reasons to the move and you say, ‘Well, how much [is this rumor] … going to move the market compared to the very very harsh reality of today’s 10:30 oil inventory report which is not going to be pretty for the bears?’ And, in addition, in two weeks from today, you are going to have a contract rollover for oil, and those contracts have to be dumped within the next two weeks […] and that is going to cause a lot of failing pressure,” he concluded.