Why Oil Prices Could Slide

Gulf of Mexico oil rigs
Susana Gonzalez | Bloomberg | Getty Images

WTI has rallied in the face of a stronger dollar and weaker equities.

Although the dollar is up 0.19 percent and the equities are down 0.62 percent Friday morning, U.S. crude oil has held up around $91.

Thursday night we reached new swing highs up to $91.50. Government inventory data will be released on Friday and the American Petroleum numbers showed a much larger build in gasoline than expected. I will be watching gasoline data very closely, as demand has risen a bit, which could provide support for oil prices.

But what's really going on in WTI is a short-covering rally, as we have a year-end closure of positions. Most big traders I have spoken with simply want out of the market so they can cut risk. (Read More: Stock Shorting: CNBC Explains .)

For the last few years, energy prices have done well out of the gate in the first quarter. However, pressured equities will keep crude under pressure as well, so pay attention to the S&P 500 bias. For example, a close below 1400 could be bearish for oil, as most professional oil trades use the equities as an indicator.

I will watching the Commodities Futures Trading Commission's Commitments of Traders report Friday night. This is the weekly report that lets us know how traders are positioning themselves.

Meanwhile, here's my day trade for Friday: sell February Mini Crude at $91.83, with a dollar stop at $92.83, and profit target at $89.83. If this order if not filled Friday, it expires. This trade risks $500 to make a potential $1000.

Good luck and good trading.

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