Crude oil continues to be a tremendously volatile trade, and it has presented traders with a plethora of opportunities.
In May, oil has certainly fluctuated inside of the current $91.50 to $97 band. On some days, WTI crude correlates to equities, and on others, the quantitative easing undercurrents seem to dominate. We are flush with supply domestically, but Middle East tensions still exist under the surface—producing somewhat of a tug-of-war.
We are focusing on equities holding this week's lows, as crude would indeed follow the S&P 500 lower on a violation. That could potentially break us out of this May range. However, until we see confirmation of an equity correction, we want to buy the low end of this range and sell the top of it. Of course, it is important to use tight stops—sentiment can turn on a dime, as we have seen this week.
(Read More: Oil Prices, Dollar May Set Off on New Relationship)
So which way is crude likely to break?
Due to the fact that $97 has served has strong resistance (it has been tested five times this month alone), we feel the price will breakout of the range to the downside before it breaks to the upside. For that reason, getting short on stops under the range is the way we'd like to play crude oil today.