The trader who called crude’s comeback now sees this

Just last week, founder Todd Gordon correctly called for an oil rally, but he now believes the crude comeback is over.

Gordon initially predicted that the oil-tracking ETF USO could hit as high as $11, which would take it back to April highs. Since his July 25 call, USO has risen 3 percent as oil rallied, but now Gordon thinks it's time to reverse his long position in USO.

"This EIA data that we saw ... was actually a little bearish for the price," he said Wednesday on CNBC's "Trading Nation." "Combined with the technical position of the market, it's time to go the other way, so we're actually trading this range in here."

There are two technical indicators that have led Gordon to bet against USO. First, he sees a "downtrend resistance" near $10.25 that USO broke through, but then fell back below. Second, the relative strength index, or RSI of USO, shows that every time the RSI has risen to around 70, indicating a strong momentum move up, it has reversed, essentially losing momentum.

"There's certainly technical precedence to say that we're in overbought territory," Gordon explains.

As a result, Gordon wants to buy the August monthly 10.5-strike put for a total of 49 cents, or $49 per options contract, which expires August 18. This is a bearish bet that USO will close below $10.01 by August 18.

"A logical take-profits zone [in this trade] would be back into the consolidation area, which actually forms the breakout right at around $9.50," Gordon added. "That's going to be your downside technical target for crude oil."

USO is down over 1 percent this week thanks to the move down in crude.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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