08/22/2008 15:42:03 Sold Short … PHM @ 13.68
08/26/2008 15:59:46 Bought … OIL @ 69.25
08/27/2008 16:08:03 Bought … VIXJX @ 2.5

As you can see, I had a chance to get out with some profit within a few days of getting into positions, but I chose not to.

PHM advance is worrying me, as I don’t know the reason for it. Could that be that some piece of news skipped my attention or is it simple taking profit by other traders or are there buyers on the market who think the housing slump is over?

The price of crude oil unexpectedly dropped on Thursday and didn’t recover on Friday, even though Monday is closed for trading – Labor Day – and hurricane Gustav is coming straight into the Gulf Coast. I hope Gustav is not going to be as bad as hurricane Katrina, but I personally wouldn’t feel comfortable to keep short position in crude oil over the long weekend.

Volatility Index Oct 22.5 Call Options look quite attractive to me – I don’t believe in that miraculous GDP grows at times when unemployment is rising, banks defaulting, companies declare bankruptcies, home values falling and spending is contracting. The figures might reflect weakened dollar and increased prices, but to me that’s not something to be cheerful of.

Oil went up to $100 at first (from below $70 in August of 2007), than bounced back twice giving me a chance to get in at about $88. I didn’t feel comfortable – to me the price was still near its all time high.

I ended up watching crude oil going all way up to $147, before it suddenly collapsed to $118 or so. Unfortunately, I can’t say that I see any big support level at this price range – my usual guide for getting in. Buying OIL – iPath S&P GSCI Crude Oil Total Rtrn Indx at $70.55 – is rather an intuitive gamble (another choice was DBO – PowerShares DB Oil Fund.)

On the technical side, I see a big drop and I am looking for OIL to bounce back to at least $130+ range (create a “shoulder”). On the fundamental side, I see some reasons that might help this technical move:

- the possibility of aggressive sanctions against Iran over its refusal to suspend uranium enrichment program;

- another round of disagreements between US and Russia, as well as any new abrasive changes in Russia’s energy policy;

- the beginning of hurricane season and possible strike of weather in the Gulf of Mexico:

I am sure that oil traders took into current price consideration the following info:

and the last, but not least,

- continuing problems in the housing and financial areas and Fed’s stubborn interest rate position can fuel inflation and weaken US dollar, affecting two forces contributing to the price of oil.

OIL – iPath S&P GSCI Crude Oil Total Return (NYSE)

DBO – PowerShares DB Oil Fund (AMEX)