When you think there’s a strong trend up or down in risk assets, few trades can move as fast as crude oil. Note the chart below (click to enlarge).

Why We Enter a Short Here:

Both technical and fundamental factors behind us.

Technical Weakness With Low Risk Entry Point:

• It broke its 2.5 month old uptrend line Monday
• It is now breaching triple layered resistance: the $82.40 level, its 50 Day SMA, and its lower Bollinger Bank
• No meaningful resistance until just above the $80, but really nothing strong until $78
• After making 2 lower highs and 3 lower lows in the past 3 weeks, it is in an official downtrend
• At the current level around $ 82.40, you can enter with a stop just above this zone around $83.14 (never use round numbers, that’s what the crowd does, and market makers will gun for them)

In Sum: Enter around 82.40, target just above $80 at least, more likely $78. Stop loss around $83.14. Minimum gain about 2.5x max loss per stop loss, max gain around 5x max loss.

Fundamentals

• Risk appetite is in legitimate retreat from the EU crisis.
• Current Greek aid may not reach Greece in time: and even if it does, at best gets them through the coming months, probably not even until 2011.
• That scares bond markets into raising PIIGS borrowing costs even more

That’s the key, because everyone knows the aid package is just a band aid, and EU will soon be coping with another default threat from Greece or Portugal before 2011m so PIIG bond rates continue to rise, forcing other nations--most likely Portugal--to also need help and overwhelm the already meager EU aid supply, which Germany may not even permit.

Temporary Nature Of EU Plan Dooms It. Markets know we’ll have another crisis soon, so PIIGS borrowing costs stay high, forcing more of them to seek EU aid, which doesn’t exist. That may even discourage contributors from paying up for current aid – why throw money away when there is no end in sight. Let the defaults occur and at least the bigger EU economies can bail out their own banks if need be – THAT COST at least is finite.

Once Spain or Italy can’t afford to sell bonds, game over for the EU, they have too much debt to save. Never mind the EU banks that will be left crippled or needing bailouts from all this (who do you think holds the PIIGS bonds?)

Disclosure: No position