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I am recommending a bearish trade on Plains All American Pipeline, L.P. (NYSE:PAA), a provider of logistics services for crude oil, natural gas liquids (NGL), natural gas and refined products.
Oil is bouncing back slightly this morning, but it is still locked in a steep downtrend. While declining oil prices help U.S. consumers by bringing down the cost of many goods and services, those lower prices will ultimately hurt the U.S. economy.
The U.S., by some counts, is now the biggest oil-producer in the world. And because we’re now producing more oil than ever before, declining prices mean U.S. energy companies are bringing in fewer and fewer dollars for their barrels of oil.
Canada has announced intentions to cut production, and while that may help prices slightly, it will only increase the United States’ dominance in the oil market.
Daily Chart of Plains All American Pipeline, L.P. (PAA) — Chart Source: TradingView
If we look at a chart of PAA, we see the $24 level acted as support multiple times this year. But it also acted as resistance when shares tried to rally back in mid-November.
I expect that this level will act as resistance again now, along with the 200-day moving average (blue line), and send PAA lower.
And if oil moves lower this week and gives back some of today’s gains, we would be in an excellent position to collect profits.
For those reasons, I’m recommending a bearish trade on PAA:
Buy to open the Plains All American Pipeline, L.P. (PAA) Jan (2019) 22 Puts (PAA190118P00022000) at $0.65 or lower.
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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.