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Why I sold DBO

Oil hit $100 a barrel on Tuesday. My response was to sell my position in the PowerShares DB Oil Fund (DBO).

This ETF has been in a trading range since November 2007. It has recently been threatening to fall out of this range with many speculators worried about declining demand due to high prices and a weakening U.S. economy. These worries seem to have been manifesting themselves in a string of weekly petroleum inventory reports showing a build in supplies rather than a drawdown.

During the last week or so the ETF seemed to take off as crude prices suddenly began to rise. As it looked like crude was going to hit $100 again I tightened my stop. On Tuesday, we did see $100 and as the price of DBO backed off a bit at the end of the day, the stop was hit.

Having sold DBO at $36.30, I am comfortable that I pulled the trigger at an appropriate time. As the ETF finally moved a bit above the top of its trading range, the technical response was an expectation that we would now see a big move up. Considering the fundamental backdrop of potentially declining demand, however, I decided the risk of holding on to DBO was too great and that it was better to take the profit.

I have read that Boone Pickens has said that crude is too high at $100 a barrel at this time in this environment. I suspect it can't hurt to be in agreement with him on the topic of oil.

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