During the past four days, the price of light sweet crude oil has risen and is slowly pushing toward the $100 mark again. That has sparked my interest in taking a closer look at oil following my May 31 examination, again using the U.S. Oil Fund (USO) as a proxy.
First things first. For a little perspective, let’s look at a long-term chart of the light sweet crude futures contract. The chart looks back to 2009, showing a sturdy uptrend with support in June 2012 and again in April 2013. At the same time, the trading range has undergone a fair amount of tightening so far this year, wedging the price of oil between the 2011 downtrend resistance and the aforementioned support line.
Now, on to the closer-up charts of the U.S. Oil Fund, which many retail traders find to be a more straightforward security to trade than dealing with oil futures directly.
Important to note is that for now, the area around $35-$36 roughly corresponds to the $100 mark on oil futures. Because of the construct of the USO — including some of futures roll-down it has to deal with — the comparison will never be one-to-one, but certainly good enough in my book for trading the general direction of oil.
With last Friday’s low just around $33, the U.S. Oil Fund successfully completed yet another higher low vs. the April lows near $31. All of this continues to carve out the so-called inverse head-and-shoulders pattern in play, which also happens to have its neckline just around the $35 mark, or the $100 area on oil futures. As long as last week’s higher lows can hold, the USO now looks to have a shot at $35, which as of this writing is only about 2% away.
As a reminder that the general slide in commodity prices continues, just look at the below chart of the iPath Dow Jones UBS Commodity Index Total Return ETN (DJP).
My point here is that either the recent bounce in oil is trying to tell us something, or the broader commodity complex will soon weigh again on the price of oil.