Give Oil a Try – The USO ETF Is a Buy

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West Texas intermediate oil rallied strongly on Wednesday, up 5.7% on the back of news that American stockpiles fell. Historically, U.S. oil supplies broadly fluctuate with the price of WTI crude oil, and when the spread gets too wide, we tend to see mean-reversion.

Beat the BellThe sharp rally in WTI crude oil since August is a reflection of such a mean-reversion move — oil rallied and stockpiles dropped. Crude oil — as represented by the United States Oil Fund LP (ETF) (NYSEARCA:USO) — also rallied nicely since August and increasingly looks to be building a better bottom on the charts.

You can take advantage.

With today’s FOMC interest rate decision looming large, the U.S. dollar — the world’s largest “asset class” — is at risk of making an outsized move in coming days, which could have wide-ranging implications for the near-term price movements of oil and other commodities, among other things.

In other words, I’m not looking to front-run the Federal Reserve with this trade in the USO ETF, but rather, it’s something I’m looking to get into once the dust settles in the coming days.

USO ETF Charts

If we look at the multiyear weekly chart of the USO ETF, we see that following a sharp drop during the financial crisis, and after a prolonged sideways chop from 2010 into 2014, another sharp leg lower ensued that pushed it below the 2009 reaction lows.

Through the lens of classic technical analysis, however, often enough when a major long-term level of support gets taken out, it leads to a better bottom-building period through at least a multimonth time frame.

To wit, when the USO ETF broke below said support in late 2014, the Relative Strength Index bottomed and has since made a series of higher lows while the price of USO made lower lows. Also on a weekly basis, the USO ETF had a bullish outside candle in late August.

Again, this behavior is not an immediate-term buy signal, but it is an initial positive reaction worth monitoring.

USO ETF weekly chart
Click to Enlarge

On the daily charts, then, we see that after a steady period of selling from July into late August, the USO ETF rallied steeply and right back into the former area of support around the $16 area, marked by the blue horizontal bar. The ETF has since been consolidating below this line (now resistance), which also lines up with the yellow 50-day simple moving average.

USO daily
Click to Enlarge

From this perspective, active investors now have two options:

  1. Buy some USO on a daily close back above the $15.50 area for a move toward $17
  2. Upon a selloff in the USO ETF, look to buy the next bullish reversal.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/uso-etf-united-states-oil-fund-buy/.

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