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USO, Crude Oil ETF, Pullback Target Zone Hit, Bounce Likely

Following a failed attempt to break & close above the orange resistance line on the daily time frame, crude reversed off that level & is now approaching decent support as well as my 60-minute chart target zone. While I do expect a bounce in USO (crude oil etf) from or just below current levels, I suspect that bounce could be relatively minor (~3%) before prices start grounding around in a choppy range for a while. The previous daily charts of USO posted on March 11th & March 23rd are followed by today's updated daily chart:

Zooming down to the intraday time frames we have the 60-minute chart from March 23rd & today's 60-minute & 15-minute charts of USO. On the updated 60-minute chart, we can see that USO has now reached the mid-point of my preferred target zone, following confirmation of all the sell signals that I was looking for earlier. While a visit to the bottom of the zone is certainly a possibility, the R/R to remain short at this point is extremely unfavorable IMO. At the very least, consider lowering stops if short crude oil.

Further reducing the R/R of remaining short crude oil at this time is the fact that USO is trading at the bottom of this descending price channel with bullish (positive) divergences in place. My best guess is that crude will reverse anywhere from the mid-point of that 60-minute target zone (9.28ish) down to the 9.10ish level, with an initial bounce up towards the 9.65ish area as shown on the 15-minute chart. If that does play out, I suspect that crude prices might chop around in a difficult-to-trade range for a while.

My opinion on crude isn't strong enough to add it as an official trade idea just yet although I am keeping a close eye on crude & might post an unofficial short entry on DWTI in the trading room soon (as shorting DWTI should be profitable if crude bounces or even just trades in a sideways range for a few weeks+).

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Apr 4, 2016 11:04am|Categories: Gold & Commodities|Tags: , , |3 Comments

3 Comments

  1. foolstone April 4, 2016 12:22 pm at 12:22 pm

    Hi Randy,

    Would you consider to close XLE short position if R/R of shorting USO is diminishing? Thx.

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    • rsotc April 4, 2016 1:57 pm at 1:57 pm

      foolstone, Excellent question but no, I’m not considering closing the XLE short/ERY long just yet as I think the energy stocks will continue lower in the coming days even if crude does stabilize & possibly mounts that relatively minor bounce I’m looking for. My confidence or read on the USO chart wasn’t strong enough to trade it and my read on the energy stocks, although they do tend to move largely in sync with crude, is still that the targets that I listed on the 60-minute charts will be hit.
      Here’s an updated chart of XLE with a new support level that I just added at 60.48. XLE has been bumping along that level since the initial thrust down following the rising wedge breakdown and I’d suspect that support level will get taken out soon, followed by a quick thrust down to one or both of those price targets (green lines).

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  2. jegersmart April 4, 2016 2:05 pm at 2:05 pm

    Energy stocks PE is around 80 atm……..I would tend to agree Randy but I am not in that trade……just fyi.

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