Saturday, February 28, 2015

Still a slippery slope for oil (USO)? Probably...

I and many other commentators agree (Clive Maund) that the rally we've had in oil is likely just a brief bear rally whereupon crude's catastrophic decline will continue. At the very least we are likely to witness a fall back to $16.50 on USO according to the daily charts.

Where do we go from there once $16.50 is reached? A case could be made for a bounce (medium term projection) or a further collapse (long term projection). Looking at USO's monthly chart you perhaps can get a sense of why I feel this way. Everything so far has occurred in a nice downward slopping channel with it's current lows being only the second hit on the lower resistance line. We need a third in order for a break downwards to happen. What's more, USO on the monthly chart is well outside the Keltner channel so any move downwards will first require a normalization of price which may include a further rally. We could see an appreciation back to $22.00 (and perhaps beyond) before the decline resumes. 

Another good reason for my pessimism is what happens when you stop looking at USO the ETF and start looking at Brent Crude the index. Brent crude fell to about $35.00 at the end of 2008 and I don't see any conceptual reason why it can't do so again. The new resistance for crude is about $75.00 once this relief rally is finished.

Jakob Richardson © 2015