Bullish Volume Surge in USO US Oil Fund

Dec 10, 2008: 4:31 PM CST

Don’t let this development pass your analysis by!  Today, the US Oil Fund ETF experienced a volume surge of 37 million shares on a potential doji reversal candle at possible support.  Let’s see this development both on the daily and the 30-minute chart.

USO – US Oil Fund Daily

The day closed on a doji candle at possible support coming off a multi-swing positive momentum divergence – all of which suggest a bullish short-term bias going forward.

Before getting too bullish – and I’m finding that hard to do – realize that the daily and weekly chart are still clearly in confirmed downtrends and the moving average orientation is absolutely in the most bearish position possible – that is the headwind into which you enter a possible bullish counter-trend trade if you desire.

That being said, it would appear structurally that price is ‘flattening out’ or ‘curving around’ as we either have hit, or are close to hitting a potential intermediate bottom in both the ETF (USO) and Crude Oil itself.  Oh, just because Crude Oil is near $40.00 per barrel does NOT mean that it can’t go lower – because something is ‘cheap’ is absolutely no reason to get bullish.  You’ll need to analyze deeper than that – I’m giving you hints here on how to do so – to get bullish.

The initial target – the conservative target – would be a retracement to the 20 day EMA at $41.00, or perhaps even as far (not in a single swing, of course) to $50.00 which is the falling 50 day EMA.  If this zone truly does represent major support, then it’s possible we won’t see these prices again for quite some time – but I’m not in the business of calling bottoms – I work best calling the next high probability swing only… sort of like seeing through fog.  It’s much easier to see what’s directly ahead of you rather than trying to see a mile down the road.

So the next probable swing is a counter-trend retracement rally up.  It’s up to you to determine your stop (somewhere beneath $35 most likely) and your target (at least above $40) depending on your timeframe and risk-tolerance.

Oh, let’s see the developing structure on the 30-minute chart for additional clues.

USO – US Oil Fund 30-min chart

While we don’t necessarily have a momentum divergence, we do have positive momentum building (notice the trend and the new momentum highs) as price has formed a trend reversal to the upside (having formed higher highs and higher lows) and is fighting tenuously to hold on above EMA support.  If these moving averages cross – which one more bullish day will cause – then that would be reason for renewed bullishness and perhaps even an entry for certain styles of traders.

I highlighted the volume surge for you.  At two points in the day, more than 5 million shares transacted in a 30 minute period.  That’s some serious movement.

Continue to study the US Oil Fund (USO) for yourself to see if you find an appropriate opportunity in it that matches your trading style.  Whether or not we get an actual price reversal, the risk is low compared to the reward, so that potentially sets up an attractive trade from a risk/reward standpoint at least.

Corey Rosenbloom
Afraid to Trade.com

10 Comments

10 Responses to “Bullish Volume Surge in USO US Oil Fund”

  1. Bret Says:

    Hey Corey. I’m fairly new, so please bear with me.

    I have a question about your previous post on the usd index 2 weeks ago and your preferred Elliot count.

    You commented “I considered that possibility – that of an extended third – but decided that would be my alternate count should a clean ABC not form.”

    I assume you meant you would be looking for an ‘abc’ correction in the coming weeks to confirm your preferred count. correct? To me, right now it looks like we’ve begun or are about to begin in ‘c’ of said ‘abc’ correction. How would keeping an eye out for a ‘abc’ correction influence your EW count? From my understanding of EW an ‘abc’ or zig-zag is also a legitimate wave 4 pattern. Do I need to study up on my Elliot, or do your eyes see something mine don’t?

    Thanks and you rock.

  2. todd Says:

    It boggles my mind how such huge volume could result in such a narrow-range doji candle such that was left today. I mean, if investors are positioning into (or even out of) this issue as evidenced by the volume, how does the diminishing supply (or increasing supply) not move price more than that NR-doji.
    What am I missing? Perhaps I’m not thinking straight, what’s your take on this?
    thanks,
    todd

  3. P. K. Says:

    Something else to consider. Both XLE and OIH peaked before crude did in July, and both have bottomed before crude (so far). If this divergence holds, it will be another example of commodity stocks leading the underlying product.

    Sometimes you don’t need to over-analyze things.

  4. Mark Says:

    I think the momentum is still downward until crude breaks below $40. Oil could easily see the $30’s. Long term however I am bullish on oil.

  5. Dominick Says:

    Hello again Corey. Any particular reason why you chose the 30 min. chart for the analysis?

  6. Corey Rosenbloom Says:

    Bret,

    I have us currently in Wave 4 in Crude and am tossing back and forth the idea that we’re either in Wave 4 of a larger impulse in the US Dollar Index… or that a complete 5 wave pattern has commenced (on the weekly charts) and thus we’re looking for an ABC. We’re sort of at critical levels where we’ll know soon which interpretation is correct. I’m leaning towards us being in a 4 in both now.

    Elliott Wave 4’s unfold in a three-wave correction or ABC. I think we’ve started that fractal process here, though I didn’t draw EW counts on the chart to keep them simpler.

    Let me know if this didn’t fully answer your question.

  7. Corey Rosenbloom Says:

    Todd,

    I’m just as puzzled as you are – that’s why I’m trying to read into it as much as I can and other signs seem to be pointing to bullish structures. Such is the method of accumulation in stocks – it’s smart money’s way of confusing the masses in ways that don’t seem to make sense. For example, a hideous report comes out in a stock, volume surges, though price doesn’t budge. That’s often because a singular or handful of large funds are buying aggressively into all the selling furor.

    I’m unaware of major bearish news on oil at the moment.

    I’m puzzled too. We’ll need to see what happens in the next few days or perhaps weeks to confirm officially, but I interpret it as bullish until proven otherwise.

  8. Corey Rosenbloom Says:

    Mark,

    Absolutely could happen – it would surprise me to no end, but it could happen. The strength of the downtrend (and force of it) is intense and has lasted almost unchecked. That’s quite a headwind for price to overcome.

    Maybe it’s that I just can’t believe something as crucial (we’ve been led to believe) as Crude Oil which cost almost $150 a barrel six months ago could cost $40 now… or that I (we) got used to gas at $4.00 per gallon reluctantly and now can’t fathom it being $1.50.

    This is playing with our minds! But price ultimately is king.

  9. Corey Rosenbloom Says:

    Dominick,

    I wanted to show the volume comparison specifically, and I felt the 30min chart did the best trade-off of showing enough data to compare previous days to today’s volume spike. Other than that, I wanted to show that the EMAs were about to cross, but nothing otherwise compelling about the 30. I usually stay constrained to the 5 and 15 min chart in conjunction with the dailies.

  10. Murph Says:

    Amazing call on oil Corey! Definately keep us in the loop when you see any future calls like this!