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