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United States Oil Fund (USO) Headed For Trouble?

  • Written by Syndicated Publisher 61 Comments61 Comments Comments
    December 12, 2011

    The price of the U.S. Oil Fund ETF (USO) appears to be headed for difficulty in the short-term. An Adam & Eve double top has formed in the last month that could lead to at least a modest correction.

    (From the December 9, 2011 blog for Decision Point subscribers.)

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    The Adam & Eve double top is characterized by first a sharp, blowoff-type of top, which is then followed by a rounded top as prices struggle and fail to reach the previous high. In this case the rising trend line was violated on Thursday, and we are seeing a snapback rally on Friday as this is being written. The line drawn across the bottom of the valley floor between the tops is the support that must be broken for the pattern to execute. The minimum downside projection would then be slightly below the longer-term support line at 35.

    The PMO is bearish, with the last PMO top forming below its EMA.

    Screen shot 2011-12-09 at 10.57.27 AM

    The configuration of the EMAs on this chart give the picture a bullish bias. The 20-EMA crossed up through the 50-EMA in October, generating a medium-term buy signal, and the 50-EMA just recently crossed up through the 200-EMA, generating a long-term buy signal (albeit by a very thin margin). With this positive backdrop, it is less likely that we will see this double top play out all the way (to its downside target and beyond).

    Bottom Line: There is a double top formation in the making for USO. This is a short-term situation that could result in a correction back to the area of 35. Overall this would be healthy because it would set a less accelerated (and more sustainable) angle on the rising trend line. Because the EMAs give the chart a bullish bias, we will be alert for the possibility that the scenario could abort at any time before expectations are met.

    From Decision Point ®: Bearish Setup for U.S. Oil Fund – Chart Spotlight.

    Images: Flickr (licence attribution)

    About The Author

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.