The United States Oil Fund (USO) has held the $40.00 area again this week. USO has rebounded nicely off yesterday's early lows. The index has stabilized with a 1.3% gain after putting in its fifth straight weekly low near this key support zone. Volume has picked up considerably today due to the Iranian export news, increasing the odds for an upside breakout in the near term.
Crude has been working through a consolidation since late February. The USO broke out on Feb. 21 after surging past heavy resistance that had previously capped multiweek highs from mid-November through early January. Crude was in the middle of a nine-day winning streak when the $40.00 area finally gave way. The momentum carried the USO another 5% higher during the early stages of the consolidation before a top was reached on March 1. The $40.00 area began to show its strength the following week and did so again a week later despite a very heavy downside session on the March 15. I believe the hold yesterday followed by today's gain on heavy trade have set the stage for an upside breakout next week.
USO
Source: TradeStation
View Chart »View in New Window »
As mentioned in an earlier post, I believe USO purchases near $40.00 are considered very low risk. If this level is broken on heavy trade, the bullish consolidation that is now over a month old will be badly damaged.
I have a small long position in USO and will maintain a tight sell stop just below the $39.50 area. If a new rally leg does develop in the very near term, I will likely add following a close above $41.40. This area includes this week's as well as last week's highs. Once through this near-term resistance, I expect volume to pick up as the USO sets it sights on the next challenge, major gap resistance near $43.00.
At the time of publication, Morrow was long USO.