Oil Is Not A Buy

Includes: UCO, USO
by: Stock Traders Daily

Yesterday oil prices spiked on the heels of the conflict risks in the Ukraine, but they have been inching higher since last year. This has also been translated to higher gas prices. In my community, gas prices are officially 10% higher today than they were a handful of months ago.

When oil prices start to gyrate like they have recently, new buyers often get enticed into the market, but we are actually looking to sell the positions that were recommended to clients of Stock Traders Daily. Last year when oil was out of favor, Stock Traders Daily recommended both US Oil (NYSE:USO) ETF and Ultra UBS Crude (NYSE:UCO) ETF, and both are getting very close to our upside targets.

Therefore, even though the recent trend may be up, and even though added attention has been paid to oil prices given the risks in the Ukraine, we anticipate being sellers in a short while. On a fundamental basis, oil seems to be generally losing its luster, and although we were buyers, it was just for a trade.

We would not be buyers of USO or UCO near the resistance levels they are getting closer to now, and in fact, by rule, if resistance lines are tested and they hold, those would even be short candidates. If nothing more, new potential buyers should think twice at these levels at least. By rule, you want to buy when support is tested, and oil and oil related ETFs have already moved higher from support levels. That is rule #1, but something most investors forget.

Now that we are holding nice gains in USO and UCO, we also need to make a decision. The decision is to sell outright at resistance levels, or to set a profit stop. For now we are monitoring the positions closely, as we always do, but our upside targets have not been hit yet. They are close, if another spike occurs they will be hit, and at that time we will take action one way or another.

Our upside price targets are defined in our real time trading reports for USO and UCO:

Trading Report for USO

Trading Report for UCO

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies mentioned herein for writing this article.

Additional disclosure: Clients of Stock Traders Daily may be holding UCO or USO according to buy recommendations made last year, and we do anticipate selling soon.