USO Swing Trading Update

Summary

• We hit our target near $47/bbl and sold our position in USO before today's sell-off.
• We provide an update on key levels and indicators that we are following.
• We believe that crude oil will recover again before continuing the downtrend.

Last week, we wrote an article which outlined our current trading plan and levels for the United States Oil Fund (NYSEARCA:USO). On Monday, crude oil had broken out of a trend channel that we had drawn, and was also near our stated target of $47/bbl, so we sold our position in USO at $9.61.

Today, July 5th, crude oil has sold off and USO has fallen to a level near $9.30, and we are studying current levels to see whether or not to re-enter USO with a long position.

The daily trend for crude oil is undoubtedly going lower until proven otherwise. Here is the current status of the Viking Crude Oil Matrix, a summary of indicators that we follow to determine our long or short positions in crude oil and USO.

On the daily chart, USO is near the 20-day moving average which also is the midpoint of the Bollinger Bands.

Since USO trades in lock-step with the front-month crude oil contract, we pay closer attention to it than we do USO. The crude oil contract is far more liquid than USO and USO is therefore a price-taker of the value of NYMEX crude oil. It is also important to note two key events for this week:

1. The USO contract will roll over its front-month holdings of August crude oil (CLQ2017) to September NYMEX crude oil (CLU2017). The roll dates will be from July 6th through July 9th, 2017. At the moment, the term structure of crude oil is relatively bullish, with the premium for the second month being only $0.23/bbl more expensive than the front month. This $0.23/bbl premium is less than the cost of one month's storage.
2. The EIA inventory report will be published tomorrow morning, July 6th, at 10.30am rather than the usual Wednesday morning at 10.30am.

On the daily chart of crude oil below, we can see that crude oil's corrective uptrend retraced back to our price target of $47/bbl before falling today back to another fibonacci re-tracement level. The black line graphed with crude oil is the Canadian dollar - US dollar currency pair which is often closely correlated with crude oil. We see potential upward price pressure on crude oil from the most recent movement of the CADUSD

The crude oil chart below shows that crude oil failed not only at the fibonacci re-tracement level, but also at the 50-day MA to fall back below the recent support and resistance level of $45.50. Crude oil finds itself right above fibonacci re-tracement of $45.10 and the 100-week moving average of $45.14.

Option Expiration Price Magnet

Lastly, we have begun to calculate and publish option expiration price magnets for NYMEX crude oil. Our thesis is that these price magnets will become stronger as the date of the option expiration becomes closer. Specifically, the current NYMEX crude oil option magnet has potentially more influence as we get closer to July 17th.

Summary

We are pleased to have sold our most recent USO position near our price target before today's sell-off. We will continue to monitor all of our indicators as we determine our next trading position.

We are currently inclined to believe that crude oil will find a temporary floor here, rebound to the $49/bbl range before continuing the overall downtrend and re-testing $42/bbl to the downside.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in USO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.