On Dec. 1, 2014, The Arora Report published column regarding a signal that oil had lower to go. At that time, Brent crude, the international benchmark for the price of oil, was trading at $69.74, but has since dropped to $61.57. West Texas Intermediate (WTI) the benchmark in the U.S., trades at over a $5.00 discount to Brent.
What does the chart say now about oil? Let us take a look at the United States Oil Fund ETF USO.
Please click here to see the annotated chart of USO.
The following observations can be made from the chart.
- Oil is very oversold, and a significant bounce can happen any time.
- The bounce is likely to be short term.
- Please note from the chart that the volume on USO is still about 50% of the volume on the previous low in 2009. A bottom is likely to occur after volume exceeds the volume of the previous low.
- USO price has broken the support characterized by the previous low as shown on the chart. Typically, when major support is broken on a commodity, stops are taken out, leading to a down cascade followed by a short-term bounce that fails. As of this writing, oil is in the short-term down-cascade phase as stops are being taken out.
- As the chart shows, the volume has been increasing over the last several bars. One characteristic of a typical commodity bottom is heavy volume followed by days of lower volume. So far, this pattern has not occurred.
- As of this writing, our proprietary algorithms have detected no buying by the smart money. Typically, the smart money starts nibbling close to the bottom.
In that Dec. 1 column, we estimated the fair value of Brent to be around $58…Read more at MarketWatch
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