Swing Trading Strategies & Stock Picks Since 2003

I’ve rarely seen volume flows shift so dramatically as I’ve seen in some of the crude oil related ETFs.  Volume has surged to almost 50 million shares transacting per day in two particular funds:  The US Oil Fund (USO) and the Double-Long Crude Oil (DXO) Fund.  Let’s look at these for what this might mean.

USO - United States Oil Fund:

USO reached a 2008 low of $27.73 before bouncing off that level into the current tenuous retracement underway currently.  From a quick analytical perspective:

The moving averages are in the most bearish orientation possible
Volume is surging to new highs on new lows (a possible sign of capitulation or aggressive accumulation)
A lengthy, multi-swing positive momentum divergence has been building under price since October
The 20 day EMA has provided overwhelmingly significant resistance since September

The same analysis applies to the DXO - Double-Long Crude Oil fund below:

DXO - Double-Long Crude Oil:

The only difference is that DXO has far less room to continue falling than USO, although both are roughly tied to Crude Oil prices and offer vehicles to trade if you prefer not to trade futures contracts.

It’s extraordinarily rare to see such pervasive and relentless downtrends in exchange traded funds, simply because of the diversification ETFs are expected to provide (as opposed to individual stocks).

That being said, there’s no avoiding that trading these vehicles offers both risk and reward.

It would appear that crude oil is forming a “rounded reversal” bottom, but trying to call a bottom has destroyed many accounts in this environment.  I suggest standing aside until price - at least in the USO - can break above its falling 20 day EMA though conservative traders may even want to wait for further assurance when price breaks above the 50 day EMA and then the 20 and 50 EMAs cross ‘bullishly’ to provide a confluence support floor beneath price.

Until then, buying now would be an aggressive - though potentially rewarding - play.

Continue tracking crude oil and other commodities and ETFs for clues to how the broader market might be affected by these developments.