11/17/2008

USO is scraping bottom

I think USO will drop another dollar or two and form an important medium term low around $42-$43 (it may temporarily slice through the Jan. 2007 low). After it hits this level, I think it will rebound to $70-$90 over the coming weeks and months. I last posted about USO here.

The chart above depicts a longer term Elliot Wave count. Since 1998, oil has enjoyed a 5-wave bull run culminating in July 2008. Recent price action has since corrected 64% of this up move in just a few months, without a major countertrend rally. It is due for a bounce, the only question is when.

The bear trend is definately reaching exhaustion, as MACD is diverging with price and volume has been downtrending. I think $42.50 should prove to be strong support for a two reasons: first, it was the Wave4 low back in 2007, and second, Wave-c = Wave-a @ $42.34. Add to that the fact that commercial traders are more net long than anytime since the January 2007 low, and you have a recipe for a nice bull move.

2 comments:

in the mountains said...

great analysis! I will add this one to my watch list.

One other point that supports your expectation of a low and change of trend soon: Looks to me like USO is in the 5th wave of a small Ending Diagonal that began on Nov. 4, wave 1 bottomed on Nov. 6, wave 2 topped on Nov. 10, etc. The lower trendline crosses 42.50 tomorrow.

Narayana said...

Yeah I noticed that pattern too. I think the likely range for the low is $40-45.