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USO: OVERSOLD AND AT SUPPORT

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The U.S. Oil Fund ETF (USO) remains in a clear downtrend on the daily chart, but became oversold and reached long-term support on the monthly chart. The combination of oversold conditions and support argue for at least a consolidation and quite possibly an oversold bounce back to broken support at 50.

USO

On the daily chart, I am using RSI to identify oversold conditions. RSI moved below 30 (oversold) in early January and stayed oversold until Friday (19-Jan). The indicator is making a move back above 30 and this is the first positive sign in 2007. Before getting too excited, notice that RSI was oversold all of September and moved above 30 in October. However, USO traded flat and there was not much of a bounce until late November. A bounce could take time.

USO

In addition to oversold conditions, I see reason to expect support around 42-45. For the falling price channel, I drew the upper trendline first and the lower trendline is parallel to this trendline. The lower trendline extends to around 42.5 and this trendline acts as support. USO firmed between 42.5 and 45 this week to affirm channel support. The monthly chart also confirms support around 42.5 with the Nov-99 trendline and support from broken resistance.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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