Oil surged in early June and looked poised to break flag resistance. A little follow through last week was all that was needed. US stocks did their part as the Russell 2000 and Nasdaq hit new highs. The Dollar did its part as the US Dollar Index fell 2.8% this month. The tea leaves were aligning for a breakout, but oil did not oblige and remained stuck below flag resistance. Failure to break out suggests buyer fatigue that could foreshadow weakness in the coming days or weeks.
The first chart shows August Light Crude Futures (^CLQ15) in the top window and the USO Oil Fund (USO) in the bottom window. The futures contract is the best security for analysis because it is the true source. USO, on the other hand, is a hybrid security made up of several futures contracts with rollovers and management fees.
As the chart shows, Light Crude Futures have been working their way lower in what looks like a falling flag, which is a bullish consolidation. There is only one problem: the flag is still falling. This means the immediate trend is still down. A break above 62.5 on the futures and 21 for USO would reverse the six week slide. Short-term, chartists can watch this week's lows for signs of a breakdown within the flag. A move below 59 on the futures contract and 20 on USO would be bearish. The second chart shows August Brent Futures (^BQ15)** and the US Brent Oil ETF (BNO) with similar characteristics.
Thanks for tuning in and have a great weekend!
Arthur Hill CMT