Don't Ignore This Chart!

Oil Hits Potential Reversal Zone


Oil fell rather sharply over the last two weeks, but the long-term trend is up and two technical indicators point to a bounce.

The chart below shows the USO Oil Fund (USO) in the top window, RSI for USO in the middle and the Light Crude Continuous Contract ($WTIC) in the lower window. USO is fine for short-term analysis, but I prefer $WTIC for long-term analysis.

First and foremost, the long-term trend is up as crude advanced from the mid 40s in June 2017 to the low 70s in May. Oil hit a 52-week high in May and remains well above its rising 200-day SMA.

Short-term, USO retraced 50-61.8% of the February-May advance with a decline back to the 13 area. Such a retracement can be part of a two-steps forward and one-step backward process (a.k.a. an uptrend). The indicator window shows RSI(10) becoming oversold for the second time this year. The February oversold reading coincided with a short-term bottom.

Overall, oil is oversold, trading in a retracement zone and within a long-term uptrend. This is a recipe for a short-term reversal so I would watch closely for an upside catalyst, such as a break above 13.5 in USO.

On Trend and Youtube Channel

On Trend is my show on StockCharts TV. Available to everyone, this show airs every Tuesday at 10:30 AM and is then archived on our Youtube Channel.

Highlights from On Trend for Tuesday, June 5th

  • 40 Years of the S&P 500
  • Broad Market AD Lines Record New Highs
  • 52-week Highs Expand in Two Key Sectors
  • Retail Propels Consumer Discretionary Sector
  • Copper and COPX Bounce off Support (plus PALL)

Plan Your Trade and Trade Your Plan.

- Arthur Hill, CMT

Senior Technical Analyst,

Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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