Crude Oil Funds & Gas Funds

USO is the non-leveraged fund that matches the oil index. OIH is the non-leveraged fund that tracks the Oil Services sector. UCO and DIG are the double funds. UCO tracks the Oil index and DIG tracks the Oil and Gas stocks. UGA is the fund that tracks Gasoline while UNG tracks the natural gas index.

The two double Bear Crude Oil Funds are DUG and SCO. DUG tracks the Oil and Gas while SCO is solely Oil.

Below under “Comments, Analysis, and Recommendations”, I will write my comments for the Crude Oil Funds giving you my chart analysis. I want to give you good evidence as to why I believe the Crude Oil Funds are heading higher or lower. I base my analysis on several technical tools. I use Exponential Moving Averages, Elliott Wave Analysis, Fibonacci, Japanese Candlestick patterns, trend lines, and support/resistance lines.

My goal is to provide you with the information needed so you can make the best trading decisions. My goal is also to help you to become profitable and most of all to help keep you from loosing a ton of money. I will provide you the potential price targets to take profits and stop loss levels to help preserve your trading capital.

Click on the desired Crude Oil Funds link below to view the chart.

DIG DUG OIH SCO UCO UGA UNG USO

Comments, Analysis, and Recommendations

Today’s price action in USO only confirms what I have been saying about the expected price of Crude Oil. Volume has increased the last couple of days; however, I expect the volume to increase significantly as the price heads lower.

The long-term trend is down as the 13 EMA is below the 55 EMA and the 55 EMA is below the 233 EMA. The 55 EMA was strong resistance to the price in USO. As the price declines, I expect the 13 EMA will become strong resistance. This indicates that the price will not come close to the 55 EMA for a while.

The 233 EMA and 55 EMA are pointing down as the 13 EMA is rolling over with the last couple of days of trading. The downtrend should pick up steam in the next couple of days. I am scratching my head as I just typed the last sentence. You always go long Crude Oil for the summer months due to the people traveling on vacation and increasing the demand, which increases the price. The fact that Crude Oil is fighting to move lower indicates how bad the economy really is. This has to make you wonder if deflation is winning the battle against the inflation arguments. Gold and silver had a very ugly day today. In deflation, the price will drop in all asset classes versus the dollar, which is what all assets are priced in.

Crude Oil is beginning to show signs that prices are about to start heading lower. USO reached its 55 EMA on 6/21/10. It has now produced a lower high and low since then and the price is below the 13 EMA again. The price as also broken through a trend line created when connecting the lows of 6/7/10 and 6/23/10. These are strong signs that the trend is turning down again and the price should start heading for prices below the 5/25/10 low.

My first target is the 25 level. The second target is below 20. These levels are based on Fibonacci Price Extension, with the 25 level being the 100% of the move form 4/6/10 through 5/25/10. The 162% Price Extension will put the price below the 20 price.

Volume is still a little low; however, it has started increasing since 6/21/10. I expect volume will dramatically increase as the price continues to decline below the 30 level.

Crude Oil as measured by the ETF USO has been declining for over a week and continues to fall. Remember that the price never broke through the 23.6% retracement from the 2008 high and the 2009 low! The price is below all three EMAs. The 13 EMA is below the 55 EMA and both of these are below the 233 EMA. This indicates that the trend has a downward bias. You have to wonder if the price will continue to move sideways or break out. First, the price has recently closed below the lows of 9/25/09 and 2/5/10. The support of the low of 7/13/09 is not far below the current price. The next support levels are the lows of 4/21/09 and 2/19/09.

Second, the volume has increased considerably since the price started declining from 5/3/10. The volume spiked today, which could indicate the price may take a pause near current levels. If the price does pause, look for the price to test the 55 EMA or the EMA may catch up to the price.

I want to bring something to your attention. USO topped in July 2008 and bottomed in February 2009. What is amazing is the fact that the price has not even broken the 23.6% Fibonacci Retracement of that decline. The price has moved sideways since February 2009. I expect lower price before higher prices in the future. The question is how much longer can the price continue to move sideways? Recently we can see lower highs and lows. I expect that to continue for a while.

The Crude Oil Funds when viewing a chart for USO just cannot get enough steam going to stay above the 233 EMA. The price did manage to fill in an unfilled gap from 1/12/10. Conventional wisdom would say that higher oil prices are expected with the summer season upon us. With the technical landscape of the charts, that obvious fundamental analysis may not be so obvious technically. I would expect higher prices for the Crude Oil Funds only if the price can break above the 1/6/10 high on the chart for USO. A break below the 2/25/10 low will alert us of a change in trend. It is worth reminding that the price has been in a trading range since May 2009. The question is whether the price is heading to 60 or 15 next. Conventional wisdom will say 60; however, I believe the technical view is 15 and the correct view. We will see.

Be a smart trader!

Craig Wells

The Oil Funds look to be a little top-heavy. USO even had a bearish engulfment candlestick today. Oil has been steady in its rise, although it remains below the 1/6/10 high. The price has passed the 76.4% retracement level, but has not broken that critical resistance of 1/6/10. It looks as if the price may turn down the next couple of days, especially with the candlestick pattern today; the question is how much?

The critical support level is the 2/25/10 low. A break below that level will signal that prices may be heading much lower. It will also be helpful to see a clear five-wave decline before screaming for lower prices.

Be a smart trader!

Craig Wells

The Crude Oil Funds had a volatile day today. Look at USO’s chart. Yes, the fund closed higher than the previous day’s close and traded higher intraday than the previous day. That is good, right? A closer look using Japanese Candlestick charting will cause concern.

The close was well below 50% of the day’s trading range. The body of today’s candle is inside yesterday’s candle. This would be a Bullish Harami if the pattern had appeared near a bottom. However, since it appeared near a high, it concerns me.

The price did come close to the 76.4% Fibonacci retracement level. This tells us that if the price is going to head lower, it has to do so soon. I expect lower lows and a break above the 1/7/10 high will cause me to re-evaluate the wave count. If my count is correct, the price should start heading down very soon.

The first sign that the next leg down is underway will be a fall below the 3/1/10 low. A strong confirmation will be a clear five-wave move to the downside. Waiting on a five-wave pattern should keep us out of trouble.

Be a smart trader!

Craig Wells

The Crude Oil Funds have been guilty in the past for tight trading ranges. That has not been the case since November of 2009. There are steep moves in both directions for several months now and can cause confusion and doubt of the ultimate direction of the price.

The corrective process from the 2/5/10 low looks complete. However, the strong push up today causes some doubt. Yesterday’s high will be critical for the Elliott Wave interpretation. The best confirmation that the correction is over and the next leg down has started, is a five-wave move to the downside.

Be a smart trader!

Craig Wells

Oil has had a nice bounce off the 2/5/10 low. The wave pattern is somewhat overlapping indicating that the move is corrective. One thing to notice is the degree of the correction. USO has retraced almost 78.6% of the move from the 2/3/10 high. The pattern so far looks like a triple zig-zag, matching what is happening in the Major Index Funds. It look like the corrective pattern may be complete are nearly so during this afternoon’s trading.

The critical resistance is not far off from current prices. The 2/3/10 high is critical to the Elliott Wave count I have for USO. The critical support for an indication that the next leg down is resuming is today’s low. A drop below the 2/5/10 low will confirm the next leg down is underway.

OIH and UGA have similar patterns and the above comments are duplicated in these funds. USO has had a stronger rebound with UGA having the weakest. OIH has just reached the 61.8% retracement while UGA has only reached the 50% retracement.

One more thing to watch for is a break of a trend line. You can connect the lows since the 2/5/10 bottom and you have a defined trend line. The first clue that the next leg down has started will be a break below that trend line.

Be a smart trader.

Craig Wells

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