Oil costs are climbing after the EIA reported a shock stock crunch. Including gas to the fireplace? Tensions within the Center East.

WTI Crude has been buying and selling in uneven movement since March 2023. Whereas macroeconomic and geopolitical components weighing on value are blended at finest, would possibly there be a possibility for some upside, contemplating the present stock declines, seasonality components, and persevering with geopolitical uncertainties?

Let’s study the USA Oil Fund ETF (USO) because the WTI crude oil proxy. During the last 5 years, what has its seasonal efficiency regarded like relative to the S&P 500?

USO: 5-Yr Seasonal Efficiency Relative to S&P 500

On the subject of seasonality, September is USO’s star month. It won’t have the very best closing charges (simply 50%), nevertheless it shines in common relative return, boasting a stable 5.5%.

CHART 1. SEASONALITY CHART OF THE UNITED STATES OIL FUND (USO) RELATIVE TO THE S&P 500. Notice the variations between the higher-close charges (numbers above the bars) and common relative return (numbers on the backside of every bar). Chart supply: StockCharts.com. For academic functions.

You may’t use this as a crystal ball to foretell USO’s strikes since many different components affect crude oil costs. Nevertheless it does supply some regular context. The actual query: Is USO gearing up for one more climb this September? And if that’s the case, how excessive might it go?

Let’s change to a weekly chart for a macro perspective on USO’s value motion.

CHART 2. WEEKLY CHART OF UNITED STATES OIL FUND (USO). When taking a look at a longer-term chart of USO, the worth motion appears comparatively flat and uneven.

The quantity-weighted Cash Circulate Index (MFI) means that USO is on the decrease finish of its cyclical vary. The Bollinger Bands^® indicator additionally helps this notion however from a smaller time-frame.

Notice that the vary is barely narrowing and that the MFI and Bollinger Bands counsel the potential for an upside in USO—a reversion to the imply or towards the higher band. Historic resistance suggests a doable transfer to the $83 vary, which has been a troublesome resistance stage to interrupt (examined and failed thrice over the past 12 months). The upside additionally coincides with the seasonality thesis mentioned above.

Regulate these swing factors at $92.50 and $57.50 (blue dotted strains). It is a variety, but when costs get away from the present $70–83 zone, anticipate robust assist and resistance at these increased and decrease ranges. Moreover, word that under $70, there’s one other assist stage at $65, which marks the following swing level: the November–December lows of 2023.

In the event you’re fascinated by benefiting from the potential upside if just for a swing commerce, you want to zoom in to have a look at the worth motion from a each day chart perspective (see chart under). 

CHART 3. DAILY CHART OF UNITED STATES OIL FUND ETF PRICE.  There are clear assist and resistance ranges, that are necessary to look at for swing trades.

Wanting on the each day chart, you’ll be able to see how shopping for stress, although not very robust, has been optimistic throughout the previous couple of weeks of USO’s decline. The magenta rectangle on the Chaikin Cash Circulate (CMF) highlights this considerably bullish divergence. Does this sign accumulation throughout USO’s value decline?

The Stochastic Oscillator means that USO has entered oversold territory, indicating a possible transfer up. The September seasonality, stock declines, and geopolitical components all point out near-term energy. In the event you’re trying to commerce this cyclical vary, you’d most likely enter the market now with a good cease at round $70. Your upside goal could be between $81 and $83.

Regardless of the uncertainties on this market, in the event you had entered an extended place at $74, you’ll be risking a lack of $4 for a possible achieve of $9. Your reward-to-risk ratio could be 2.25:1. Nonetheless, tread rigorously. If USO continues increased, examine to see if the commerce remains to be value it primarily based in your buying and selling objectives and danger tolerance.

Closing Bell

Oil costs are rising with a shock stock crunch amid ongoing Center East tensions. USO, a proxy for WTI crude oil, exhibits a good seasonality in September with a 5.5% common relative return, although it isn’t an ideal predictor. Technical indicators trace at a doable value transfer towards $83. In the event you’re eyeing a swing commerce, proceed with warning. Respect the goal and cease ranges mentioned above. Good luck!

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your private and monetary state of affairs, or with out consulting a monetary skilled.