A bullish set up for oil

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Tickers discussed: $WTIC  $USO

The post discusses a bullish set up on oil. Key levels, targets and commentary are provided to keep you on the right side of the trade.

Backdrop and Thesis

There is no denying the horrendous plunge in oil.  Prospects for a durable upswing seem dim with the Saudis and Russians dug in on their positions and seemingly content on doing their part to flood the world with oil. That said, this set up is all about positioning. With the whole world short oil the potential exists for a viscous short-covering rally on any hint of even a modest rebound.

So this is a set up for an oversold bounce and short covering rally.  

Let’s look at the chart of $USO

Take notice of the divergent low with bullish divergences on the RSI and PPO indicators.  The indicators have been rising with price at the lows. This shows that there is strength building under the surface. Currently price is pinned under the well defined downtrend line of the bullish falling wedge and overhead resistance marked at $4.34.

The Trade

  • Alarm $USO $4.34 on your platform.
  • On a break above $4.34 get long $USO
  • Target a move to $5.15 or so where the first significant amount of overhead resistance resides. If at any point price drops back below $4.34 or your stop is hit, exit the trade.
  • Once the price objective is reached,  either close the trade or close most of it leaving a runner or 2 for the possibility of higher prices.
  • This is a hit n run trade. The intent is to capture nothing more than short covering rally.
  • As the rally subsides and loses momentum nimble active traders may want to consider re-positioning short for a back test of the lows. Set a stop just above your entry and honor it.
  • A move from $4.34 to $5.15 may not seem like much but its about 18-20%. By the way, USO has a very liquid option chain with tight spreads. There is the opportunity to leverage the trade as much as you want within reason.  As always, stick to risk tolerances you’re comfortable with. No need to go out on a limb.

Dont forget to set your alarm!!

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