WTI crude oil futures are down Tuesday morning after churning over the past four days. This should create a buying opportunity since the larger context is bullish. WTI broke out on 2/18 from a double bottom pattern that had been forming since late 2013. The measured move is approximately 110 (adding the height of the formation to the top of it). I’m more concerned with a supply zone spanning 109 to 105, based on the congestion last July to September.
FOLLOW THE TREND
Position traders should consider a trend following approach such as staying long until the 20-day simple moving average turns down. This is better than basing your decisions on price targets that may or may not be reached.
For now, there isn’t any sign that the overnight sell-off has run its course. There’s a possibility of a bull flag forming. This is a period of tight congestion in which profit taking by short-term traders is absorbed by buyers; once that selling has run its course, the uptrend resumes. It would be best to wait for some evidence of seller exhaustion before banking on that outcome.
Those who trade USO (United States Oil Fund) should keep in mind you don’t want to hold it for more than a few months due to the tracking error. Over long periods time gains in USO can be eroded even if WTI holds its ground.
Good trading, everyone.
