Good morning, all. I hope you didn’t melt over the weekend. In addition to a paradigm shift in the stock market to optimism toward the economy rather than dependence on Fed stimulus, a key theme I’m watching at miAnalysis is the prospect for a breakout in WTI crude oil futures from a symmetrical triangle pattern that has been forming since May 2010.
THE PLAY
Position traders should look to buy USO (United States Oil Fund) or other exchange traded products that pace oil after a short-term pullback (look to trade in and out of it; tracking error makes holding USO beyond a few months problematic).
BULLISH FACTORS
Two factors favor a breakout. One, the congestion from February to June resolved higher. That means a lot of supply was eliminated and the bulls took control. Two, RSI averages show momentum is strengthening and isn’t anywhere near an overbought condition.
PATIENCE IS A VIRTUE
Going long now isn’t a good idea. There’s a good chance you’ll get a better entry point. A rally past the upper barrier of the triangle overnight attracted selling. Plus, price is extended (two standard deviations above the 20-day moving average, as indicated by Bollinger Bands), and at a risk of reverting to the daily mean soon.
