Oil bounced today after dropping sharply the last two days. After topping out around $113.00 per barrel last Friday, oil collapsed into the $105.00 range. This drop over the last two days scared many speculators into selling oil. News hit the market that Goldman Sachs Group, Inc. (NYSE:GS) had told their clients to sell. In addition, there seems to be more signs that the sharp incline in oil prices have sent consumers into hiding.

Oil is bouncing today, with the United States Oil Fund LP (NYSE:USO) trading at $42.72, +0.42 (+0.99%). Oil was going to bounce today, there was no doubt about it. I made the bullish call yesterday and I will explain why?

Prior to the latest move in oil that sent it to $113.00 and the USO to $45.20, oil had been hammering on the 2010 high. This 2010 high happened to be at $42.15 – $42.20 on the USO. Note the chart below clearly showing this pivot high from 2010. Finally, oil broke through this major resistance point, spiking dramatically higher.

After the USO hit $45.20 on Friday, it started the drastic sell off over the last two days. As it fell, guess what level it fell into? The USO slammed into the $42.15 – $42.20 level which was the former breakout resistance level from 2010. This now becomes massive support and an ideal level for a bounce. Sure enough, today speaks for itself with oil bouncing sharply. It is a beautiful thing to learn the charts.

Not only did I alert a bounce on the USO and on oil but I also covered my Chevron Corporation (NYSE:CVX) short. In addition, it made sense to also go slightly bullish on the markets due to the fact that if oil bounced, most likely the markets would get a small bounce as well. Sure enough, the markets opened higher today, getting that bounce on oil.

Gareth Soloway