Oil has spiked over the last month, moving well above the $80 level in the last week. This has partly due to the dollars pullback off a recent high yet more so because the outlook on the global economy has improved dramatically. Everywhere you look, stocks are near or at new 52 week highs, commodities are there as well. While everything seems fine and dandy, I am putting my reputation on the line again to make another bold call. I am giving a negative bias on oil and the U.S. OIL FUND ETF (NYSEArca: USO) in the short term based on overbought properties.
Throughout my trading history as a Chief Market Strategist at InTheMoneyStocks.com, I have prided myself on being ahead of the curve on major calls. Whether it was calling for the collapse of the markets and the financial system in 2007 or calling for a huge decline on oil when it was trading at $145 per barrel, I truly pride myself on being able to stick my neck out and being right a high percentage of the time.
Looking at the USO in the near term on a technical basis, it shows a clear oversold play as of today. I had given the outlook on December 11th, 2009 to go bullish after the USO and oil hit major support at the 200ma on the daily. Since then it has climbed from just over $35.00 to a high yesterday of just over $41. As I said earlier and I made the call to my premium Research Center subscribers last night, I am now looking for a pullback on the USO and oil. That is why I am issuing a negative bias.
The key to this play is not that the dollar strengthening will put a lot of pressure on oil, instead it is more that I believe the market has become overly confident in the recovery of the global and domestic economy. Once this market gets a reality check, oil should come down sharply in the next few weeks. Once it pulls back, I will adjust my bias once again. Stay tuned.
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
