How To Profit From A Changing Of The Guards In Crude Oil ETFs ($USO)

Going into today, US Oil Fund ($USO) is a new ETF swing trade setup on our watchlist for potential buy entry. In case you are not familiar with it, $USO is a commodity ETF that approximately tracks the price of crude oil futures contracts.

For nearly a year, the price of crude has been in a choppy, sloppy sideways range, but there now appears to be a changing of the guards shaping up.

If the bullish price action we have been observing follows through, we could see a dominant trend reversal that could at least lead to a new intermediate-term uptrend in crude oil. This is shown on the weekly chart pattern of $USO below:

On the weekly chart, notice that $USO broke out above resistance of its downtrend line a few weeks ago. This followed an “undercut” of its November 2012 lows that happened in April 2013. That move likely had the effect of washing out the last of the “weak hands” who wanted out, thereby absorbing overhead supply that will now enable $USO to more easily move higher.

Zooming into the shorter-term daily chart of $USO, we see that the ETF broke out above resistance of its short-term downtrend line (from the April 2 high) just two days ago and is holding the breakout:

Although it obviously may have been better to buy on the actual day of the June 14 gap up, this ETF is still not too far gone to provide a decent buy entry with a positive reward-risk ratio. As such, subscribing members of The Wagner Daily should note our exact and preset trigger, stop, and target prices for this trade setup in the “Watchlist” section of today’s swing trader report. As always, subscribers will be notified if/when we buy $USO.

By the way, one benefit of trading commodity ETFs such as $USO is they frequently have a low correlation to the direction of the major indices such as the S&P 500 and Nasdaq. Therefore, regardless of the stock market’s next move, $USO is capable of doing its own thing.

Why does it matter if $USO has a low correlation to the broad market? It is important to know because trading such ETFs may help lower overall risk in portfolios that may be too dependent on the direction of the broad market.

In addition to commodity ETFs, currency ETFs, fixed-income ETFs, and (to a lesser degree) international ETFs can provide the same benefit of low US stock market correlation.