Stalking the bullish trend reversal in crude oil (OIH)


Getting off to a shaky start yesterday morning, the major indices were trading sharply lower after the first 30 minutes of trading. However, the bulls quickly took control, enabling stocks to reverse early losses and finish moderately higher. Shortly after the open, the Nasdaq Composite was trading 1.0% lower. But morning buying interest enabled the index to move back to the flat line less than an hour later. After consolidating through mid-day, the Nasdaq made another leg higher in the afternoon, enabling the tech-heavy index to finish with a 0.6% gain. The S&P 500 Index and Dow Jones Industrial Average followed similar intraday patterns before closing higher by 0.4% and 0.1% respectively. The small-cap Russell 2000 and S&P MidCap 400 registered matching gains of 0.4%. The main stock market indexes finished just below their best levels of the day.

Volume swelled across the board, enabling both the S&P and Nasdaq to score a bullish “accumulation day.” Total volume in the NYSE ticked 17% higher, while volume in the Nasdaq rose 25% above the previous day’s level. Despite the increased trade, turnover in the NYSE remained slightly below average. Volume in the Nasdaq edged back above its 50-day average. Overall, volume patterns in the broad market remain firmly positive, as “accumulation days” (gains on higher volume) continue to exceed the number of “distribution days” (losses on higher volume).

We like the pattern developing in U.S. Oil Fund (USO), an ETF designed to roughly track the price of crude oil commodity futures. In recent months, USO has been a laggard. However, it recently broke out above resistance of a five-month downtrend line, and is now consolidating at a pivotal level of horizontal price resistance. The setup is shown on the daily chart of USO below:


Drilling down to the shorter-term hourly chart interval enables us to more clearly see the ideal entry point, in anticipation of USO breaking out and making another leg higher. Take a look:


The dashed red line on the chart above marks resistance of the hourly downtrend line, which begins with the October 7 high. Notice the downtrend lines up with resistance of yesterday’s high, which converges with resistance of 40-period moving average on the hourly chart. As such, a rally above yesterday’s high would correspond to a breakout above several very short-term resistance levels, thereby triggering a valid buy entry. Regular subscribers should note our detailed entry, exit, and stop prices for the USO set up in “Today’s Watchlist” below.

In yesterday’s commentary, we briefly explained how we use the hourly chart interval for determining trailing stop prices to maximize profits on strongly-trending, winning ETF positions. Several subscribers subsequently sent us e-mail, saying they appreciated the mini-lesson. Since our new, tighter stop in EMB was not triggered in yesterday session, let’s take an updated look at the hourly chart and show why, and at what level, we are raising our stop again in today’s session. The first chart below is from yesterday morning’s commentary, while the second chart shows the price action through yesterday’s close:



Going into yesterday’s (October 12) session, our new stop in EMB was $112.35. That stop was just below the previous day’s low, which typically acts as a very short-term level of support, just as the previous day’s high usually provides very short-term resistance. But more importantly, a stop below the previous day’s low also worked out to being below the 20-period EMA on the hourly chart. Now, going into today’s session, we have raised the stop about $0.25 more, which is now below the October 12 low, as well as the rising 20-period EMA. Using this rather simple methodology of trailing stops on a winning positions enables us to maximize profits, while limiting the risk of giving back hard-earned gains.

Today’s Watchlist:

US Oil Fund (USO)

Shares = 350
Trigger = $36.01 (above yesterday’s high)
Stop = $34.34 (below the 20-day EMA)
Target = $39.40
Dividend Date = n/a

Notes = See commentary above for explanation of the setup.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

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  • We have raised the stop on EMB again, in order to maximize profits.
  • PBW missed our trigger price for pullback entry by just three cents yesterday. It remains on our watchlist, though not as an “official” set up going into today. If we get another pullback into PBW, we will send an Intraday Trade Alert if we enter it.
  • On October 1, EMB paid a dividend of $0.445 per share. The distribution has been included in the “Points” and “Unrealized P&L” columns.
  • Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
  • For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader