This recommendation is based on historical seasonal oil price action. The ETF is currently in the ‘buy’ range.
United States Oil (USO)
From Stock Trader’s Almanac
Crude oil has a tendency to bottom in mid-February and then rally through July (highlighted in yellow in chart below) with the bulk of the seasonal move ending in late April or early May. It is that early February low that can give traders an edge by buying ahead of a seasonally strong period. Going long crude oil’s July contract on or about February 13 and holding for approximately 60 days has been a profitable trade 26 times in 32 years, including last year in 2015, for an 81.3% win ratio with a cumulative profit of $96,100 (based upon a single futures contract excluding commissions and taxes).
Crude oil’s seasonal tendency to move higher in this time period is partly due to continuing demand for heating oil and diesel fuel in the northern states and partly due to the shutdown of refinery operations in order to switch production facilities from producing heating oil to reformulated unleaded gasoline in anticipation of heavy demand for the upcoming summer driving season. This has refiners buying crude oil in order to ramp up production for gasoline. In recent years, crude has been finding a bottom earlier. Last year, crude double bottomed in late January and mid-March rallying from about $50 to just over $60 per barrel in May/June before rolling over last summer.
United States Oil (USO) is the largest and most liquid of the futures-backed ETFs. It trades in excess of 30 million shares daily and has net assets exceeding $2 billion. USO is once again off nearly 60% from its 52-week high reached last year in May. Its stochastic, relative strength and MACD indicators are deeply into oversold territory. USO can be purchased below $9.00.
Jeffrey A. Hirsch, Stock Trader’s Almanac, www.stocktradersalmanac.com, 800-762-2974, January 19, 2016