Oil, and more specifically gasoline, has been in the news recently. Will $4 or $5 gasoline kill the consumer one more time? For the moment it seems the improving jobs picture is helping to insulate the consumer, but at some point there will come a choking point. With that said the price chart for oil looks like it’s heading higher.
I am using the USO — the United States Oil Fund ETF — in this analysis. The price chart starts at the bottom of the 2011 correction and runs through February 29, 2012. From October to November, USO rose 33%, which was an incredible gain in a short amount of time. Naturally, consolidation would be very healthy for this market. From the middle of November through the middle of February, the USO vacillated between $37 and $40, working off the short term excess. Then the price broke out of the trading range to the upside.
Oil bulls were rewarded for their multi-month patience, but the volume was a little light for me to get too excited. However, with the pullback in price to the breakout level (after falling for a few days, USO hit $40.20 intraday today before bouncing higher) we have seen a nice volume jump. This is also confirmed by momentum in bullish mode and non-commercial speculators increasing their exposure. The one caveat will be the Strategic Petroleum Reserve. Should the rise in gas prompt the government to release oil, it could provide a short term drop in price similar to what happened following the 2011 release.