US Oil Fund (USO) Can't Escape Bear Market: What's Happening?

Zinger Key Points
  • USO is trading in a confirmed downtrend, making a series of lower highs and lower lows.
  • A bounce may be imminent because USO has entered into oversold territory on the daily chart.

The United States Oil ETF USO attempted to bounce up on Monday but ran into a group of sellers who knocked the fund down about 2.5%.

The broad market sell-off, which has taken place amid recession fears, gripped USO in early June, bringing the fund down more than 30% since the June 8 52-week high of $92.20. The decline has outpaced the S&P 500, which has plunged 11.67% since that same date.

Over the course of this year, however, USO is up about 18% while the S&P 500 is down 23%.

Despite Russia’s invasion of Ukraine sparking fears of an oil shortage, which caused USO to gain ground during much of the first half of 2022, soaring inflation has hampered energy prices. In economic downturns, people travel less, which reduces oil consumption.

From a technical perspective, the longer-term trend for USO is down but the fund looks set for a bounce over the next few days due to USO entering into oversold territory on the daily chart.

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The USO Chart: USO entered into its most recent downtrend on Aug. 29 and has since made a consistent series of lower highs and lower lows. The most recent lower high was formed on Sept. 22 at $70.81 and the most recent confirmed lower low was printed at the $67.49 level on Sept. 19.

  • On Monday, USO’s drop caused the relative strength index (RSI) to the 29% level. When a stock’s RSI nears or reaches the 30% level it becomes oversold, which can be a buy signal for technical traders.
  • There’s a gap on USO’s chart between $66.25 and $68.53. Gaps on charts fill about 90% of the time, which makes it likely USO will rise up to fill the empty trading range in the future.
  • If that happens, bearish traders can watch for USO to print a bearish reversal candlestick near the top of the gap for a possible solid entry point. Bullish traders will want to watch for the fund to print a bullish reversal candlestick over the next few days to signal a bounce is on the horizon.
  • USO has resistance above at $64.40 and $66.88 and support below at $62.17 and $58.81.

Photo: Shutterstock

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