It scuffled a little bit to end March, but the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, has come roaring back. Aided by oil’s ascent to the $40 per barrel level, the widely followed USO is up more than 13% over just the past week.
Of course, volatility remains a hallmark of dealing oil-related exchange traded products. As was recently seen, USO went from sporting a double-digit one-month gain to correction territory in the span of just a few weeks. Obviously, USO has recently reversed course for the better and that has some technical analysts for more upside to come for oil ETFs.
“It appears that the pullback in crude oil is over and I think price will run to new recovery highs. The recent slide has worked off daily overbought momentum readings on the 14-day RSI, setting the stage for another move higher. The daily MACD remains in positive territory and is starting to turn higher,” according to a See It Market analysis of oil futures.
However, plenty of skeptics remain regarding oil’s fundamental outlook. There might be something to that skepticism as many of the world’s major ex-U.S. producers of oil have not displayed a willingness to pare production. Even the output reductions in the U.S. have been modest. The good news is U.S. shale output is slightly declining, but challenges remain on the output front from OPEC producers.
From a technical perspective, there are signs that energy stocks are ready to rally as well and that would be good news for ETFs such as the Energy Select Sector SPDR (NYSEArca: XLE).[related_stories]
With earnings season here, investors should keep an eye on XLE and rival energy ETFs. The energy sector could deliver an operating EPS loss over Q1 for the first time this century. While crude oil prices plunged over the past year, energy producers still managed to eke out positive gains in prior quarters.
“On the weekly XLE chart, price is pressing up against some key bearish trendlines. There were some bullish weekly momentum divergences at the recent lows, so I think XLE busts through these pieces of resistance and aids energy stocks in general. An initial 38.2% retracement of the entire bear market sits up in the 67/68 area and is also a potential targeted level,” said See It Market.
United States Oil Fund
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.