USO: Bullish Wedge Update
Nothing has really changed fundamentally in crude oil; the technical picture has been updated to a wedge to reflect the recent price action. Trade remains constructive. Buying the bottom of the range and collecting positive carry. Demand for end products remains high and will be supportive.
Prior thesis:
I think structurally (fundamentally) crude oil needs another 25% leg up anyway to be fairly priced (assuming conflict remains but doesn't escalate, and producers don't go back online). 1) The short term news of 1 million released daily from the SPR is nothing (versus the 20 million we consume daily). 2) We are also entering spring /summer/fall where oil is more heavily consumed; on top of an end of COVID lock downs (doesn't seem like we will be doing that anymore even in blue states). 3) With high inflation (houses and physical goods) I can see consumer preferences change from stuff to experiences, ie traveling. Even oil is relatively high to its spot price, inflation adjusted its significantly lower than its last peak - there is probably another spike left to go up.
I think the risk-reward is worth it to buy at the bottom of this channel before we continue heading higher to at least PT of ~96. A position is merited here to be added on the upward breakout if supported by a strong volume bar. I think the downside argument could be made that instead of a pennant this is a longer-term (beginning of) distribution pattern, evident by a selling climax. However, if that's the case USO will have some support by the current positive carry of crude oil giving some positive return (or cushion to ~3-4% monthly) while consolidating in the range. If discovered there is a longer term distribution pattern on the way - I can probably exit at flat.
Prior thesis:
I think structurally (fundamentally) crude oil needs another 25% leg up anyway to be fairly priced (assuming conflict remains but doesn't escalate, and producers don't go back online). 1) The short term news of 1 million released daily from the SPR is nothing (versus the 20 million we consume daily). 2) We are also entering spring /summer/fall where oil is more heavily consumed; on top of an end of COVID lock downs (doesn't seem like we will be doing that anymore even in blue states). 3) With high inflation (houses and physical goods) I can see consumer preferences change from stuff to experiences, ie traveling. Even oil is relatively high to its spot price, inflation adjusted its significantly lower than its last peak - there is probably another spike left to go up.
I think the risk-reward is worth it to buy at the bottom of this channel before we continue heading higher to at least PT of ~96. A position is merited here to be added on the upward breakout if supported by a strong volume bar. I think the downside argument could be made that instead of a pennant this is a longer-term (beginning of) distribution pattern, evident by a selling climax. However, if that's the case USO will have some support by the current positive carry of crude oil giving some positive return (or cushion to ~3-4% monthly) while consolidating in the range. If discovered there is a longer term distribution pattern on the way - I can probably exit at flat.
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