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Rant & Rave Blog

Short Term and Long Term Way Oversold Oil/USO Here. No Brainer It Seems

Posted by InTheMoneyStocks.com Wednesday, February 18, 2009, 07:00PM ET

Read 698 times

Short Term and Long Term Way Oversold Oil/USO Here. No Brainer It SeemsOil has plummeted over the last week from the $40's into the mid $30's and down from a high of $148 per barrel.  Percentage wise this is an extremely quick drop and showing some major short term oversold signals.  In addition, the weekly chart shows the massive drop in oil from the highs in mid 2008.  Both charts are viewable below.  This again shows an extremely oversold chart and oil without a doubt is due for an extended bounce. In addition, the PPI numbers released today showed a surprise increase in prices.  Is inflation back?  This could cause the dollar to weaken as inflation creeps back into the mind of Wall Street. If the inflation trade, as the government prints massive amounts of money, begins to come back into the picture this would add to the strong possibility of a pop on oil.  With oil trading at approximately $35 dollars a barrel, risk reward is extremely low.  A pop on oil with these factors all in force could raise the price to $60 per barrel or more.  This, I expect to occur over the next 3 months.  Note the increase in gasoline prices have already started.  Oil is lagging gasoline because of the near term over supply.  However, this over supply has and will be compensated for by producers as they slow the rigs production and take offline any rigs/wells that have costs higher than production values.  At these levels on oil, many wells are no longer cost effective.  In addition, OPEC continues to cut production and though they have been known to cheat, some oil has definitely come off the market.  The last factor that must also be recognized is that Russia and other countries are in a tailspin after their profits from oil have vanished.  The Russian economy is suspected to need $75 dollar oil just to sustain itself.  Do not think that Russia and other oil producing nations dependent on a higher oil price will not take action. 

Near term and long term oil should bounce from these levels. This bounce could be fast and furious over the next couple months.  Below are the 60 minute chart and the weekly USO chart. Both are clearly oversold at current levels.



RealTick graphics used with permission of Townsend Analytics, Ltd. ©1986-2009 Townsend Analytics, Ltd. All Rights Reserved. RealTick is a registered trademark of Townsend Analytics, Ltd.

RealTick graphics used with permission of Townsend Analytics, Ltd. ©1986-2009 Townsend Analytics, Ltd. All Rights Reserved. RealTick is a registered trademark of Townsend Analytics, Ltd.

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