Will the Momentum Continue for Oil Stocks and ETF’s?

Tom Gentile

Posted in
Daily Report

By: Tom Gentile
April 4th, 2023

3 mins read

Yesterday, OPEC+, which stands for Organization of the Petroleum Exporting Countries, (the + is for the other Non-OPEC countries in the group) announced a surprise decision to cut oil production by 2 million barrels per day (bpd)./

The de facto leader of the group, Saudi Arabia said the cut, which equals 2% of the global supply, was a necessary response to rising interest rates in the West/U.S. and a weaker global economy.

This surprise decision caused a pop in the oil sector.  There are many ETF’s for oil and energy and the one I use in my weekly newsletter as my representation for oil is the United States Oil Fund LP, (NYSE: USO).

You can see the strong gap up yesterday on USO. It not only gapped up, but it stayed up at or a bit higher than its open price.  This is a bullish move.

Figure 1: 120-Day Candle Chart USO
Figure 1: 120-Day Candle Chart USO

Today, the concern was to see if the price level it gapped up to yesterday holds or if it sells off.

The candle day shows it was a bearish reversal day (it traded and closed lower than it opened).  Though it closed lower on the day it closed at or near the close of yesterday, we see it as a bit of confirmation the price level is being sustained.

Two things I am looking for is…

(1B) if the horizontal resistance price level of 72 will remain resistance.  If USO trades up to 72 ill that be a sell point for traders/investors that drives the stock price down at that point.

(1B) does USO take out resistance at 72, maintain that price level indicating even higher prices are still to come


(2) Does USO see profit taking kick in where traders/investors sell some or all of their oil position(s) to bank some profits that happened because of this move.

If they do and USO starts to drift back in price, it will look like the ETF is filling in the gap that happened 2-trading days ago.

That wouldn’t be a surprise and it doesn’t necessarily mean the ETF will trade in a bearish fashion for long.  Gaps tend to get partially or fully filles only to see traders/investors jump back in at a slightly lower price than where it gapped up to.

There may also be folks who did not get in on this pop in price and don’t want to chase the ETF price and the fill of the gap gives them another chance to partake in potential future price movement higher.

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