Note that this article was co-written with Larry Footer.
Knowing when to buy and when to sell can be a tricky business. That’s why at Market Inflections, we utilize an algorithm developed by Parallax Financial Research which identifies when trends are most likely to begin and end. Last week, we advised our clients that this algorithm (which we call Euclid) generated a notable crude oil Buy signal.
More specifically, this buy signal showed up on the daily chart of the United States Oil Fund (NYSEARCA:USO). This suggests that the downtrend which Oil prices (and the USO) have been in for the past month is about to come to an end.
USO Snapshot – buy signal
This appears to be an excellent setup for a long swing trade on USO and Crude Oil futures. What makes this buy signal interesting is that Euclid generated a longer term buy signal on the USO ETF back in February 2016 which is significant through at least 2019. That signal is among the largest bottom signals ever generated by our systems.
Our assessment: couple this short term crude oil buy signal from last week with the longer term buy signal from February and this recent drop might just be a gift to establish new long crude oil positions or add to existing ones, especially if you missed the last rally earlier this year.
There are a number of possible ways we are looking at trading this buy signal:
- buy shares in the USO ETF
- buy Calls or Call Spreads on the USO ETF which expire in December or January
- sell Puts or Put Spreads on the USO ETF which expire in December or January
- buy January Crude Oil Futures Contracts
- buy Calls or Call Spreads on the January Crude Oil Futures Contract
- sell Puts or Put Spreads on the January Crude Oil Futures Contract
If you would like to read more about what our trading algorithms are saying about dozens of other securities, then we encourage you to download a complimentary copy of this week’s ExtremeTrading Signals Service report from Market Inflections.
Twitter: @interestratearb @larryfooter
The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.