Oil Heading Lower? The USO Short Trading Setup

crude oil dropCrude Oil prices have broken lower this morning and it appears that even lower prices are in the cards over the coming days. If this development continues, it will mean two things: 1) less pain at the pump and 2) an opportunity to get short with well defined risk-reward. One vehicle that I’ve been tracking is the United States Oil Fund (USO), which is an ETF that follows Oil price movements.

Technically speaking the set-up is pretty clean from an Elliott Wave perspective. USO recently put in a wave (iv) high. And with this morning’s weakness, USO appears to be on track for wave (v) with a potential target zone as low as $32.81. Since USO gapped below the wave (iii) low, former support is now resistance ($34.58). This area (with a little wiggle room) can now be traded against. Note that this is a short-term opportunity.

Crude Oil can be volatile so stop losses are an important part of any plan (whether it means taking a loss, or tightening the stop loss to ensure profit).

USO 6 Hour Chart with Elliott Wave

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uso elliott wave chart september 2014

Author holds a short position in USO 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.