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Oil ETF Back on Buy Signal
by Carl Swenlin
October 16, 2009
In my September 25 article I headlined the fact that the Oil ETF (USO) had generated convincing sell signal, so I think it is appropriate to report that the signal has recently turned to a buy. Below is the chart from the 9/25 article showing the breakdown from the triangle formation that accompanied the sell signal. It still looks good to me, but that breakdown turned out to be a shakeout, a final decline clearing the market of sellers and setting up another advance.
On the next chart you can see how the shakeout lows redefined the lower limits and shape of the triangle. Prices rallied off the shakeout base and broke through the top of the triangle. Prices have also broken through the 200-EMA, so I think this move has a lot of credibility. Of course, I also thought the sell signal was very credible too, but we must change our opinion as the evidence demands.
Gold has also made a decisive break above important overhead resistance. I have been concerned that gold would not be able to do this because a rally in the dollar seemed imminent, but the dollar has failed to rally, and gold has shown its strength. At this point I wonder if the oversold condition of the dollar will lead it to decline even further. The technical expectation for gold at this point is for a pullback toward the recently penetrated resistance, now support.
Stock prices have continued to move higher in spite of broad expectations for a decent correction. Looking at the weekly chart of the S&P 500, we get a longer-term perspective. The price index is headed into an apex where the long-term declining tops line and the top of the ascending wedge pattern converge. It sure looks like a rally stopper to me. The crystal ball says rally top should be in place within a week or two.
Bottom Line: Breakouts in the prices of oil and gold indicate a lack of confidence in the ability of the dollar to rally. Stock prices are approaching long-term resistance, and there is a strong possibility that the rally will finally end. That is not to say that the bull market will be over at that point, but a healthy correction is overdue.
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Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
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#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
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Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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