Oil ETF USO Chart - August 8, 2008

I charted USO this morning to get an idea of where the price of oil might find support.  Don’t get too excited when you see these numbers, USO and the price of oil are not equal and do not move dollar for dollar.

USO is down more than 20% from its high, making it a technical bear market for oil now.  How quickly the tides turn.  (I’m leaving for the beach in two hours, so I had to figure out a way to mention the tides.)  The 90 range was somewhat of a ceiling and then a floor in March and April.  USO is edging closer to it now and could hold support.  What could help that range offer support is the year long trend line of higher lows that started last August and touched again in January and February.  The longer trend lines tend to have more “power” for support than the shorter ones like the current down trend of lower lows that started six weeks ago. 

If the 90 range (not pegging an exact price because the floor/ceiling in the springtime wasn’t exact) does not hold, we could see another 9-10% drop taking USO down closer to 80 where it was a ceiling in November and December 2007 and again in February 2008 before using it as a floor three weeks in a row in March 2008.  This line around 80 seems to be stronger.  If/when USO gets down there again and even briefly shows support, I’ll likely being buying calls or at least selling puts for the upside run that will likely follow.