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Curious Move in United States Oil Fund (USO)
By Dian L. Chu, Economic Forecasts & Opinions
United States Oil Fund (USO) was a big mover on Friday jumping 3.69% to $35.65, outperforming other ETFs. The fund was trading in the negative territory for the most part in the morning, but spiked up around 11:45 EST, and kept the momentum through closing. (Chart 1)
Curious Move On a Friday
Some of the sharp move could be attributed to crude oil and the Dollar.
Crude oil moved higher as well on Friday, up 3.07% to $78.86, partly on concerns over a possible tropical storm hitting the Gulf of Mexico.
Meanwhile, dollar was moving lower on weaker U.S. GDP release, coupled with the recent slew of softer data on jobs and housing.
Typically, a declining dollar would prompt a flight to gold as the ultimate dollar hedge. But USO managed to outperform the SPDR Gold Trust (GLD), which was up 1.2%, as well as the United Natural Gas Fund (UNG), up 2.97%. (Chart 1)
Friday is usually a light trading day as traders take profits off the table unwilling to risk long positions into the weekend. So, this move on crude, the dollar and USO caught some traders off guard.
Dollar Unwind
Of course, one could very well argue that one day does not make it a trend. Nevertheless, it seems to suggest some dollar unwinding, as markets are beginning to reassess the dollar risk ahead of the G8 and G20 meetings -- the still loose deficit spending of the U.S. vs. austerity measures in Europe and the monetary tightening in China.
This trend is evident in the dollar chart. For the week, the dollar index has slipped for a third week, particularly against the euro, while commodities and equities seem to have reacquainted the historical inverse relationship with the dollar. (Chart 2)
Better Prospect in Crude
Another suggestion is that since gold has had a nice run-up, while natural gas has relatively poor medium-term fundamentals, certain players could view crude oil, along with USO fund, as better investments, relative to gold and natural gas, at the moment.
Sovereign Funds Diversification
Market movements aside, two recent events also signal longer-term bullish for commodity and commodity-related ETFs in general.
Back in February, Bloomberg reported that China’s sovereign wealth fund--China Investment Corp.--invested for the first time in the U.S. Oil Fund (USO) and became the fourth-largest holder with a value of $78.6 million.
Chesapeake Energy (CHK) also announced this week it has sold US$900 million in preferred stock to sovereign wealth funds from China, Singapore, South Korea, Abu Dhabi, as well as two private-equity firms, as reported by The Wall Street Journal.
The BP Gulf disaster most likely will increase investor interest in onshore energy and natural gas. So, conceivably, sovereign funds would continue to look at commodity investment vehicles such as UNG and USO for diversification, as well as a hedge against their massive dollar holdings.
USO – A Technical Look
While I don’t typically recommend futures-based ETFs due to the rolling effect, for investors who are still interested, the following is a technical take on U.S. Oil Fund (USO). (Chart 3)
USO shares were trading in the bearish territory for quite a while. The next few trading sessions should decide if the momentum from Friday would hold to a definitive breakout.
Meanwhile, the shares should find the next resistance at the 50-day moving average of around $36, support at $33- $34. If it breaks above the $36, the next resistance level should be around $38.
Near Term Indicator – The U.S. Dollar
In the near term, markets—commodity and equity—most likely will look to the dollar and macro indicators for direction, which is something investors should also keep a close watch on.
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Could be a big week for oil if the Israel news is accurate. Go USO.
Attacking Iran is a bad move.
figure out a way of sucking the oil plumes stuck on the sea bottom and you get unlimited oil along with destroyed environment. US win by fail since 1937.
This dumb parent can just soak it off her kids. Plenty of oil.
http://www.liveleak.com/view?i=d43_1277574099
I'd choose USL over USO, unless you like contago rape. USL holds several months, not just the front month. So roll over is not a complete beat down.
Great analysis!
I will add I think investing in ETFs is like investing in Paris Hilton. Both are overrated and fake.
Iran attack chatter.
USO...It might have something to do with this:
http://www.zerohedge.com/article/uss-carrier-harry-truman-now-officially...
You never know.
(don't need to either)
LOVE the pic, Robot...oh, and the charts too.
Check out the huge 3.5 million spike on Friday.
Also, "Do or Die" for the U.S. Dollar, about to crash through the 50-day:
FCX took off like a scalded dog also....It was lagging badly the last few weeks.
Maybe Asia will give us clues when it opens later tonight.
It's debatable who is the best Economics/Finance blogger on the internet. But there cannot be any doubt who is the best commenter in the history of Economics/Finance blogging: Hands down: RobotTrader I think my little brother actually jumped that time.
Die My Doelarr!
@ robo
so basically that 3.5 million share trade spiked the price of oil .75 per barrel, and it held. so that cost $100 million (of buying power) to move oil .75/barrel. let's see, 85 million barrels per day .....
well anyway, while the pussies on wall street are pushing the keyboard, here's what real men do:
http://www.trutv.com/video/shows/black-gold.html
Awesome Photo! Charts aren´t bad either.
so...by the way.. that's the greatest photo I've ever seen.
Strong rise in copper as well this week... This is nothing about growth prospects, so maybe Geithner is set to announce something at the G20?
This is in response to the spike in production for copper content and reduced inventories. This is a normal lagging indicator for a growth event. Much like Semiconductors. But the BDI is showing a pullback in production. So the effect is temporary.
Mark Beck