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CANDLESTICK CHARTING


Inside Days For USO

06/13/08 09:13:43 AM
by Arthur Hill

While the long-term trend for the United States Oil Fund ETF is certainly up, an extended harami shows hesitation that could foreshadow a correction.

Security:   USO
Position:   Hold

Figure 1 shows candlesticks and focuses on the last two weeks of trading. The United States Oil Fund ETF (USO) surged above 110 with a gap and long white candlestick. After this surge, the exchange traded fund (ETF) formed a smaller black candlestick. The entire range of the black candlestick was within the range of the long white candlestick. An inside day formed and the two candlesticks formed a harami. With another three inside days, I would suggest that an extended harami is taking shape.

FIGURE 1: USO, DAILY. Here are the last two weeks of trading. This ETF surged above 110 with a gap and long white candlesticks.
Graphic provided by: TeleChart2007.
 
After an advance, the harami is a bearish candlestick reversal pattern that requires confirmation. Right now, the ETF is simply stalling after an advance and has yet to actually reverse. A move into the gap zone would start the reversal process and this could lead to a bigger correction in USO.

Figure 2 shows the five-month trend for the USO. The ETF is clearly in an uptrend with support around 98. The February trendline and early June low mark support in this area. Below 98, I am marking the second support zone around 87. This stems from broken resistance and the late April low.

FIGURE 2: USO, DAILY. Here's the five-month trend for the USO. The ETF is clearly in an uptrend with support around 98.
Graphic provided by: TeleChart2007.
 
For clues on the medium-term uptrend, I will be watching the relative strength index (RSI). The indicator moved into bull mode with a break above the 50–60 resistance zone in February (red box). During the entire advance, the 40–50 zone has acted as support for the RSI. A break below 40 would break this support zone and be bearish for momentum.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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