USO Broke Through Support on Heavy Volume

New York, May 4th (TradersHuddle.com) - A plethora of bad news aligned against the crude oil market pushing the United States Oil Fund (NYSE: USO), through support level on heavy volume and liquidation. The CME announced they were raising margins on member firms on the NYMEX crude oil contract, which would make holding these positions more expensive, and reducing liquidity. Adding to the increase in margin rates was weaker than expected US employment data. Nonfarm payrolls increased by 115,000 jobs lower than the 170,000 expected by economists. Many economists had recently reduced their forecasts, after ADP reported weaker than expected private employment on Wednesday. The revisions to the report showed an increase of 55,000 jobs, and the unemployment rate dropped to 8.1%.

The USO was under pressure for most of the trading session. The initial test of $100 dollar a barrel WTI which coincided with $38.50 support level on the USO was broken in the morning, and traders quickly re-priced the ETF down to support near the 200-day moving average near $37.10. Additional short term support is seen near $36.50 and $36.

The crude oil market has dropped quickly which has pulled the RSI (relative strength index) into oversold territory slightly below the 30 trigger level. During the last 6-months the RSI has not enter this level, which shows the consolidative nature of the recent ranges.

Momentum changed dramatically, with the MACD creating a sell signal with the spread (the 12-day moving average minus the 26-day moving average crossing below the 9-day moving average of the spread. The index on the MACD turned negative, which is a signs of increasing negative momentum. Volume increased and pushed above the 50-day moving average of volume which confirms the downward momentum.