Oil looks to be on the way down and I have a way you can potentially take advantage of the opportunity with an inverse exchange-traded fund (ETF)
First, I want you to take a look at the chart for the United States Oil Fund (NYSE: USO), below:
As you can see, the forecast trend is lower for the next several weeks. My other forecast charts show the entire U.S. market on a downward trend (more of this in my Mastering the Markets premium letter).
With my data showing a possible decline in the price of oil, I have selected an inverse ETF for this week's recommended trade. The fund is the UltraShort DJ-UBS Crude Oil ProShares (NYSE: SCO) ETF. This fund is designed to generate approximately twice the inverse daily performance of the Dow Jones AIG Crude Oil Sub-Index. Owning shares of this ETF, in theory, means that as the price of oil goes lower, the price of shares of this fund should move higher.
I should note, however, that this complex securities product is designed to meet its stated objectives on a daily basis. Its performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of its underlying index or benchmark during the same period of time and this effect can be magnified in volatile markets.
Technically, the ETF is giving a buy signal, as it has just crossed my 10-week, time-shifted trend line (blue line in the chart of SCO, above). It trades in zone 1, which means it has an historical price range that leaves most of the range above the current price. This could provide SCO room to move higher with what appears to be more upside opportunity than downside risk.
I find it very interesting that volume has been steadily declining for weeks on lowering prices. This is exactly the kind of action I look for when my time-cycle forecast is in the opposite direction. This gives me the potential opportunity to buy shares of SCO on sale. I will be looking to pick this ETF up on any oil rally.
Action to Take--> Assuming no major flare-up occurs in the Middle-East, oil could move quite a bit lower if my forecast charts are correct. Based on this analysis, I think SCO is a good trade to put on with a target price of $23.50 and an initial stop loss of $13.50. If I'm right, investors could make a +47% return based on recent prices.