Recent news of
falling economic growth in China and India
combined with rising unemployment in the United States has United
States Oil (
USO
,
quote
) plunging. Emerging market investors might consider the
exchange-traded fund as a proxy for future economic development
around the world.
The trend has definitely not been the friend of the shareholders
of USO. It is trading double digits below its 20-day, 50-day and
200-day moving averages. The main ETF for oil is down for
the last week, month, quarter, six month period, and year of
market action. Year to date, it is off by 14.43%.
An opportunity is forming for emerging market investors. The
relative strength index rating for United States Oil is now
16.16, and a rating of 30 is indicative of a security being
oversold.
There's also a short float of 47.95% for USO, where a short
float of 5% is considered high. A short float of this magnitude
on an ETF means investors anticipate the entire sector could
continue to fall.
There are many factors militating against this for United
States Oil. Unrest in the Middle East (specifically Iran) could
send oil skyrocketing again. To preempt tension in their
countries, Saudi Arabia and other OPEC nations are committed to
oil at $100 a barrel. China and India - along with many other
emerging market countries - are still growing. Global demand will
eventually increase again for crude oil.
In addition, the higher unemployment rate in the United States
could lead to a
third round of quantitative easing by the Federal
Reserve
. Should this happen, the US dollar (
UUP
,
quote
) will weaken and oil will rise, as happened during the second
period of quantitative easing over 2010-2011 from the
Federal Reserve under chairman Ben Bernanke. During that time,
the price of USO rose from the low $30's to the mid $40's per
share.
For those looking for a short in the event of a third round of
quantitative easing to pair with a long position on United States
Oil, the Power-Shares DB US Dollar exchange traded fund has
fallen from over $25 to around $20.
