USO TRACKING ERROR, LIGHT CRUDE AND BRENT FORM FLAGS, XES TESTS BREAK, FIVE HORSEMEN OF TECH, FB GETS BREAKOUT, GOOGLE HOLDS BREAKOUT AND AIRLINES WEIGH ON PEJ

USO AND THE LONG-TERM TRACKING ERROR ... Oil surged at the end of May, but fell back last week and remains in a short-term downtrend. For a different perspective, I am going to analyze the August futures contracts for Light Crude and Brent Crude. The USO Oil Fund (USO) and US Brent Oil ETF (BNO) are good for trading, but they are not pure plays for oil. Note that USO and BNO are made up of several futures contracts and do not exactly track the current futures contract, especially over the long-term. Chart 1 shows how badly the USO Oil Fund (USO) tracks Spot Light Crude ($WTIC) over the long-term. Three discrepancies stand out. First, light crude retraced over 62% of its 2008 plunge, but USO only retraced around 25%. Second, light crude held above the 2008-2009 lows in 2014, but USO broke these lows. Third, light crude is back above its January 2008 levels, but USO remains well below this level. USO is fine for trading, but not for long-term investing.

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Chart 1

CONFIRMING LIGHT CRUDE WITH BRENT CRUDE... Chart 2 shows August Light Crude (^CLQ15) with an advance from mid March to early May, and then a pull back over the last five weeks. This pullback marks an immediate downtrend that could be a falling flag, which is a bullish consolidation. Notice that crude formed a hammer in late May and a piercing pattern on Friday. Even though these bullish candlestick patterns signal support in the 58 area, it is still too early to turn bullish on oil again because the flag continues to fall. The upper trend line and recent highs mark resistance in the 61-62 area. The lower window shows USO with similar characteristics.

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Chart 2

Light crude only tells part of the story. Brent crude (North Sea) is considered by many as the "global" benchmark for oil. It makes sense, therefore, to include Brent when analyzing oil. I noticed that Light Crude exceeded its late May high last week, but Brent Crude did not. This could be seen as a "non-confirmation" that keeps oil in an immediate downtrend. Chart 3 shows August Brent (^BQ15) within a falling flag since early May. Brent is also showing signs of support in the 62 area, but the five week trend is down with resistance marked in the 66 area. I would look for both Light Crude and Brent Crude to breakout before turning bullish on oil again.

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Chart 3

Chart 4 shows how to search for futures symbols at StockCharts. All futures symbols begin with a caret (^) and are updated at the end of the day. Simply search for ^ to find these symbols.

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Chart 4

XES FOLLOWS OIL LOWER... The Oil & Gas Equip & Services SPDR (XES) continues to follow oil closely and the ETF is at an important juncture right now. Chart 5 shows XES peaking along with oil in early May and falling back to the breakout zone in the 27.5-28 area. This marks the second test of the double bottom breakout. Failure to hold this breakout would negate the double bottom and be medium-term bearish. Right now, XES is in an immediate downtrend defined by the Raff Regression Channel, early May high and negative MACD. Look for XES to break resistance at 29 and for MACD to turn positive to reverse the five week downtrend and keep the double bottom breakout alive.

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Chart 5

THE FIVE HORSEMEN OF TECHNOLOGY ... Scott Galloway, a leading marketing professor at the NYU Stern School of Business, considers Amazon, Apple, Facebook and Google as the four most important technology companies right now. Professor Galloway has some very interesting lectures available on YouTube. Even though the list is open for debate, I would still be inclined to add Microsoft to this list because it's market cap is similar to Google ($375 billion) and Microsoft is much bigger than Facebook and Amazon. Mr. Softy is not what it once was, but it is still a gorilla in the industry and Windows 10 is coming out.

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Chart 6

I think it is important to monitor the five horsemen of technology for clues on the sector, QQQ and SPY. These five account for around 35% of QQQ and 9.5% of SPY. Chart 6 shows year-to-date performance for SPY, QQQ and these five stocks. Amazon and Apple are by far the biggest gainers and clearly leading the pack. Google and Facebook are up more than SPY, but less than QQQ and relatively flat on the year. Microsoft is up less than 1 percent and the laggard of the group.

APPLE CONSOLIDATES WITHIN A BIGGER UPTREND... Chart 7 shows Apple (AAPL) with a surge in January-February and then a long consolidation the last three months. The bigger trend is up and this consolidation looks like an ascending triangle, which is a bullish continuation pattern. A break above the late May high would signal a continuation higher. More recently, the stock pulled back with a falling wedge the last two weeks. Look for a break above 131 to reverse this slide.

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Chart 7

GOOGLE STRUGGLES ABOVE SUPPORT... Chart 8 shows Google (GOOGL) breaking out in February, falling back to the breakout zone and establishing support in the 530-540 area in April-May. The breakout is holding for the most part and the five week trend is up, which makes me bullish at this stage. The concern here is a potential bear flag the last five weeks. A break below 542 would be negative and further weakness below 530 support would be bearish.

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Chart 8

MICROSOFT AND AMAZON STALL AFTER GAP-SURGE... Chart 9 shows Microsoft (MSFT) with a big island reversal in late April. The stock has since consolidated above the gap zone and is currently testing support from the May lows. I am concerned with the inability to follow thru over the last few weeks and will be watching this support zone closely.

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Chart 9

Chart 10 shows Amazon (AMZN) with two big moves carrying the stock to new highs in April. The stock consolidated after the April surge with a rather tight range. Chartists can watch this range for the next directional clue. A support break would be short-term bearish and a resistance break would be short-term bullish.

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Chart 10

FACEBOOK GETS A BREAK... Facebook sports a recent breakout and short-term relative strength. Chart 11 shows Facebook (FB) with a long choppy uptrend over the last eight months (green dotted lines). The stock fell back to support in early May, surged in mid May, formed a falling flag and broke out last week. The breakout is short-term bullish and keeps the bigger uptrend alive. Chartists can mark key support in the 78-79 area.

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Chart 11

AIRLINES WEIGH ON LEISURE AND ENTERTAINMENT ETF ... It is important to know the key components of an ETF before trading or investing. The Leisure and Entertainment ETF (PEJ), for example, is heavily weighted towards the airline industry, even more so than the Transportation Average ETF ($IYT). Airlines account for around 30% of PEJ and around 15% of IYT. This heavy weighting towards airlines is weighing on PEJ. Chart 12 shows the ETF peaking in March and falling steadily the last few months. The decline looks like it could be a correction after the October-March advance, but the immediate trend is down as long as resistance in the 37.5-38 area holds. Chart 13 shows the DJ US Airline Index ($DJUSAR) breaking the 200-day and support in May. Broken support and the 200-day break held as index continued lower the last few days.

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Chart 12

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Chart 13

TIMELINE FOR MARKET MESSAGE VIDEO... Total Time: 15 minutes and 50 seconds
00:00 to 02:35 - USO and the Long-term Tracking Error
02:36 to 04:55 - Confirming Light Crude with Brent Crude
04:55 to 05:56 - Finding Futures Symbols at StockCharts
05:57 to 07:10 - XES Follows Oil Lower
07:11 to 09:14 - The Five Horsemen of Technology
09:15 to 10:27 - Apple Consolidates within a Bigger Uptrend
10:28 to 11:22 - Google Struggles above Support
11:23 to 12:58 - Microsoft and Amazon Stall after Gap-surge
12:58 to 13:44 - Facebook Gets a Break
13:44 to 15:35 - Airlines Weigh on Leisure and Entertainment ETF

Link for today's video.