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The charts are pointing to a comeback for crude oil: Trader

The crude comeback is far from over, according to Todd Gordon of TradingAnalysis.com.

WTI crude oil jumped to a seven-week high on Tuesday following bullish supply news from Saudi Arabia and OPEC. The commodity broke above $48 per barrel for the first time since early June.

“The crude oil market looks to have found a low and is ready to start moving up, potentially into the mid-$50s, and even into the $60s,” said Todd Gordon, founder of TradingAnalysis.com, on CNBC’s “Trading Nation.”

Gordon’s call on crude comes based on a divergence between momentum and performance. Gordon points out that the last two times the oil-tracking USO ETF has taken a leg down, the market’s relative strength index, or RSI, has decreased as well. But when the crude plunged to its year-to-date lows in June, there was less downward momentum on the decline than in a previous drop in May.

“This is a clue that the market is ready to start finding a bottom and it’s potentially ready to push out of this channel around the $10 region,” Gordon said, referring to a level just above the USO’s Tuesday closing price.

As a result, Gordon believes USO can return to $11, where the ETF sat at the start of the year.

In order to cash in from such a move, Gordon is buying the September 9.50-strike call while selling the September 10.50-strike call for a total cost of 38 cents, or $38 per options spread. This means that if USO closes above $10.50 on September 15 expiration, Gordon will make $62 as his maximum reward.

However, if USO closes below $9.50, then Gordon would lose the $38 he paid to make the trade.

USO is still down 16 percent year to date, although it has bounced more than 12 percent from its 2017 lows in June.

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