For better or worse, richer or poorer, my big picture pattern work on oil continues to warn me that I should treat the May decline from $87.15 to $64.24 as the first downleg either in a large, incomplete correction, or the first downleg in a bear market for oil.

The only way to invalidate those scenarios will occur on a price climb that hurdles $87.15. Barring upside continuation, the bearish scenarios projects to an optimal target of $63-$58.

Whether or not today's weakness represents the end of the "recovery rally" or just a pause prior to yet another surge towards the May high is too early to tell. However, as of this moment, the nearby oil price action has the potential to put in a significant downside reversal day, which is a strong signal that a near-term trend change has occurred for oil and the US Oil Fund ETF (NYSE: USO).

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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