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Oil: Beware The Bounce

It looks like oil may have finally found its footing. After a nearly +60% peak to trough drop since June 2014, oil has bounced higher in recent days. This has resulted in a number of calls suggesting that the drop in oil prices is now over and a sustained rally higher is imminent. Perhaps this will come to pass, but if history is any guide, investors should proceed with caution before rushing back into the oil patch.

The decline in oil (USO) prices since last summer has been relentless. Overall, prices have fallen on West Texas Intermediate Crude from $107.68 per barrel last summer to lows of $43.58 at the end of January. In addition, the move lower over this time period took place virtually without pause along the way. As a result, the bounce to as high as $54.24 in recent days has been notable.

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