The enclosed hourly chart on the Proshares Ultrashort Oil & Gas ETF (DUG) represents what I think is the final downleg of the larger bear phase from the July 2010 high at 78.27 to the Jan 3 low of 36.47.

If 36.47 happens to represent the low for the move, then we will need confirmation on a sustained climb above 38.08, which should trigger upside follow-through to 39.70-40.20 quickly thereafter.

Conversely, inability of the DUG to hurdle 38.08 before it presses back beneath today's low at 36.85 will argue that the pattern needs more base-building work prior to a sustained recovery rally period.

 

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.