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Robinhood Investors Losing Interest In USO

Small traders piled into oil funds during the crude oil crash, but sentiment has shifted.

Oil futures and oil funds were one of the most popular traders as the bear market deepened and oil prices briefly dipped into negative territory in April.

Investors on Robinhood tried to buy the dip repeatedly (as they have in other questionable stocks recently) and essentially rode the crash all the way to the bottom.

Traders bought shares of the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil Fund (UCO) in huge numbers through the end of April, but the party looks like it might be over.

During May, ownership of USO within Robinhood accounts remained relatively flat even though USO's share price continued to climb.

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The fact that the "excitement" of the oil market has disappeared might have something to do with the lack of buying activity. Crude oil prices have returned to more normal levels, although not at pre-COVID levels, and investors may be feeling that the relative value opportunity has passed.

The same can't be said, however, for UCO. The number of Robinhood accounts holding the leveraged version of the oil fund continues to climb and now sits at around 140,000.

The strong interest in UCO, but tepid interest in USO, probably isn't all that surprising. Robinhood accounts have demonstrated a greater willingness to be aggressive and the recent returns of oil funds in a rising price environment probably make UCO look more attractive.

Both USO and UCO are trading at around $27 per share. I recently put a $24 price target on UCO back when it was trading below that level indicating that I would remain neutral on the fund once the target was hit. It did and I am. In my opinion, the short-term rally in oil prices is fully priced and I would be hesitant to build large positions here.

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