It's been a rocky few weeks, to say the least.

While most traders expected a Santa Claus Rally to finish off the year, we've seen the stock market pull back decisively from recent highs, leaving many to question what comes next.

The predominant story in financial media right now is the collapse of oil prices to five year lows. Oil has in fact been declining since the end of June, but its downwards spiral has just recently picked up momentum.

Taking a look at the two hour chart above, we've highlighted the United States Oil Fund ETF (NYSE ARCA: USO) compared to Exxon Mobil Corp. (NYSE: XOM) and Transocean LTD (NYSE: RIG). An accelerated downtrend since the end of November is evident in all three securities.

USO tracks the price of oil, while XOM and RIG  are well known stocks in the energy space. As we've pointed out, USO noticeably dropped below the $28 level at the end of November; with this drop, XOM and RIG gapped down as well. A trending move lower in USO commenced, as -DMI moved above +DMI with the ADX line rising.

In the case of XOM, it initially rallied to retest the $94 level that it had fell from, whereas RIG simply continued its slide lower, never to see $25 again. This stands out to us as perhaps a reflection of trader sentiment towards the underlying strength of each company. Nonetheless, both stocks have continued to decline further as the oil sell off picked up its pace in the past few weeks.

The sustained drop in oil has not helped the energy space in drawing enough investor interest to propel a bounce back in prices. Until this happens, shorts are not likely to cover their positions. As USO has lost nearly half of its value since the end of the summer, it would not be advisable to initiate a short position at these levels, in consideration of risk versus reward.

USO traded as low as $20.53 yesterday, corresponding to oil trading at roughly $54 a barrel. Bulls swept in with heavy buying volume, as pointed out by the green arrow, and a respite in the price decline characterized much of yesterday's trading session.

In overnight trading, oil is currently priced at roughly $55 a barrel. We'll be watching for a sustained rise of the short term moving average above the longer term moving average on the two hour chart before being convinced of any pause in this sell off. Ideally, +DMI would rise above -DMI, to reflect a revival of bullish interest.