USO Follow Up-Trade

This update from June 20 speculated that the descending triangle (of which we have been seeing a LOT lately) was setting up a bear trap.

From the update:

"This recent descending wedge is a pattern we've been seeing a lot lately, there have been some good head fake moves off these. Today we saw the downside move that technical traders expect from the price pattern, so the question is, is it setting up  bear trap?


I know the EIA report showed a build, but the move today seemed excessive, even vs the $USD  it seemed excessive, that is unless someone wanted to manipulate the pattern to set a bear trap.


 This is one we need to keep an eye on for a quick trade; I think the last set up similar to this in GLD yielded about 200% in a day or two on some call options."


As of today, it does looks like a bear trap was being set and if USO is going to move higher off this bear trap, that would imply some dollar weakness/Euro strength which as you may recall was part of my F_O_M_C analysis in which I thought the policy statement would disappoint the market (which fit well with the negative divergence in the market suggesting a pullback 2 days before the policy statement), I also said that is that were the case, the most likely catalyst for an upside move would be Euro/Dollar based. More simply this means that if USO is going to rally off what appears to be the suspected bear trap, it will likely do so from an FX market positive correlation, which has bullish implications for the broad market as well.

 The typical descending triangle, bearish consolidation/continuation pattern we've seen a lot of with several decent head fake trades. Look at the volume as USO breaks below the triangle-part of this has to do with other factors, but a lot of it has to do with technical traders and their "price confirmation" tactics. The large volume in part, represents confirmation of the bearish pattern, it also allows creates a lot of supply at cheap prices, ideal for accumulation. The bear trap itself sets up the momentum reversal as bears are trapped at a loss.

 Note the 1 min trend in 3C is leading positive as price breaks below the support level of the descending triangle-where technical traders would short USO on price/pattern confirmation.

 The 3 min chart shows the same effect.

 As does the 5 min chart

 As well as the 60 min chart.

This is USO today, it's up pretty good, but still hasn't crossed above resistance where the bear trap would be set in to motion as shorts start covering at a loss.


I'd love to sit and watch USO for a better entry, but I don't have that luxury, so I'll be entering a speculative position, a stop can be placed below the recent lows. Another entry would be on a break to the upside above $30.90-$31 area, that's where the bear trap would kick in.


I'll be looking to add a 1/2 size position in July $30 Calls, I may add more on a break above resistance.