USO / Oil Update

You may have seen the piece in the A.M. update regarding OPEC's general secretary Abdalla El-Badri said oil prices could reach $200 a barrel if there's a lack of investment following this price slump. This sent oil up a bit early this morning, however I don't think this is what we have been watching develop.

Again, I DO NOT think this is a primary trend change in oil/USO, I think it would need a significantly larger base and have quite a bit of work to do to get there, but as a counter trend move/short squeeze, I suspect we are very close to that possibility.

 On a daily USO chart (very strong timeframe for a 3C chart), you can see the leading negative divegrence (which on a daily chart is a strong signal) and that is followed by a downtrend in oil. It's interesting how "Insiders" seem to be prepared for large moves like this months in advance. In any case, the point really is the current 3C action vs price shows there's just not enough evidence or any evidence to suggest that any move higher, no matter how strong it may be if a short squeeze is engaged as I would expect to happen, is a major tend change. You've seen how long a basing process can take and how much work goes in to them, this is no where near those kinds of examples we have seen over and over again.

However, I do think USO has a very strong probability of a move to the upside , engaging a short squeeze and that may be taken by some as something more than what it is, which in turn could set up the next position (back down), but I'm getting way ahead of myself, we'll have to see what the charts look like when/if we cross that bridge which I expect we will.

 As usual with changes in character, we often see changes in trend and the increased ROC to the downside which is evident in strong leading negative 3C action on the chart above this one (daily), leads in to the gap down and then the increased downside ROC in price which leads to a trend change, at least short term which would be lateral.

The increase in volume around the gap down and after also looks like a probable short term capitulation event or short term selling climax.

 On a 60 min chart we can see the lateral price action and what looks like a "W" base that is near maturity, which I actually prefer over an earlier "V" base and potential move off a "V" base which I don't think would offer the kind of support USO would need to get of a sound counter trend move, knocking shorts out in a squeeze.

I did mention last week that the flat range is likely going to attract a head fake move below local support as we see this about 80% of the time, roughly speaking, just before a reversal for a number of reasons. I do not see the recent penetration of support as a head fake move, volume didn't respond in such a manner to suggest stops were hit or that a significant bear trap was created on a break of local support so this is something to be on the look-out for, it obviously doesn't have to happen, it just tends to be a higher probability the more defined a support area/range becomes and it tends to happen right before a reversal (to the upside in this case).

We do have a pretty significant positive divergence out to 30 min charts...

The 30 min chart transitioning from in line with lower lows in price to a positive 3C divergence with a higher 3C leading low.

 However it has ben the more detailed 5 min charts showing the more interesting action, especially recently with a leading positive divegrence.

On a near term (timing) basis, the 5 min chart looks to have put in another positive divegrence, looking like it's getting ready to start a move higher. It's difficult to say how much larger the divergence "could" become, but I still suspect this move for now is going to be a counter trend short squeeze before we get in to anything potentially more serious and longer term in nature.

Also the 3 min intraday chart which has been in line on what looks like a "steering" divergence to create the "W" bottom is positive in the area. I still like this as a speculative long play, looking for a short squeeze, but again I'd warn that even with very strong short squeeze price action, not to be fooled in to thinking there's a significant enough base to support a primary trend change.