USO Update

In the USO potential trade set up for a second leg higher, the last two posts probably set it up best, the first from Tuesday, USO Update and the second from yesterday, USO Follow Up.

One of the areas that was a potential stop-run set off a lot of alerts for my system this morning, that would be...

 The break below the bullish ascending triangle,  this is just another example of how Technical Analysis principles, with a bullish consolidation price pattern, are used against technical traders because of their rigid adherence to technical concepts, it makes them predictable.

The stronger and probably more likely move is below the wider rectangle, this would also be a stronger and more profitable set up for a new leg higher.

Volume is up today so that means , "Pay attention", however it does not mean that the daily candle we have right now is what we'll have by the close which is what really matters.

Here's where the volume has come from so far intraday, not a lot of it has come from stop runs, only on this morning's gap down, that's where the set up is, hitting a big group of stops and accumulating on the cheap sort of like that mistranslated Japanese game's taunt, "All of your bases are belong to us ha ha ha ha!", in the market it's more like, "All of your shares are now belong to us ha ha ha !"

As for the other indications...

 Intraday there's support both in USO and Brent futures (/CL), however this is a 2 min chart, there's literally no base other than this morning's intraday lows and thus far price has filled a gap, not uncommon.

 It's when we get to the 10 or 15 min charts that we see not only the base/accumulation for a USO move higher, but also the pullback/negative signal to the right which does not look resolved and this is a much higher level of underlying money flow.

I know equity traders don't like to be compared to gamblers, but there's a similarity, however it's not as bad as it sounds. The typical Las Vegas vacationer is gambling 9 times out of 10, a professional card player knows what the odds are of a certain hand coming up, they know what cards have already been dealt and therefore they are making an educated guess based on probabilities, don't fool yourself, the best we can do in the market is make the BEST educated guess as to probabilities which is why trading is otherwise known as speculating, the only sure thing is surely illegal.

Based on the chart above, I think you "could" enter USO here, if you had the tolerance for drawdown below the $18 level and the ability to hold, the probabilities would be you'd be rewarded, you'd also most likely be jumping in early and not at the best price or lowest risk.

The flip side of that coin is you miss the boat entirely if you're not right and decide to wait it out a bit longer. However from a probabilities standpoint and from a risk:reward standpoint, I think $18 has to be broken and in that area you'll find the highest probability/lowest risk position. So you can either take a pair of Jacks here or wait for a full house below $18 and have the ability to know whether or not it is a full house (confirmation of the 3C signals on timeframes like the one above).

From a probabilities perspective...

The 2 hour chart which went negative and is now positive suggests a high probability move higher, but as to where the best entry is and the most timely, I think the probabilities are highest below $18 based on what I see right now.

This is where fear and greed come in to the decision making process, the Fear and/or greed of missing the trade vs the higher probability/lower risk position under $18, I'd rather go with a probable full house than a pair of Jacks, I think that Full House is likely below $18.