Just like you and I are not making trades every moment of the day in the market, large underlying flows, moves that have an edge are not taking place every moment. There's always something or someone doing something, but that doesn't mean that this is where the bulk of money flow is moving. In other words, sometimes the market just isn't in a phase at that particular moment in which an underlying flow that contradicts price is giving you a huge edge. The worst thing you can do is torture a chart in to telling you something. We all have our biases even if they reside at a subconscious level; so anytime the charts are ambiguous, you are naturally (even if you are not consciously aware) going to enter in to some type of cognitive bias and take ambiguous data that's not telling you anything in reality and try turn that in to justification for your/our biases which again, we might not even be consciously aware of.
This is like picking a stock and hoping the market cooperates which is what most people do. The better system is to understand what the market is likely to do and then find the best stock that fits with the broad market's pull.
In nautical (surfer's) vernacular, you want to surf with the tide on your side, not against it and not trying to convince yourself that one small wave has anything to do with the direction of the tide if that makes any sense. As a surfer, especially in South Florida where nice waves are not all that common, it's easy to look at the waves and see 1 wave in a set that gets your hopes up that there might actually be something building when the rest of you knows that the tide charts and the swell data is completely at odds or even worse, not telling you anything.
Quite simply, time to take a break and cover something that we have an interest in and some better data at the moment.
While I've had more recent USO/Oil updates, I want to go back to this one from Tuesday, March 10th because our forecast was right on, thus it's likely that the rest of what we were looking at is probably pretty valuable as well.
These are charts and excerpts from Tuesday's update...
" I wasn't in such a rush yesterday to get out the USO post after I took a quick look at the charts because there wasn't anything that needed immediate attention and the only trade right now other than the current long (1/2 position) would be pretty speculative and from the risk:reward perspective, gets a little dicey.
Since Tuesday, while we didn't get the upside head fake move which is fine because it was only meant to help USO move lower below the descending triangle above for the reasons laid out above this Tuesday.
At present...
Looking at a weekly chart of USO, you can see what looks like a "W" bottom in price forming which needed the break down this week to achieve, you can also see conspicuous volume not at all consistent with a consolidation (bearish) continuation pattern, it's much more consistent with capitulation, the end of stage 4 decline and the start of a stage 1 base.
Besides that, Goldman Sachs came out today and said,
This 30 min chart demonstrates a typical double bottom head fake move, ironically it's the exact opposite of what Technical Analysis teaches with regard to double bottoms in which the second lows should fall just short of the first (stronger), thus when the second low breaks below the first on what we call a head fake move (as long as there's confirmation), technical traders are taught that it's a failed pattern and they should, ready for this... go short!
What happens when traders go short on a head fake move that is going to move back above the support/resistance trendline? Ab ear trap is created and a short squeeze follows which is one of the reasons head fake moves are the last thing we see before a price reversal as they have built in momentum that cost smart money nothing, in fact smart money gets to accumulate more shares in size and on the cheap as short sellers sell.
I'm assuming the divergence isn't lost on you either.
As for short term charts, this is where we'll first see any new divergences on a move such as this one below support. Rather than confirmation of the downside, we are already seeing positive signals. As they strengthen, they migrate to longer term timeframes that show stronger accumulation, that process has begun as well.
At #1 distribution isn't very big, just enough to turn price down and at #2, a positive divegrence as price breaks support where shares will be stopped out and available to be accumulated.
The 3 min chart shows the same
As does the 5 min chart
And I don't have to draw it, you can see it on the 10 min chart, presto, MIGRATION of the divegrence, it's getting stronger where supply is available in size and on the cheap.
As for our custom DeMark inspired buy/sell indicator on a daily chart, well it has some interesting signals too, the first positive at the area of the first low in a potential double bottom.
"We believe that the key force pushing commodity markets higher has been retail investor inflows into oil ETFs. Importantly, these strong inflows have emerged despite weak commodity fundamentals, and with arguably a more bullish outlook for equities than for commodities…"
While hardly scientific (although a case wouldn't be hard to make), when Goldman comes out with free advice, I usually want to be on the other side of the trade.
Look, I understand the storage issues and reaching near capacity, I understand there's not a whole lot of fundamental reason to believe oil is going to turn to the upside rather than significantly lower.
The fact is, I've been in this situation dozens of times on a large trend basis like this in which all form of rational though disagreed with the charts, but in the end from my experience, the charts were right and someone knew something way ahead of time that you couldn't even imagine at the time. There was a time when we were getting very strong $USD long signals in the middle of a nasty downtrend and we bought them only to find out AFTER the move up started, that the F_E_D changed all kinds of banking requirements that sent the $USD higher, I wouldn't have even guessed at that being a chance at the time, I just knew what the chart's showed.
So this week's decline below the triangle was not only forecasted in advance of it happening, but needed to happen if a wider/stronger base that can support a primary trend reversal is to take place.
Beyond the volume, you've seen this chart...
The 2 hour 3C negative divegrence wasn't wrong at the top even though the top (not the best drawn trendlines-sorry) continued on for months, I think you'll agree, you probably wanted to be on the short side of that trade. Well now like then, we have a screaming divegrence, it may not look that way, but this is a long term 2 hour chart so it's big ad the price pattern being traced out is moving toward a double bottom. Not that this matters at the moment, but remember the highest probability in a true double bottom is a break below support on a head fake move and in this case with all the stops and shorts on such a break, it's a near certainty, this would be the ideal area to go long USO so long as it is confirmed as a head fake move as it's the best price entry, the lowest risk and the best timing.
What happens when traders go short on a head fake move that is going to move back above the support/resistance trendline? Ab ear trap is created and a short squeeze follows which is one of the reasons head fake moves are the last thing we see before a price reversal as they have built in momentum that cost smart money nothing, in fact smart money gets to accumulate more shares in size and on the cheap as short sellers sell.
I'm assuming the divergence isn't lost on you either.
On a 15 min chart in the area of the triangle and expected break below it, I mentioned that distribution at the top was not that strong, I wouldn't want to sell anymore than I had to in order to get rice to move lower if my goal was to accumulate as many shares as possible.
The white trendline would represent the double bottom area.
At #1 distribution isn't very big, just enough to turn price down and at #2, a positive divegrence as price breaks support where shares will be stopped out and available to be accumulated.
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