USO Update

I'm only going to be covering the near term update with USO right now as the longer term has been covered numerous times and you can find a recap at the last USO Update of March 25th, Crude/USO Update.

From the same update, Crude/USO Update I posted the charts and analysis below (Italics)...

 "On a 5 min chart that divergence sending USO lower is obvious at the far left as is the area in which stops were run and confirmation at the green arrow.

I believe the base was strengthened in the area, but I also believe that it's not quite done and despite the recent higher prices, oil should be in need of a pullback to broaden the second bottom a bit more."

The area I was talking about "broadening" is where the white positive divegrence (box) is, thus I suspected the move to the upside which at that point was confirmed, would be seeing a pullback soon. In fact, it was only 1 more day of a move higher on a gap up which should be ringing some alarm bells when looking for a pullback, that we started to see the pullback mentioned last week.

This short term 3 min chart gave evidence to the probable pullback starting to show signs of becoming a reality, also from the same post linked above from last week, the 3 min chart as of last Wednesday...

3 min chart's negative divegrence starting, along the lines of a pullback as it's not a very strong timeframe.

Since this post...

The daily chart showing the white area of the base and the move higher, last week's post of the 25th linked above with the initial 3 min chart negative divergence starting to build a probable pullback. The next day we gap up on volume and a loss of momentum with an indecision Star candle before starting to pullback and note the lower volume on the pullback, suggesting it is indeed a pullback rather than something stronger (meaning a stronger downside move).

Today's small bodied Doji star (thus far) with yesterday's hammer looks a lot like this pullback may be nearing its end, although it didn't move as low as I had suspected it might on the 25th.

Remember we have Inventories after the close and tomorrow. Today is also the last day of high level diplomatic talks regarding Iranian sanctions which may be lifted allowing Iranian oil to increase supply in the market, still there seems to be something longer term that the market is aware of in which oil prices could recover which is what we have been following for some time.

While that's an EXTREMELY simplistic view of negotiations (I encourage you to read several sources on negotiations to get a broader perspective as there's a litany of issues and competing rivalries by proxy like Russia and China that have a great deal of influence, it's well beyond the scope of this post to describe the many issues at hand and what different key players hope to achieve, it's simply not a simple issue and for that reason, we can't predict the outcome any more than the actual negotiators right now so we go with what we have, the charts, where money is moving to.

As a reminder, there seems to be a large base developing in oil on 2 hour charts and some longer, this is a 30 min chart that looks more directly at what appears to be a larger double bottom base as we had forecast in advance of it actually happening.

 The 30 min base area and also on a longer 2 hour chart.

 This 5 min chart should look familiar, the base area, the forecasted pullback last week
(red box) and it has the look of a small positive divegrence starting to take shape.

 The 3 min chart shows a closer section of the same, the confirmed move higher at the green arrow just after the small accumulation area (above in white) and the negative divergence the day after our call for a probable pullback as well as the pullback with early confirmation and again, perhaps a positive divegrence starting to grow in the area.

The Brent Crude Futures look even better, but keep in mind that Brent Crude and USO which is WTI crude, do diverge and while they generally move together, they have differences in relative performance. BNO is the ETF that represents Brent Crude.

USO (green) vs. BNO (red).

Interestingly the Brent Futures look more enthusiastic at this area in which the pullback from last week looks to be losing steam...

 While I find the charts/divergences on Futures tend to be a little less strong than signals in the cash market 3C charts, they are close enough to take in to serious consideration (there are also some slight differences between timeframes, for instance a 5 min chart of USO carries a stronger signal than a 5 min chart of Futures, but not so much that we should ignore the following).

Note Brent Futures 5 min in the same flat area we just looked at in USO as a possible reversal area show a much stronger looking divegrence suggesting that a bounce from here is becoming much more likely.

 The 10 min CL (Brent Futures) with the negative divergence of the pullback we were calling for last week and what is shaping up to be a more impressive positive divergence as the downside daily candlesticks run out of downside momentum.

 The 15 min Brent Futures chart showing the same, this is probably more along the lines of a strong 5 min USO divergence which is not there to the degree it is in Crude futures (Brent). However, even the daily candlestick thus far today, suggests that this is a probable accurate chart.

And on a 60 min chart the second bottom of the base area, the run up as we expected, the pullback as we expected and the chart is pretty much in line.

What this tells me is the probabilities favor this having been a simple pullback in the newly started move to the upside off the white accumulation area and there are no real divergences suggesting anything much deeper in terms of a pullback.

I believe USO is nearing or ready to make its next leg higher in this new move up which is off the second low of the broader "W" base or double bottom.

The updated Trend Channel Stop which ends the down trend from summer 2014 is around the $18.90 area on the Trend Channel 3-day Channel/stop.

I'll keep an eye on USO, for now we had opened a half size position (long) in USO, I plan on leaving that open, I'm not quite ready to add the second half, I'd like to see the Trend Channel stop out first, there's still plenty of upside.

*Just be aware of the negotiations and try to get a feel for what's going on, it's far from simple. Other than that, I believe oil may have taken such a dive as it did from last summer in anticipation of Iranian sanctions being lifted and their oil hitting the market, in other words, the market would have been discounting 6-12 months in advance which is what the market normally would do and did do until we had unprecedented Central Bank intervention from 2008 forward, much of it being unwound now at least in the US.