Patience Pays: USO Breaks

We have been waiting since aproximately early May  for USO to break back down inside the base, thus starting the process of the next long term trending trade. This break took much longer than anticipated, but we never lifted the USO equity short position because the charts didn't give us any reason; this wouldn't be the first time it has taken an asset a lot longer than anticipated to do what the charts have been pointing at, but I don't jump all over the place because price is not doing what I expect at the moment as long as the charts still point to the position being in line with the highest probabilities and today that's paying off in USO. There's still work to be done so this is not a call to jump to any action other than let the USO equity short, which is now at a +15.5% gain with NO LEVERAGE at all, work.

This is the long term daily Oil futures 3C chart showing the distribution at a H&S top last summer, then the 3C price/trend confirmation of the downtrend at the green arrow and then a positive divergence in to early 2015 in what I believe will be a stage 1 base that will reverse oil's trend back to an up trend as the base area is finished, but first USO needed to come back down inside the base to lower prices where smart money will accumulate the asset and where we can confirm that is underway before entering the next trade which should be even better than the current one.

 The daily USO 3C chart showing the same distribution last summer in to a H&S-type top with downside price/trend confirmation and a positive divergence with USO moving above the base and putting in a relative negative divergence suggesting it come back down inside the base. This is what we have been patiently waiting for.

 On this USO daily chart we have from left to right, stage 4 decline, stage 1 base starting between apron. $16.25 and $20.25, then a head fake move below $16.25 stops creating a Crazy Ivan shakeout with a strong move above the base's range at the second Head fake in yellow and the eventual decline back inside the base as we have expected based on the 3C charts since May.

 Remember we did break back in to the range below $20.25, but wanted to see a decisive break below $19 as there has been a range bound area from May forward. Today we got that decisive move lower and down toward the area expected before work resumes on accumulating and building a base that can hold a stage 2 breakout unlike the head fake in early May. If the charts don't confirm accumulation as prices drop lower, perhaps even below $16, then we simply don't enter the primary trend long position, but I suspect USO will finish the work inside the base and present a beautiful long term trend opportunity along the lines of the decline since last summer.

 Here's the upper end of the range in yellow around $20.25 and a triangle congestion zone since May in the red trendiness, this is why we needed a decisive break below $19 and away from all of that range-bound congestion. At "a" we have that break below $19.

 You can see the 6 hour USO chart with the stop run head fake below the range to the left and the false breakout at the "HF" to the right with a clear negative divergence telling us it was a head fake move and wouldn't hold.

The more detailed 2 hour chart shows the same as well as the positive divergence at the head fake/ stop run below the base's range which gave it the momentum for a Crazy Ivan shakeout with a break above the range in early May at the second head fake as the charts never confirmed the breakout, telling us the highest probability was a move back down inside the range. These head fake moves are very useful for momentum , read my two articles on head fake moves linked on the members' website and you'll understand why.

The 30 min chart I showed earlier which was leading negative now has seen price "catch down" to 3C's leading negative divergence.

I don't expect any "V" shaped upside reversal although volatility should be intense in the area including gap fill attempts, but before the next trade set up is ready, we should see clear accumulation of lower prices in the area and down to and/or below $16 on another head fake move, this is the longer term, larger opportunity trade I've been looking for since we first identified basing action in USO. Again though, we take no long trade action until we have confirmation of our expectations of accumulation of lower prices now that we are clearly inside the range.