USO breaks?

Last night I covered USO's possibility of an evening star reversal formation and today as being an important confirmation day.

Yesterday I covered the technical outlook.

So far today, we have some very important developments in USO, the close will largely determine whether the initial developments we have seen will stick, if so, then USO is set for what could be a very dramatic sell-off.

 USO should trade with the Euro like it did in the green area on this daily chart, because of the inverse correlation between oil and the $USD. When the euro rises, the dollar falls and crude must rise to make up for it, however that correlation that is as old as oil trading, was severely broken recently and we still don't know why. What we do know is that it formed a bearish ascending wedge which can be seen above and yesterday formed a candlestick pattern called an evening star reversal, the wedge, the false breakout from the wedge and the evening star candlestick pattern all implied a bearish resolution to USO's unexplainable climb.

 This daily chart shows yesterday's evening star doji in red and thus far today, the exact daily candle that would confirm a downside reversal, which should at minimum, retrace the wedge's base around $34

This 60 min chart shows two levels of potential support, the first being broken, but we want to see that stay broken through the close, that is the apex of the ascending wedge and the second is the $36.50 level which I have talked about as critical to a real reversal that would potentially move much further below $34.

 Here's a 15 min chart comparing USO with FXE/Euro, it should trade almost exactly the same, but in the white box USO diverges badly, which makes no sense, as I said yesterday, either someone knows something geo-politially that we don't or this is one of the biggest head fakes in oil I have ever seen.

 On a 3C short term chart, the breakdown is confirmed and leading negative.

 The same for a 5 min chart which started to fall apart badly yesterday.

 The original negative divergence can be seen to the left, this is the same time that the ascending wedge started to form and USO traded with the dollar instead of against it. The red box shows the extent of the downside leading negative 3C divergence for today alone.

On a 30 min chart, which has bigger and longer lasting trend implications, USO not only went divergent near the top of the wedge and yesterday, but has gone leading negative with most of the divergence put in today. So far if you are short crude using DTO or SCO which many of you are, this is a very good development.