USO/XLE Trends

 This chart of USO above is the same as the chart of USO below, the only difference is that on the above chart I have marked the divergences that have preceded counter trend moves. The chart below I think better illustrates the long term trend. The divergence above running from mid-November through the present, is really the most important one on the chart and really is the only strong divergence as you will see what I mean with the chart below. This is why I have kept oil shorts open, because I'm looking at the longer trend and not the day to day chop, I see this as a good opportunity on a strong signal.

 More generally, there haven't been any really strong divergences in USO until recently, while there have been some as marked above, the general trend has been USO down, 3C down which is confirmation. Only recently over the last several months have we seen a strong divergence develop.

As for XLE or Energy which is an Industry group that is much more diverse then oil (includes, explorers, drillers, pipelines, logistics, etc) this is the long term trend. Through mid to late 2009 we saw confirmation of the move up, at the start of 2010 we saw the first negative divergence, a relative negative divergence which sent XLE lower, but relative divergences aren't as strong as leading divergences such as the one seen in USO currently. 2010 seemed to mark a top in Energy and the divergences got worse, they started leading and we saw much worse price reactions to the downside. Through the later part of 2011, those same divergences have appeared. Note both in 2010/2011 in the white boxes, the relative flatness of price, it certainly wouldn't feel like that on a day to day/ week to week basis, but the trend is clearly more lateral and this is where we most often see institutional action whether it be accumulation of a bottom or distribution of a top. The current negative divergence in to a relatively flat area looks pretty bad for XLE and looks as if it is setting up the next leg down. As we have seen in averages and individual stocks, the initial break down of a top is almost always followed by a volatile period, it's only after this volatile period ends that we start to see a cleaner trend emerge. From what I see on this chart, it looks like XLE will be entering a cleaner downtrend shortly.