USO if nothing else is an excellent learning tool, it may also be a quick short term trade.
Members who have been around long enough to see this USO situation develop will probably remember the circumstances.
During the period in white I was bearish on crude oil, the reason was this was the height of the Iranian/Middle East tension and news story after news story about Iranian War Games, Iran shutting down the Canal, etc did nothing to significantly move the price of oil, it seemed something bigger was concerning oil traders, perhaps global demand dropping off and conditions in China. In red we started to see lower highs/lower lows in USO, a downtrend and it was not unexpected. However in the yellow area USO took off on the same Iranian news stories that failed to move oil months earlier. I didn't buy this, again I believe it was just the financial media giving the masses a reason why the market did something. Instead I suspected the downtrend in oil was seeing a severe shakeout. Soon after we received confirmation of the likely shakeout move as oil started trending down again amidst deteriorating global economic conditions.
Here's the downtrend that developed after the suspected upside shakeout. So we have what is likely a major strategic head fake move above and within this channel I suspected oil would make a head fake move above the very well defined channel. That head fake move came (yellow) which would be the opportune time to short oil. As I have often stated and we have recently seen in BIDU, "Failed moves lead to fast moves in the other direction". The head fake breakout of the channel was a failed move once it re-entered the channel with longs who bought the breakout at a loss, these losses cause more pain as oil moves lower and forces longs to sell creating a supply/demand imbalance that gives the downside even more momentum. I would normally expect the pendulum effect to come in to play and USO to blow through the bottom of the channel, it may have been saved by today's move up in the Euro. In any case, the large volume on Friday likely shook out any remaining longs as it broke intraday below the bottom of the channel, this volume spike, clearing of longs and shorts entering leaves Friday as a high probability reversal area to the upside. Today's bullish hammer candle tends to support that view thus far,
Here is 3C 60 min during the transition from oil not moving on bad news from the middle east to a downtrend, you can clearly see 3C was negative.
Here is the head fake move to the left, note the white zone on this 30 min chart shows no significant accumulation, further suggesting a head fake move. Once USO reached the top of the move, distribution set in, there was an intraday head fake move higher or to a new high for this move and then USO started trending down. The trend down is captured at the red box around the dates. The very last head fake move above the downtrend channel is to the right in yellow, note the negative divergence identifying this as a false move.
A closer look at the channel busting head fake upside move on a 15 min chart again shows strong distribution, the move to the bottom of the channel shows a small 15 min positive divergence forming.
A closer look at the recent move to the bottom of the channel with a 1 min chart shows a positive divergence forming.
While a VERY speculative long position could be taken (I think you would need some leverage to make it worthwhile, either options or a 2-3X leveraged Bull ETF), the trade that would be in better alignment with the major market trend unfolding would be to let the upside move take place and wait patiently for USO to come to you and short USO as it starts to turn negative or decline; this would be my favored trade unless USO gave some really strong positive signals.
So this is an example of a trade you can set some price alerts on the upside, let it come to you and enter a short trade at a better price with much less risk and in line with the market's overall bearish position.
If you are interested in this trade and need more information, just email me, but setting price alerts is the first step so you don't miss the opportunity.
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