USO Update

USO I find to be an interesting chart, we have oil inventories tomorrow at 10:30 a.m.  so we could see a potential trade there. There was a string of EIA reports for a while that looked very much like they were leaked and although oil would initially move on Wednesday according to whether there was a build or a draw, we often found good trading opportunities as it appeared that the EIA petroleum report was one of the most leaked reports out there. We'll be watching for similar opportunities tomorrow and Thursday we have Natural gas inventories, so we'll take a look at UNG as well.

 Thursday/Friday of last week USO was definitely looking a lot better as a long trade with a clear positive divergence. Look how 3C's character as well as the price of oil changed as Monday rolled around. What was the cause? I think it's pretty simple, China has always been very opaque in their economic reports, the HSBC Chinese Flash PMI vs the Chinese official version were totally opposites the last 3 of 4 months with HSBC's showing contraction and Chinese manufacturing falling off a cliff, which is what we suspected in 2011 based on commodity price action. The Chinese version painted a much rosier picture until the last official PMI, which "Suddenly" deteriorated horribly to pretty much come close oto in line with HSBC's 3 months of declines. That alone was odd, that the Chinese version was so upbeat and saw such a dramatic shift in one month.

In any case, the Chinese can hide a lot, but as the NYT article this weekend pointed out, the power consumption in their manufacturing areas had dropped off badly, there can only be 1 reason for that and I believe that's the same reason that oil which is not only used as fuel but in the making of many things such as plastics, etc, had such a dramatic change in character as the new week opened. Traders can chose to go along and drink the Chinese Kool-aide, but when presented with hard facts, the market adjusted quickly.

 The 3 min chart which was improving last week has not deteriorated much, but isn't where I would have expected it as of last week and before the NYT article came out.

 The 5 min chart shows some progress today

When in doubt, reduce the noise and uncover the trend with longer charts like this 15 min, this is still in leading positive position, some of that my be from last week, but I have to deal with what is there now and what is there now shows a positive change in character overall. I'll stick with my USO longs and look for any leaks of the EIA report due out tomorrow a.m.