USO Update

Yesterday I opened a put position in USO the charts and reasons why can be found in the previous post...

Basically we have the market fallen out with its normal FX arbitrage correlation, cue in part to a few short squeezes which can take on a life of their ...

The SPY vs the Euro (Euro is just a proxy for the $USD which has an inverse relationship, thus the Euro is easier to use to show divergences) falling out of correlation, in part due to as I mentioned, a few intraday short squeezes.

Also the same week we have another event, more fundamental in nature, causing oil to fall out with its normal FX correlation, that is the event risk that the Syrian/Turkish tensions have created.

 USO breaking with its normal FX correlation with the Euro. Both events can take on a life of their own and it's a little ironic to see two events like this that can break correlations without market manipulation, occurring in the same week and sending both oil and the market higher than the correlation would normally suggest or even allow.

As a result, it appears the arbitrage players have been selling in to this strength in each, thus the negative divergences we have seen. As mentioned yesterday specifically in reference to oil, the arbitrage divergence has become so big in oil that it is probably an equal downside risk to the Middle East's situational events that represent upside risk. The tie breaker was stronger negative divergences in oil yesterday, thus the put position.

 USO 1 min is pretty much in line, it looks like it wants to back and fill in to the gap a bit, but again this may just represent a consolidation.

 The 3 min USO negative leading divergence was getting extreme, this also suggests more downside, especially if the Syrian/Turkish situation calms down over the weekend.

 The 5 min chart is in negative territory, but not seeing the same degree of divergence as the 3 min chart, we'll see if that weakness continues to migrate to the 5 min chart, for now I see no reason to close the USO put.

 USO 15 min seems to show the arbitrage players selling in to strength on the probability of a return to the FX median.

 USO's 30 min chart also shows a divergence process, however the recent move up of the last 2 days looks like it's just gone too far considering there's no FX support and this is all based on event risk.

The 60 min chart is still in line from the positive divergence in late June.