EIA Petroleum Report / USO

Here's today's weekly EIA petroleum report

Released On 8/8/2012 10:30:00 AM For wk8/3, 2012

Prior Actual Crude oil inventories (weekly change) -6.5 M barrels -3.7 M barrels Gasoline (weekly change) -2.2 M barrels -1.8 M barrels Distillates (weekly change) -1.0 M barrels -0.7 M barrels A drop of 3.7 million barrels, we also saw a drop in domestic gas production. This is the 2nd consecutive large draw in a row and a draw 6 of the last 7 weeks, but even taking that in to account, inventories are still at their upper range. Gasoline demand remains soft. As for USO which has the Syrian (and everyone else involved from Iran to the US to Russia and more) remains a fundamental problem that has been marking oil up vs what we would expect from normal correlations.

 While crude has a correlation with the $USD, although inverse, the fact the Euro makes up 50% of the Dollar Index makes it a suitable proxy currency that does not have an inverse correlation, meaning the Euro and USO should be closely correlated, here we see the Euro in red vs USO and totally out of correlation, USO looks rich here and that has everything to do with event risk in the Middle East.

Looking at the longer term charts and considering probabilities, for now, I want to look at trading USO from the short side, I'm not saying it's a short right here, we want a good tactical entry, but I don't want to trade against probabilities.

For example...

 As price breaks above resistance (head fake move?), the 30 min 3C chart is in a large negative divergence.

 At the same area, the 15 min chart shows the same conclusion. These are the probabilities I want to trade when looking at USO.

 As USO crossed resistance, look what happened to the 3 min chart's trend, it went leading negative!

 The 1 min trend was in line or 3C/Price confirmation until USO crossed resistance, then leading negative, this is why I suspect there may be a head fake bull trap being set up here.

The 1 min chart on an intraday basis shows a negative divergence on the release of the EIA report this morning at 10 a.m. and it hasn't looked much better since, this is one we want to keep on the radar as a possible short set up and maybe on a bull trap.