USO Stops Hit on EIA Petroleum report

At 10:30 the EIA Petroleum report was released which triggered a stop run in USO.

Released On 9/12/2012 10:30:00 AM For wk9/7, 2012

Prior Actual Crude oil inventories (weekly change) -7.4 M barrels 2.0 M barrels Gasoline (weekly change) -2.3 M barrels -1.2 M barrels Distillates (weekly change) 1.0 M barrels 1.5 M barrels

Last week's decline of 7.4 mm barrels was reversed this week with a 2 million barrel build. Crude stock still remains near the upper historical ranges.

USO reaction (recall Crude futures reversed to the downside this morning around 6 a.m.).

 Stops hit on the 10:30 release, EIA Wednesday's tend to be volatile, while I would feel fine with starting, adding or holding an equity short in USO, timing on options TODAY is something I'd probably give a little more time to let USO settle in and see if it offers another opportunity.

 USO's counter-trend rally off the June lows and the channel losing momentum, 5 days ago we had a pretty nasty day in USO, since then price hasn't been able to move above that day's range. That price action is also a failure thus far to make a higher high which puts the vitality of the trend in question.

 Longer history of the 4 hour chart fits exactly with the specific signals we have had in this time period, there was initial confirmation of the move up (green arrow) followed by distribution across many timeframes as geo-political tensions in the Middle East failed to push USO higher. In the yellow box a downtrend that we had expected from the earlier distribution, started; followed by a head fake move out of that channel which was confirmed by 3C with another negative divergence. At the June lows we had several weeks of warning that USO was about to make a turn to the upside, that now is in a very negative divergence-worse than the previous top/reversals.

USO this a.m. on a 1 min chart. Stops were hit, there was also a negative divergence on the open and a further negative on the EIA release.

As mentioned, USO can be very volatile and run against the initial reaction on EIA release days, I personally would wait on new option positions for an opportunity to sell in to strength and make sure that the price strength is confirmed with negative underlying action.

Ironically as I was going through charts last night, ERY stood out (3x Energy Bear ETF), but looked like it needed maybe another 1/2 day to day to be actionable, I'll keep an eye on that too.