USO

As mentioned in this late afternoon post yesterday, USO and UCO both had short term positive divergences that almost guaranteed they'd be higher this morning, I said I'd use leverage on the move because although I do have a positive outlook on oil, I did close the UCO long yesterday because it looks like a near term pullback is coming.

The EIA petroleum report was just released, there was a build vs prior, but gas prices have less to do with oil supply and more to do with logistics.

Released On 10/11/2012 11:00:00 AM For wk10/5, 2012

Prior Actual Crude oil inventories (weekly change) -0.5 M barrels 1.7 M barrels Gasoline (weekly change) 0.1 M barrels -0.5 M barrels Distillates (weekly change) -3.7 M barrels -3.2 M barrels

As you can see, Oil was up this week, Gasoline down as we saw with major shortages in California driving many gas stations out of business or at least seeing them close their pumps including Costco in one city. Distillates also fell, but I doubt that is too big a deal at this time of year.

As for USO...

 USO this morning barely reacted to the EIA report.

 Here's the negative divergence and the area in yellow where UCO was closed out yesterday after entering early Monday this week, there's a slight negative in place right now.

 The 5 min chart shows Monday's positive divergence, but also shows a relative negative divergence now that suggests a near term pullback, that's where I want to look at entering USO/UCO long again.

 The hourly chart shows the recent base and this is why I think USO has more upside to go after a pullback.

Bigger picture, the 4 hour chart was very positive in June at the lows and saw a negative divergence in to higher prices, it's now in a leading negative position. Longer term I'm not a fan of oil, but I do think there's money to be made still on the upside as long as you get a low risk entry on a pullback and positive divergences.


A 60 min USO Trend Channel Trailing stop would be at $33.90, something a bit tighter and intraday would be $34.10. The longer term daily stop is at $33.30 if you are looking at this as more of a trend trade. For leveraged positions, I'd rather trade around the pullback.