SCO / USO Follow Up

First remember that this asset, SCO is part of the Trading Portfolio which is not like the other tracking portfolios that are meant to track all ideas, I'd never have 40-50 or more open trades. Part of the reason I started this particular portfolio was to see if I'd have time to take care of it like I would with my own portfolio without any adverse effects on members or my main responsibility, another reason is I'd like to have a real trading portfolio to be able to use to take a few concepts a little further such as margin issues, risk management, position sizing, risk/reward ratios, etc.

I've ran it long enough to know believe a small portfolio isn't going to cause any damage, there's certainly no front-running risk, I think it's a good thing all around so I'll be adding that likely this week. The current gain in this portfolio with no options whatsoever, only equities has been an 18% gain and that's with new positions starting that haven't taken off yet, it has been up to 26% over the last 3 months since inception which is a nice return considering.

My main point though was I was not closing SCO to protect large gains like many positions Friday, I was not closing it like next Friday's QQQ March Put that was at a loss, but I thought closing it Friday (considering time decay) was likely the best exit I'd get with the smallest loss, I closed SCO to preserve capital, to raise capital and to prevent dead money or opportunity cost.

With a small gain of +2.45% and no strong near term prospects to add to that, it seemed taking the $10 commission hit here was a much better thing to do and create some dry powder that can be used in a better situation than to take a loss or even more probable, opportunity cost.

SCO is a 2x leveraged Oil short, lets take a look at the charts and my reasoning should be clear.


Remember the charts of USO are the opposite of SCO which is essentially a USO short asset.

 USO (oil) with the negative divegrence that would make SCO make sense as a long trade, but a recent positive has popped up that I've been keeping an eye on to see if it is consolidation only or a possible counter trend move against SCO... 30 min chart

The red box is the distribution area and the yellow arrow is a head fake move above clear resistance, we see this just before a reversal, I'm trying to point these out more often so you get use to looking for them, understanding the concept and trusting the concept to apply to your own trading system.

 USO 5 min, the first positive divegrence caught my eye, but I wasn't sure if it was just consolidating, the second with a head fake move told me probabilities are high that USO bounces, putting SCO at a loss, I could have exited at a better position today (red arrow), but this was close enough.

Here's the 1 min USO, not only is there a positive divegrence near term meaning it's likely close to being ready to move, but there was a head fake move below the yellow trendline telling me it's very likely to move up soon and it's time to take action with SCO.

SCO

 Here the 30 min chart shows accumulation not long ago with a head fake move below the yellow trendline, but the most recent divegrence is negative.

Now I have confirmation between USO and SCO, probabilities are mounting.

 The accumulation area and head fake in SCO's 10 min as well as a relative negative divegrence.

Finally short term 2 min (this is the short timeframe timing concept we are using with the broader market right now with VXX) is clearly putting in a more urgent, stronger negative divegrence at new lows on a slight head fake higher high, it's time to make a decision and I made that decision, remembering this is not a core or trend position, it is a trading position.