USO Follow Up

This is the chart follow up to the late afternoon Trade Idea/Management (Options) USO post.

This idea was an add-to position to the initial super speculative, October 13th ("Funny Money") entry in a USO November 22nd $32 call or as a stand-alone new position.

Crude has been hammered horribly since June with WTI (West Texas Intermediate) which USO is based on (rather than BTO which is Brent Crude), down more than -20% since June,  however I don't like it because it's a falling knife or a contrarian trade, I like it because of objective data.

 "TO MAKE MONEY YOU HAVE TO SEE WHAT THE CROWD MISSED"

In this case, that can be as simple as looking at a 5-day candlestick chart. You'll notice a good majority of the bottoms in this wide, multi-year range are defined by bullish candlestick reversal patterns like 1) a bullish, "Harami/Doji Star"; 2) a long lower wick (similar to a hammer) candle followed by a huge bullish "Engulfing" candle; 3) a series of (3) bullish "Doji Stars" followed by a large "Bullish Engulfing " candle; 4) a "Tweezer Bottom/Bullish Engulfing Candle"; 5) currently a large lower wick, meaning lower prices have been tested and rejected and on huge volume, often indicative of a selling climax or capitulation, especially given lower prices were tested and failed to hold.

It can be as simple as that, but you have to look outside the box, seeing what everyone else sees can be an advantage, but not if you are doing what everyone else is doing.

 Again, like GLD's trend lines, note the downtrend line (which we draw by connecting the highs rather than the lows as we do with an uptrend line), and then note the increased DOWNSIDE ROC (Rate of Change", a "seemingly" super bearish event, however it is changes of character like this that lead to changes in trends. Taken with the exceptionally high volume and the daily candlesticks with the weekly rejection of lower prices, I'd say there's a good chance USO has experiences a capitulation/selling event.

 My custom DeMark inspired "Buy/Sell" indicator shows several sell areas in orange/red and a couple of buy areas in green, one of which we have right now in multiple timeframes.

 The early to react 60 minute X-Over Screen has gone from a solid confirmed sell signal and continuing trend to a price moving average buy signal with the custom indicator (middle window/yellow) also crossing over its blue 22-bar moving average giving a confirming buy signal and Wilder's RSI moving above 50 with the 3rd of 3 needed signals to give a confirmed buy signal so we can avoid false/whiplash signals that plague moving average cross-over systems.

 While the daily 3C chart is not positive, we can see the negative divegrence leading to the latest downtrend and a confirmation signal from 3C which is better than a leading negative signal.

 On a very strong 2-hour chart we can see the last accumulation zone  and keeping with our "Head-Fake" concept, we have a head fake/stop run at the last accumulation stage 1 area just before a reversal to the upside which is why we look for head fakes, for timing as well as excellent entries, especially for option positions like a call. 

We see the negative divegrence at a H&S-looking top area and a positive divegrence in to the downtrend as the increased ROC in price develops.

A 30 min chart shows a distribution period or small double top to the far left,  also note the HEAD FAKE move above resistance just before the top turns to stage 4 decline. 

The positive divegrence in to recent capitulation/selling climax is also notable. Large supply at cheap prices all at once, available to be accumulated without anyone really thinking twice about who is on the other end (buying) of the trade and why?

 We also have a very clear 10-min leading positive

a 5 min leading positive

And we have a reversal process that is fairly mature with several daily candlesticks showing Doji stars.