USO REITERATION (LONG)

I already opened some USO November 22nd Calls because I'm not crazy about the leveraged ETF options available. I "may" add to that position, I'd be looking for a head fake move below support which I'll show you, to make the calls worthwhile or or rather to pick them up at a discount. I'm not against leveraged ETFs for a trade like this, personally I wouldn't just buy USO, but that's just me.

The F_O_M_C yesterday said they expect inflation to move up toward their long term 2% target, but expected low oil prices in the very short term would keep inflation low in the very near term, I'm not so sure how long they can count on that particular assessment, which is a bit strange in a few ways as the $USD and it's correlation to oil (typically opposite), looks as if it's going to see some downside right about the same time USO should make an upside move which would not be what I'd normally expect considering QE was just ended, but perhaps the $USD overshot to the upside a few months ago as it front ran the end of QE and rallied for 12 consecutive weeks (buy the rumor, sell the news).

Also keep in mind we just found out that the Saudis cut oil production during September and there'
s every reason to believe they are doing the same through October, that's profits they are missing and by reducing supply, you push prices higher.

In any case, as for USO (WTI Crude)...

 This is a longer term daily chart, note the H&S top at #1. The downside target using the price pattern implied target would be around the lateral trendline, however that's a support area as well and once broken, sellers pile in, but something else interesting happened that almost makes that move look like a head fake , whether it;s an actual head fake or not, it would create the same end result...

 A closer look on the Daily chart and notice the increased volume at the lows, short term capitulation or selling exhaustion, this is where we often see accumulation events . We also have something similar to a "W" bottom at the white trend line.

With shorts jumping in on the break below support at #2 on the chart above this one, a potential bear trap is set, most stops would likely be just at or above that former support area, now resistance which shorts would expect to hold as resistance on a test and even add to their USO short on a test of that resistance, so it's not like an initial move higher will see shorts cover, quite the opposite, they'll add in to a move toward resistance expecting it to hold.

All in all, this would create a fairly large bear trap as soon as prices cross above resistance as they scramble to cover which is nothing other than buying.

I'm not making a case for a primary uptrend in USO; this is the daily chart, distribution at the H&S is very clear and we don't have the same kind of large accumulation for a primary trend move, but that doesn't mean it's not a worthwhile move that could easily run back to the top of the June range.

The 2 hour chart which is a very strong timeframe also shows clear distribution at the H&S top and some accumulation, this is pretty amazing that it has reached a 2 hour chart in such a short period.

A 30 min chart gives more detail on price action and underlying trade as it is leading positive.

And if you follow the divergences you can see how a "W" was formed, there's actually a slight bit of distribution or just letting off accumulation near the highs of the range, sending prices back to the lows of the range where the divergence starts again, this is typical accumulation behavior ,  buying at the lows.

 Here it is again, but we have some slight 5 min distribution yesterday in to the F_O_M_C as the $USD sky-rocketted on a weak Euro.

If we see a move below this recent range, I'll add to my call position in USO, I think November 22nd monthlies are fine, but if I do add, I may spread that out with a little longer expiration, that's just my preference in buying options.

As for the $USD, I covered it in pretty deep detail yesterday, amazingly almost nothing has changed, it still looks like it's going to make a move lower.

 30 min chart fails to confirm the move up yesterday and forms another negative

Even short term 5 and 7 min charts show distribution in to yesterday's dollar move and with longer term $USDX charts negative, I think it's coming down soon which should give oil a boost.