USO Update

After yesterday's USO REITERATION (LONG) post, today USO is doing what was expected and when we have signals and strong conceptual set-ups that are syncing up and working as planned, then I start to consider that more than "probabilities", I consider that "high probability/low risk trade set ups".

What I said in the post from yesterday and probably the day before was the following,

"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."

Today USO did what I thought it might, although the $USD being up on Yen weakness didn't hurt anything, the signals were there before hand and if you follow the chain of recent USO posts, you'll also see quite a bit about the $USd which also looks to be a big part of a strong potential move in USO, despite everything that looks to be against it, but as they say, "To make money you have to see what the crowd missed".

 At #1 is the H&S top shown in greater detail in yesterday's post linked above. At #2 the rough price pattern implied target which was also a support zone and in the little whit box, it seems like there's a little powder keg building there,  however from a technical trader's point of view, this would look like a rectangle consolidation/continuation pattern. Like a symmetrical triangle (as opposed to the 90 degree triangles like a descending or ascending or even a bear flag which is a parallelogram consolidating against the preceding price trend), the rectangle has no bullish or bearish implications other than the preceding trend, thus the title, "Consolidation/Continuation" pattern.

bProfessional traders know how technical traders view this price pattern, as one that will break to the downside and make a new leg lower. This is why and how it's so easy for Wall St. to use technical price patterns to their advantage, i.e.- head fake moves, false breakouts, stop runs, etc.

This is also the reason that the place I said I'd look at adding to a USO long is BELOW the rectangle as technical traders enter on confirmation which often leaves them chasing price making it easy to catch them in bull and bear traps.

 These are the two points of accumulation so far and the third move to support which we suspected would happen in yesterday's post, thus the entire idea of the trade set-up.

"If" everything goes the way of the trade set up, there should be a break below support which is now beginning to become very obvious so stops and more probable, short sale orders will be lining up just below support. A break below support alone is no reason to enter a trade, but if we have high probability indications that that break is going to be accumulated, it's worth watching and of course we want verification of accumulation of any such break before any trades are entered.

 Our DeMark inspired custom Buy/Sell indicator is showing 2 buy signals and 3 sell/short signals, so far they have been accurate.

 All the way out on this 2 hour chart which is pretty far out for a consolidation this small, we have a negative divergence/distribution which sent price lower with 3C confirmation as it made lower lows with price and in to a positive divergence. On this chart the positive divergence is not the full area of the white arrow, the arrow is showing the relative difference in underlying trade between a higher price point and 3C's relative position and a lower price point and 3C's relative position which is higher, the divergence is really at the tip of the arrow as well as a leading positive divergence in the white box in the same area, this is the higher probability that any break of support will be accumulated even though we still need to verify that. This is that powder keg I was talking about above.

Furthermore a head fake move before a reversal in either direction is about an 80% probability conservatively.

I'm not going to repeat all of the 3C charts hat you can see in yesterday's post, just to show this range and where accumulation has been, at the lows of the range and as price has moved off those lows there has been a lack of activity or even slight distribution to send prices back down which is why I suspected USO would be headed lower today.

This is shaping up as a fairly high probability looking trade, but we don't have to enter anything until we have strong confirmation of what we expect to happen which is  letting the trade come to us.

If interested, I'd set price alerts below local support and look for a sharp move below on heavy volume at the break of support, that's what Wall St. would be looking for as that's what they need to accumulate in size on the cheap.