USO Slamming

I know that the Financial media will have some 30-secomnd or less soundbite as to "Why" crude oil rallied today, their viewers need to make sense of a market that they don't understand, even if they are making "sense" of something that's already happened and is simply hindsight and fallacious hindsight at that.

The truth is, the market is smarter or at least has the money flow to move assets, we may not know why at the time for sure, but this is the most recent update to a long list of USO updates saying, this is going to make a counter trend move and likely force a short squeeze. I DO NOT believe this is a primary trend change, but that won't standing the way of a potentially devastating short squeeze. Here's yesterday's update, USO Update & Effects and we have had a USO update nearly every day.

Right now, USO is up +8%, it's starting to effect a short squeeze. I hope some of you got to take advantage of this set up that we have been tracking for probably a month or so now.

Here are the charts, some forward looking, some right now, some lessons we can apply to any asset class and any timeframe.

 USO's change of character in price from a downtrend to an accelerated downtrend and exhaustion gap to a lateral trend most often associated with a base in this circumstance. At the yellow arrow we have the kind of head fake move we look for, this can be stops hit, new shorts entering, but it's generally selling (short selling is selling) on the cheap and in supply which smart money needs to put together positions, cheap prices and abundant supply so they don't drive price against themselves.

At the green arrow we have a bullish inside day, sort of like a Harami (bullish) candlestick reversal, the increased volume makes it about 4 times more effective than a Harami without increased volume and in white, the bear trap is set with former support/what was resistance being the area most stops will be set at, triggering short covering and in some cases buying, but most new buying will be on a breakout above the resistance zone of the top of the range... confirmation/breakout buying.

 Intraday the yellow line represents the head fake move, we want to confirm with 3C positive divergences telling us the lower prices and increased supply are being accumulated. The lift in volume to the right is the start of short covering above a technical level (former support/resistance).

 The 1 min chart is confirming price action, no distribution in to higher prices which is good.

The longer 3 min chart is doing the same as price crosses a head fake level (below the yellow trendline).

And the 5 min chart is leading positive, a great sign for the initial move.

 The 15 min chart, as we have been updating has shown increased accumulation as of late, the leading positive divergence on such a strong chart is no joke and not to be ignored.

Here, even a 30 min chart is leading positive after downside confirmation, Changes in character lead to changes in trends.

However as I have said, the 60 min chart is still in line with the downside move, this is not a big enough base to assume this is a trend reversal, but rather a counter trend move, which can be some of the sharpest rallies you'll ever see.

 As for stops, the 1-day Trend Channel has a stop on a closing basis of $17.87, although for psychological reasons, I'd use $18.

The 2-day Trend Channel which held the entire move down without one false cover signal has a stop at the psychological whole number level of $19, once these are hit, on a closing basis, the short squeeze should intensify.

One thing I addressed in the post from yesterday is the effect on the broad market as oil services start to rally as well, this will likely cause short squeezes and benefit the market, although it didn't on a 1-day move earlier this week, I suspect it may this time, we'll be watching.

Congratulations to USO/oil longs.