USO Update

Last week I mentioned the lateral trend in USO was likely to create a head fake move below the recent range and support, I followed up on this yesterday in USO / Oil Update.

Before I forget and since we just covered the $USD, one of the historical correlations is the $USD and Dollar denominated assets moving inversely, at least on a historical basis. So if we were to get a sharper pullback in the $USD, to make up for the $USD which is worth less, the price of oil would adjust (arbitrage) upward, if we were to for some reasons have a sharp, unexpected move lower in the $USD, it might be enough of a catalyst to trigger a massive short squeeze.

Let me reiterate that based on the size of the lateral stage 1 base (which came after a gap down on volume, looking like an exhaustion or capitulation event)  as well as the 3C charts in the appropriate timeframes, I do NOT think oil is on a course to reverse trend to the upside, but I do think it has a strong chance of a good bounce/counter trend move that is helped out by a short squeeze.

In any case, the updated /CL and USO charts quickly and the set-up I'd most like to see.

 These are the /CL charts (Light Sweet Crude oil Futures). This 30 min chart shows a strengthening positive divegrence which I try top represent with the size of the white boxes I usually use to indicate accumulation, I didn't want to draw the divergences on the chart because they are clean and easy to see and I want everyone to get use to picking out divergences as they are useful in just about any indicator you can imagine.

 The 15 min chart is showing the same, but more detailed/less history, positive divegrence from the 30 mi chart.

As is the 10 min CL chart in the same area.

Even the 7 min chart is leading positive so it looks like there's a good strategic set up there, from here it's more about tactical entries.

There's been an obvious change in character in USO's trend, from down to an increased downward ROC ending with a high volume gap, typical of an exhaustion move followed by a lateral trend, usually a base of some sort.

 This is a 30 min look a the same area, there's an area of support (I view support and resistance as areas rather than exact numbers, although I understand exact numbers are useful in analysis as traders make it a self0fulfilling prophecy, however when you consider what moves the market, "areas" are more useful than specific levels which are often used against technical traders, especially those placing orders (stops/limits) on the books.

What I'd like to see is a head fake move BELOW the range, we saw that in the yellow box, but we didn't see any significant move in volume. If we do, that's most likely where I'd consider a USO long entry to likely be the best timing, of course we'd want to confirm it is a head fake move, but based on the longer term charts above, it would be a high probability, thus an entry at lower prices, lower risk and better timing as head fakes often directly precede a reversal, would be my ideal scenario.

 As for USO, you've already seen the longer term primary trend charts, we see a positive divergence at about the 30 min timeframe, before that the downtrend was being confirmed by 3C (green arrow) making lower lows.

The yellow arrows represent a head fake move below the range (on higher volume) and then back above, setting a small bear trap, picking up shares on the cheap and setting up the initial momentum spark (short squeeze) from a small bear trap.

 The 15 min chart is still nice and positive with a leading positive and higher 3C lows.

 The 5 min chart, also looking good. Usually when timeframes around 5 min and then 1-3 min are all positive and we have a full house, we are close to a move.

 As far as the possibility of a head fake move, this is an intraday 2 min chart, it is in line right now, but as you know all new divergences start on the earliest timeframe.

Looking at the same area with a 1 min chart, we have a small negative forming suggesting a pullback toward our head fake area is a developing probability.

The 1 min /CL chart is showing the exact same thing.