USO / Crude Update

Other than a couple of posts dealing with the USO/Energy Sector/MArket influence and Crude Inventories, this was really the last update of significance as to USO/Crude's action, expected action and mass psychology as it relates to USO and what is likely to come next.

From Tuesday, February 3rd, USO Update

"Oil is now on track for its 4th consecutive daily gain and it appears, as usual, the bottom callers are in, just in time for what should be a little consolidation which will likely kick them out of the trade and turn them bearish again just as USO makes another leg higher.

Other than the Mass Psychology of calling the obvious long after it has occurred and taking it to an extreme of a "Bottom", which this clearly is not, the market is finally noticing what we have been forecasting for weeks, but it does look like we are at an area of natural consolidation, one I'm sure will be interpreted as "Oil is not at a bottom, it was a false start"."

The mass psychology of all of the bottom callers who didn't call a bottom, they saw price move up and went overboard including Cramer, which was nearly as wrong as you could be in his timing, oil only moved a little higher after his "Smell a bottom" comment, I get how retail gets over-zealous, calls a bottom and has no idea why this should be a potential bottom (No fundamental evidence, no technical evidence), all they see is what price did last and they chase that and make assumptions which is about as far as you can get from objective analysis, it's emotional group think.

The pullback in oil was almost perfectly timed with the master of retail thought, Jim Cramer's off base comments about smelling a bottom. At that point you could use mass psychology and no other technical indications other than the increased ROC of price to the upside following his comments, the "seemingly" bullish... RED FLAG, to call a pullback.

My thoughts on oil/USO have been that we'd see a sharp rally, a short squeeze, a counter trend rally, but as of yet, no evidence of a bottom. I still think we have plenty more upside to go and as retail who was busy calling a bottom Tuesday quickly changes their tune over a pullback/correction in USO/oil, they are adding the additional short exposure that will ramp USO even higher on an additional short squeeze.

As for the charts, I was watching them today and the gains in oil, I didn't put out any calls for a possible new long trade/ entry because I suspected that we'd see today's move fade, it's just not big enough in a single day of correction to support the additional gains that it is capable of. Understanding how crucial a base is to supporting a move is one of the best uses of your time simply by going back and looking at historical charts. You'll develop a feel for the original base, the trend and what a proportional correction is likely to look like.

Here are the charts I think are most important.

 This is the daily USO chart, in regard to a base...

This is what the 2009 USO base looked like and it didn't even move much after, but look at the size compared to now.

 This is the 2 hour chart for USO from distribution to confirming the downtrend to a leading positive divegrence.

I'm not saying this couldn't turn in to a base, but there's no objective evidence of a base now, which shouldn't discourage anyone as a counter trend rally is going to move faster and further in that time than a base and a new trend, it just won't last.

 USO 30 min and a leading positive divegrence, the main point so far is there's no damage to the chart, suggesting additional upside, in fact from my expectations for this move, we've barely started.

 The 15 min chart shows the base and an increasingly strong positive in an intermediate timeframe which is more of a timing divergence than a 30, 60 min divergence, in addition all price moves have seen 3C confirmation so again no damage to the charts even in an intermediate term timeframe.

 The 5 min chart shows the increasingly positive divegrence/base as it head fake/ran stops and at #2 we have the typical 4 stage cycle mark-up and at 3 the distribution phase which is less top and more pullback.

The lows from yesterday saw a positive divegrence, but in my view this was simply too soon for additional upside without more consolidation.

A close view of the 3 min intraday chart shows that base at the lows or positive and the run up today as well as the rounding over on a negative divergence. It would not be uncommon for price to move back to yesterday's lows or even lower and build a stronger pullback base to start the next leg up from.

Crude Futures show broadly the same thing, although timeframes differ a little.

 4 hour (CL) Brent Crude Futures with the negative sending crude lower and the recent positive like USO.

The 15 min chart, a small positive divegrence, in my opinion not large enough to support a strong next leg higher and in line on today's move.

The more detailed 7 min CL chart shows the negative in to yesterday and in to today's highs.

In my best guess opinion...

Using our X-Over Screen, it would seem reasonable for price to consolidate along the yellow 10-day and blue 22-day moving averages before the next leg up, we just need to watch for improving near term (short term charts' leading divergences) strength, but this general area along the 2 moving averages seems about right in terms of depth and time.