USO Update

I don't ever want to gloat, I've had my share of bad calls and that's when the market slaps you the hardest, but there is something about Cramer "Smelling a bottom" in oil as well as everyone else coming out and calling a bottom just because of a 20% move in USO and this on the same day we were calling for a consolidation (through time or price) in USO.

Here's a follow up of where we stand. I still think USO hasn't really scratched the surface of what a solid counter trend rally can do, I still think it's in a consolidation phase and will probably see the same bottom pickers of last week start to turn more bearish on oil for a short time and I'm guessing that's when USO will make its next move,  but I do not (as I have said throughout) see this as a true bottom, but a counter trend rally which will move faster and further than a real bottom, it just won't hold it.

 Intraday today (1 min ) USO, there's a negative leading divergence in place, a gap fill would be an obvious target based on this chart alone, but we have more.

This is the consolidation since our call last week for one, it has ben partly through price (initially) and then mostly through time (price has roughly moved along the path of the green arrow laterally).

The divergences here are more of the finer lines showing the movement within the consolidation.

Note the shape the consolidation is taking on, a bullish ascending triangle, which would be the right consolidation pattern for continued upside, however if technical traders are picking up on this too, look for a head fake move below the triangle, this would be a high probability / low risk entry in USO long for the next leg, but as with any pullback we'd want to confirm the accumulation of a head fake move.

If we saw a head fake move and I'm suspecting it more and more as this ascending triangle becomes more evident, than it should look something like this and the highest probability / lowest risk long entry would be in the head fake move's area.

The white arrow is the expected path from a technical analysis point of view, a breakout to the upside as the apex of the triangle closes, the yellow arrows would be the higher probability head fake, below the triangle where any stops would be placed and turn traders bearish on USO, followed by the accumulation of lower prices and an upside breakout, it's the move below the triangle we'd want to verify as being a head fake move and that would be the highest probability/lowest risk entry, all based on the predictability of Technical traders and how Wall Street uses that against them.

A third option would be a Crazy Ivan, a breakout to the upside first drawing in new longs followed by the rest of the move already drawn in, a move below the triangle stopping out the new longs, allowing Wall St. to pick up shares on the cheap and turning traders bearish, followed by the upside breakout. Even in this case, the entry would still be the downside move so long as we confirm it is a false move and that means there would be accumulation/positive signals on the move lower (Wall St. accumulating the shares on the cheap).

If you are interested, I'd set price alerts for both scenarios.

 This is the 5 min chart, it doesn't show any major damage and looks like a consolidation.

 The 15 min chart with the original positive at the lows sending USO higher, which also was a head fake move and the relative negative divergence of a consolidation, but nothing too much worse than that.

 The 30 min chart has more than enough gas in the tank for additional upside.

As does the 2 hour chart showing the original distribution sending USO lower and the current positive.

Although you could enter or hold USO right here, the highest probability and lowest risk would be below the ascending triangle, it's the hardest to buy emotionally, but that's why we look for the evidence of smart money accumulating the break.