USO UPDATE

I was trying to get a USO update out late yesterday, but was also very busy watching the market for the signs of what was to come today on a short term basis, apparently the concept of 3C picking up where it left off and yesterday's weakness as well as last night's futures weakness won out.

The important thing about asset stages (1-4) is knowing where you are, then you know where you are likely to go next. We are in a stage 4 decline area (fairly early in to it) of a short term trend (the February cycle), but we are also late stage  3 of a primary trend (as in bull/bear market) that this short term stage 4 trend could easily slide in to a primary stage 4 trend.

While there are always counter trend trades, for the most part you won't see me adding short positions during stage 1 or stage 2, I'm generally pretty quiet, if you decided to go long at stage 1 then it's just management, but there's overall risk because of where the primary trend is in its cycle. However at stage 3 and the head fake of stage 3 which we saw the week prior to last, that's when I'm more actively putting out positions as you've probably noticed. When we are in stage 2 you have to assume the trend wil be up or at least lateral and not conducive to entering a new short for timing purposes, if you look at it from a primary trend perspective, then we are high in the stage 3 cycle and almost anywhere in the area (even short term stage 2 ) is ultimately going to be fine for a trend short. 

However in a short term stage 4 with the primary trend where it is, you have to assume weakness and that's why I kept saying I would not buy this, but sell in to any strength or short in to it, that's the probabilities of the stage/trend.

In any case, I wasn't in such a rush yesterday to get out the USO post after I took a quick look at the charts because there wasn't anything that needed immediate attention and the only trade right now other than the current long (1/2 position) would be pretty speculative and from the risk:reward perspective, gets a little dicey.

 This was what a quick glance at the 1 min chart looked like, I could tell the highest probability near term was that this trend on this timeframe continue for now.

Here's a closer look at exactly what yesterday's USO 1 min chart looked like.

The longer term (30 min-2 hour) charts are still very positive, but at this point we are much bigger than any base that would be needed to stage a counter trend bounce so as I have been suspecting more and more recently, I believe we are in the process of carving out a sustainable bottom that can hold a trend reversal in oil, but although I'd say we are about half way or more there, we aren't completely there and for that reason, I don't mind holding a 1/2 position long for some bounces or to build out the larger primary trend position once we get a move to the lower end of the base area. As you know, like biotechs, oil can be very sensitive to sudden fundamental changes or news.

 It has been charts like this 15 min that show the positive divergence/base and a downside reversal which doesn't look like heavy selling/distribution, it looks like a base/range is being created and smart money simply isn't biting above a certain level.

I'll keep track of USO for any swing moves in the mean time, the most likely would be a swing to the lower end of the range / base, but this is not the area I like to get involved in any size unless we are at the end of the stage (1 base) and ready to transition to stage 2 mark up, otherwise, probabilities are that you'll be sitting in a lot of flat / dead money with increased opportunity risk (areas where the assets could be put to better use).

There is this descending triangle that's becoming very noticeable which is one reason I don't mind holding the 1/2 size USO long right now, there's a decent chance for a head fake move above the range to ultimately get USO to move to the lower end of the range faster to be accumulated so if we did get a breakout above the $19 area, I'd likely be looking to close the 1/2 size position, maybe even go short as there are much higher probabilities and less risk after a head fake move in this scenario and then wait for a return to the lower end of the range where I'd cover any shorts and look for a new primary long trend to get in to.