USO Update

As USO has made a lateral turn from down and started showing accumulation we have gone from expecting a counter trend bounce and a resumption of the downtrend to a probable base in oil as the base is now way bigger than anything needed for a counter trend rally.

My last update for USO which was yesterday's USO UPDATE, contains a lot of charts and information on our near term expectations, below is just one of several from yesterday's post which I suggest you take a quick look at if you are following the Oil saga and are interested in an informed decision on a trade.

" 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."

The chart above from yesterday/Monday as well as several other charts all suggested what I have been looking for and that's a deeper pullback toward the lower end of what should be the base's range, that's where I expect to see accumulation pick up and where I'd be interested in filling out the other half of a partial USO long.

The interesting thing to note about this chart and other charts like a 15 min chart posted yesterday as well, is that they pointed to a continued pullback in USO well before yesterday's after-market API inventories that surprised to the upside and sent oil a bit higher and before this morning EIA data that was week, in fact the 9th consecutive week of builds in inventory (opposed to the API data shoeing a draw).

The point is, people today are blaming the downside in USO on the EIA report out at 10:30 a.m. today showing another build, while that may be part of the grander scheme to get us down to the lower end of a base range where accumulation took place before and where I expect it to take place again, yesterday's update linked here, USO UPDATE , had ALREADY forecasted lower prices in the near term before either the API (after the close yesterday) or the EIA (10:30 this morning) data was out. Someone already has a grander scheme in place and casual observers not privy to our data are simply making the most obvious assumption where as we already knew better.

The difference between the two perspectives is one is "This is 9 weeks of consecutive builds and oil price is responding bearishly, therefore oil is bearish" and our perspective of "Oil needs to head lower to the low end of the base range to accumulate and thus the longer term, primary trend in oil is that someone with deep pockets is expecting an upside reversal". 

One perspective is as a result of perceived cause and effect, the other is based on objective underlying trade, as I often say, , "Price can be deceptive". While one perspective assumes everyone is bearish on oil, the other assumes that lower prices are needed to finish building a larger base and a trend reversal. One perspective expects the trend to continue down (although it has been lateral for months), while the other anticipated a primary trend reversal, the two perspectives couldn't be further apart.

Picking up where we left off yesterday in USO UPDATE...

The 15 min chart which shows the most likely short term direction of USO well before either inventory data point came out....

" 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."

And of course from our longer term charts...

This 2 hour chart not only shows the massive distribution of USO while it was at its highs and a H&S top, but downside confirmation if not leading negative readings which changed to leading positive and a lateral, base-like trend. Note where the first actual 3C positive divergence is, I didn't draw that white trendline to show you where the lows were, I drew it to show you where the first long term 2 hour 3C leading positive divergence was. So if we take the shorter term 15 min chart above which as posted yesterday even says, " 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, " then what you get are two pieces of the same puzzle that fir nearly perfectly with the anticipated or forecasted outcome.

I don't exactly understand what's going in with oil, if this is as it was originally sold, to punish the Russians who are major oil players for Crimea and Ukraine or if it's a Saudi play to crush the more expensive US shale Industry or if it's something entirely different. I do know that there are large investors with deep pockets who are storing oil in huge tankers just waiting for prices to rebound, I suspect they have some better information than just, "Oil is cheap historically so it must go back up". 

Whatever the case may be...

This large descending triangle that we expected to be broken on the downside as price heads back toward the USO lows where strong accumulation occurs, has now taken place as forecast. In the days and weeks ahead, we;ll be watching very carefully for increased accumulation on the pullback, The "Come to us" trade on our terms.

This is looking to be a much bigger trade than first anticipated and totally at odds with market perceptions which gives us an enormous edge.