Trade Idea: USO (SWING) Short

I consider this to be a somewhat speculative position because USO, much like MCP, is sitting at the resistance level of a large base in an asset that I like on a longer term trend basis for an upside reversal at some point in the near future. However it has been my belief that oil/USO will pullback on at least a swing basis and possibly the lower end of the base's range.

Yesterday I updated USO/Oil in the Daily Wrap with several longer-term crude oil futures charts. Although there are already some May USO puts, I'm looking at USO short for the tracking portfolio as a swing trade with less concern about the day today movements and the ability to sit through a little more chop if necessary with the puts acting as hey"Floater" if you will (for those of you who like your Rum Runners).

As for a trade set up to reduce risk, there is a possibility of a gap fill of this morning's gap down, but I am more interested in the larger probabilities at this point. Also as USO is sitting right at the base's resistance trendline, there's always a chance for a head fake move above the trendline which fails and moves lower; these produce very fast reversals. As far as a move like that being a real breakout, I simply don't see the strength in the longer term charts right now to support such a move (in Brent Futures or USO/WTI). However, as you know I do believe it will be coming so a pullback or swing trade to the lower end of the range would also be beneficial for the longer-term Long trend trade which is the most interesting in my opinion.

 USO daily chart… notice the head fake move on the W base or double bottom. This contradicts technical analysis' view of double bottoms as the head fake/stop run is not what a typical double bottom is supposed to look like. This was a very strong entry as stop were hit and accumulated which is the same concept as the broad market now, just the mirror image.

Also note the long upper wicks on the candlesticks indicating resistance. This takes on new meaning with the longer-term 3C charts such as the /CL futures posted last night.

 Two hour chart showing the head fake move and accumulation on a very strong 3C signal.

There's an additional feature which is 3C price/trend confirmation at the green arrow and leading negative divergence at the red arrow and box. Being this is a two hour chart this is a very strong signal.

 The 30 minute chart showing near perfect 3C price/trend confirmation at the green arrow, until recently as USO has turned more lateral with a leading negative divergence currently.

 The more detailed 10 minute chart shows the same negative tone in the area.

 As does the three minute chart which is more of a timing Time frame.

As to the possible gap fill offering a better entry at lower risk...

This is the one minute chart, the weakest of the divergences but also effective in forecasting intraday trends. There's a slightly leading positive signal of the time frame in 3C suggesting the possibility of a gap fill. However as mentioned above I would rather play the higher probability, longer-term time frames.