USO Update

I haven't had many USO updates recently because it has been largely trading in line, this is fine for the 1/2 size long position in USO which originally was meant to be the partial entry of either what was first suspected to be a counter-trend rally, but was starting to see a base a bit too large for that so it would act as either a long for a counter trend rally or the start of a larger Intermediate to Primary USO/oil trend change to the upside.

You may recall the initial divergences (positive) in USO back around January and at that time with what we knew, the probability was that we'd see a counter trend rally off the approximate -57% decline from the June 2014 highs. The timing and place of the initial divergence was well within what you'd expect for a sharp counter trend rally which are some of the strongest rallies I've seen in any market and as such, worth trading. However as the base grew larger, it was well beyond what would be needed to support a counter trend rally and started looking more like a primary trend base that could support a real reversal, rather than a counter trend corrective rally that would ultimately come back down and fail.

Just to give an overview of the charts and the symmetry that is often found in the market, I'm posting these as recent USO behavior is falling out of line (as mentioned in this morning's A.M. Update with a Crude Futures 5 min chart) and suggesting a swing+ move that may be tradable, although I prefer trading USO from the long side at the right entry. It may be worth while taking some small gains in that half size position (long USO), but I don't think we are quite there yet. I do want to give you as much early notice as I find to be probable and reliable.

 This USO 2 hour (long term/strong signal) chart is one of my favorite as it shows USO going through chop with appropriate signals for that kind of price action on this timeframe, then something changes and we get one of the deeper negative divergences on a strong timeframe (meaning a strong signal) as a H&S price pattern is traced out, by which time the 3C chart is in a definitive leading negative divgerence way stronger than anything previously seen.

The USO downtrend sees 3C confirmation until the first positive divegrence at the Jan. lows, this is where I suspected a counter trend rally, but as it grew larger, it was simply overkill to have a base that large with signals that strong for a counter trend corrective move, as strong as they may be.

I have drawn in a trend line, which can be drawn several different ways, but it's fine for our purposes and a proposed path in the near future for USO to finish up a proportional base when compared to the top and the downtrend just after the top.

 Here is a 30 min chart/positive divergence, just without any 3C divergence signals drawn on it (they should be obvious). As I said recently, USO longer term is still in a fantastic spot , low in the base, but I suspect we can get even better positioning and my drawing which is not a proposed exact forecast of where prices will go, but more of a probable directional move is also proportional to the rest of the chart which is something you tend to find the more charts you look at.

 The 15 min chart has had several smaller divergences since the most recent pivot lows to now. This is not a "SCREAMING" reversal signal, but it is the first time in a few weeks that I see enough of a divegrence rather than trading in line, to post a USO update and have an idea of what we might expect.

While I'm not a huge fan of shorting a pullback in what looks to be a large stage 1 base, that's my preference, I want you to have the best information I can give you so you can apply it to your own trading style and risk tolerance levels.

 The 5 min chart has more details as you'd expect and shows several smaller swing moves as well as a negative divergence in the area and a larger relative negative from the highest point of 3C to the left to the current reading to the far right, I just didn't want to draw a large arrow across most of the chart.

 Intraday charts are getting more active and migrating. This 1 min intraday chart also shows a larger relative negative divergence at the red arrow as well as intraday action today.

And migration of that divergence is showing up on the 2 min chart in the form of a broader trend with less detail, but since we already have some intermediate 5-15 min charts falling out of line finally, I would take these signals seriously.

I wouldn't consider this the ideal area for a short entry if you were looking for a pullback trade, but the point is to give early warning so you know what we are looking for when it is posted as a trade idea or at least an update as I said, I prefer trade this from the long side at lower levels and on a longer term trend basis.

Interestingly one of the strongest signals for me is the actual change in character as I have been watching the charts for a week or two and just haven't seen much except in line trade (3C confirmation), the change in character in which that in line trade has started to fall apart is what I believe will end up being the warning flag that leads to the signals sooner than later for a swing+ move or pullback to the lows of the base, which will probably have us pretty darn close to a base that can support a true trend reversal.

Remember we have the API inventory data out after the close today and the EIA inventories tomorrow at 10:30. You may want to set some price alerts.