Crude Update

There's quite a biota confusion it seems or missed expectations between the Crude API data last night vs. the EIA Petroleum inventories this morning at 10:30 a.m. with additional confusion with regard to consensus. The one thing that can't be argued is this is the 3rd consecutive weekly draw whether by API or EIA standards, yet crude didn't act like you might expect on such news. There may be another reason.

Last night's API Crude inventories showed a rather large draw of -5.2 mn bbl. However this morning DOE/EIA petroleum inventories showed a draw of -2.67 mn bbl, just about half the API print. However it doesn't stop there; Bloomberg's median consensus was for a draw of -1.75 mn bbl however the survey consensus was for a draw of -3.82mn bbl. Lots of numbers there.

I think the explanation may be more simple than this. After looking at the $USDX futures again this morning, I have little doubt the $USDX is going to pullback. Considering this is on the day the F_O_M_C minutes are to be released, my first thought and I believe a reasonable one is that the minutes  have been leaked and will not come off as hawkishly as some might fear creating a pullback in the $USD which seems to already be set up in advance as we saw yesterday and even more so today. 

Assuming the normal $USD/Oil inverse correlation at the simplest view of things, this would send USO/oil higher. I do believe there's a more complicated view of things involving the carry trade, but I'll get in to that later, especially if I get some data that's more than opinion.

My guess is that the USO reversal process for a bounce was not complete at either the EIA or API data and this is not so much about the headline prints for inventory as it is about a predetermined bounce cycle in oil based on near term weakness/pullback in the $USD which may very well be because of leaked minutes; IT WOULDN'T BE THE FIRST TIME AND I'M NOT TALKING ABOUT THEORY, I'M TALKING ABOUT THE F_E_D EMAILING THEM OUT TO 154 FIRMS ALMOST A DAY AND A HALF BEFORE THEIR OFFICIAL RELEASE. I'd like to know how to get on that mailing list.

The charts may make this a bit more clear...

*Yesterday I decided (as we already had strong hints of a gold correction and Oil correction), that I'd stick with the initial plan which was to capture as much of the trend as possible. I put out the information so you can make your own decision as both positions had decent gains in them yesterday. I will also put out any new Trade Ideas once this corrective move is over as I have received many emails from many of you who are interested in a second chance shot in either or both assets. From my perspective, the USO short that's open is not going to cause so much drawdown that it is difficult to deal with and the Gold June 19th puts have enough time. There's no telling what the reaction , knee jerk or otherwise, to the minutes will be and I'd rather stick with the larger trend than try to get too fancy trading around or scalping too close to the bone. Of course this is subject to change on new data or opportunities, but as always I'll post it here first.

 Crude futures 1 min with a positive divergence late during the cash session yesterday and before the API data right after the close which sent crude futures higher overnight and then the volatility around this morning's EIA data.

 This 1 min 3C chart of USO shows the same late afternoon (cash market) positive divergence that crude futures above show and then downside volatility in to the EIA data, but note the negative divergence was in place BEFORE the EIA data was released at 10:30. While we have caught leaks in the past in the EIA data, I don't think that is what this is about.

HINT: Think, "Reversal process" and the size of the bounce base as an event that can't hold long (V-shaped) or a process (while still small, it is more stable).

 Crude futures 5 min with the initial divergences mentioned yesterday and a continued leading positive divergence, but that would be difficult to see happen had crude took off to the upside as smart money rarely chases assets higher, there's too much risk.

The Crude futures 15 min chart in line with the downtrend with a leading positive divergence. This is a fairly impressive divergence, but the size of the base limits its reach, thus the larger the base, the more it can bounce. If USO had bounced on the EIA data there would have been a sharp "V" reversal and I'm not sure it would have even held out the day.

 USO 3 min showing the same positive divergence warned about yesterday. Again it looks impressive, but remember it is only a 3 min chart .

USO 5 min with a negative divergence and a recent positive divergence, a more impressive divergence/timeframe, but still a vary narrow base area for a bounce which is appropriate I believe for the kind of move I'm expecting or at least how long it lasts (corrective bounce).

 And the 10 min chart with the dominant feature being a large leading negative divergence with a near term positive relative divergence (a weaker form vs leading, but decent on a 10 min chart, again not outside of expectations elaborated on yesterday).

 The 15 min chart shows the last real positive divergence which occurred at a head fake move below the trendily /support of oil's larger base as I believe eventually, not so far off, USO will make a trend reversal to the upside that holds unlike the heavy 3C distribution at the head fake/failed breakout above the yellow trendily to the far right. This 15 min leading negative divergence is the dominant trend and even with all of those bounce divergences or corrective divergences on the charts above, none of those charts are nearly as strong as the 15 min or the size of this leading negative divergence, thus it is the probability of highest resolution after any corrective $USD-based bounce.

 On the daily chart the head fake move (left  yellow arrow) that hit stops below the bases' support was where we see the white leading positive divergence on the 15 min chart above, thus the reason head fake moves are so useful. The failed breakout above the base was seen as a high probability in order for USO toga downside momentum and it occurs at the same place as the leading negative divergence on the 15 min chart above.

On a chart this size, a near term corrective bounce is essential noise. The next trend should be down bask in to the base at which time we will look for confirmation of accumulation which I expect to see and that should set up the largest trade in USO since it came down last summer, a trend reversal to the upside off a large, strong base.

This 60 min chart of USO within the base shows that it was highly unlikely that the breakout above the base (seen above) would hold.

So I'm expecting a short term bounce next and the resumption of a larger swing trade to the downside, the target area is unknown , but $15.50 is not out of the question. After that, we should have the makings of a much stronger base and a primary trend reversal to the upside with a breakout that does hold which would be a long term trend trade. 3 different possible trades each in a different timeframe... multiple timeframe analysis.