USO / Crude Update

Yesterday I reminded you of the scenario that was thrown out there as USO kept bumping in to its large base's resistance, that was a head fake move above resistance and a failure sending it lower as these failed head fake moves typically produce fast moving reversals, that can be found in this post from yesterday USO Update.

 The scenario discussed last week with a false breakout above the range leading to the swing/near term pullback expected. Yesterday's candle and volume were indicative of bearish churning.

After going over the shorter term charts again (as I do like USO longer term with that strong base in place) I decided to fill out the USO equity short as well as the put position yesterday just after the update linked above, Trade Idea: USO

As mentioned above, longer term I love crude/USO long as 3C confirms the daily crude futures' downtrend (green arrow) and then leads positive (white) as price turns lateral. You may recall when we first saw this I suspected it was going to be a strong counter trend bounce, but then the base grew too large for a simple counter trend bounce. So longer term I love crude for a long trend position, just not quite yet.

Even though the API Inventories came out last night with the first draw since the first week of January at -1.5 mn barrels, I still wasn't concerned after looking at the 3C charts for Crude futures last night.

Amazingly (you'd think if you hadn't seen the 3C charts), this morning's 10:30 EIA crude inventories confirmed the API data with a -3.88 mn barrel draw in total crude inventories on consensus of 1.5 mn.

Oil/USO knee jerked as you'd normally expect and made a move to the upside which was quickly faded.

USO 5 min chart today and what do you see? It looks like another strong bout of bearish Churning on a candlestick with a large upper wick and extremely high volume (strong hands handing off shares to weak hands).

Here are the updated charts since, but I really don't think much has changed in the charts or our near term expectations...

 USO 1 min which is the fastest chart and could confirm the upside move in minutes if there were confirmation, instead it looks like distribution of the price highs. I suspect we see intraday noise, but I also suspect the trend will emerge to the downside.

The 2 min chart which is good for timing showing a very clear negative divergence since the breakout above the base's resistance area as suggested last week.

USO 3 min showing the same thing and so far good multiple timeframe confirmation.

The 10 min chart that was at a large relative negative divergence has moved to a stronger leading negative divergence and right at the breakout above resistance area (yellow).

 Since, the 15 min chart, exceptionally strong signal for a swing trade has seen a sharp negative leading divergence at the breakout area.

It seems the idea thrown out last week of a false breakout/failed breakout being the catalyst for oil's downside turn as expected has gained traction with the objective evidence of these charts.

Remember though it was this 60 min chart that had previously been nearly in perfect confirmation of price that gave us the highest probability evidence for a downside move as it has been leading negative in the approach to the base's resistance area.

As for Crude Futures (Brent)...They too are confirming.

 CL (Brent futures) 5 min leading negative

7 min leading negative.

As for the bigger picture trade and the one I like even more, I'll be looking for a constructive pullback since we are under former resistance (support). We should see accumulation of lower prices and USO building a head of steam for a stage 2 breakout to mark up. I'll be looking for a long trend trade entry on a primary trend basis as that happens. For now, I plan to simply be patient and let crude follow the path of highest probabilities as we see in the charts above.