USO Update

One of the scenarios laid out last week for a USO downside reversal/pullback (because remember on a longer term timeframe/trend, I love USO long, I just don't think it's ready for the breakout from the base to stage 2 yet without gathering a head steam) was a head fake move ABOVE what is VERY obvious resistance (the base's resistance) which would create a bull trap, a failed breakout and from failed breakouts come fast reversals. I mentioned this as a possible scenario leading to the USO pullback that is anticipated.

The move in oil today is due to the Saudi oil minister saying that the price of oil was in "Allah's hands", which is hardly definitive compared to their consecutive hikes to new record output levels (a statement of faith vs actual actions).

In any case, this would not be (as far as I can tell) a planned head fake/false breakout, but it would no less, serve the same purpose. You'll see on the charts below.

Also the $USD and it's relationship is of some importance for oil near term so we'll look at that as well. If all starts to develop as I suspect, then I may even add a put position or increase the USO equity short position.

 This isa 5 min Crude oil futures, CL (Brent) in red/green candlesticks and $USDX in purple. As you know I'm anticipating a near term bounce in the $USDX, a counter trend bounce before the $USD moves to a new lower low, but that bounce should be a catalyst to send oil lower as they have an inverse relationship (legacy arbitrage)... at least for now.

 Here's the same chart on a 1 min timeframe. It seems between the Saudi oil minister's statement and the weak US trade data sending the $USD lower, we've had a perfect storm for this move in oil, but I do not think it is supported and I do not believe either move in the $USD or USO will last long and will move back to our near term forecast for both.

The daily chart of USO with very obvious resistance which is why I put forth the false breakout/bull trap scenario as a failed breakout would give USO a lot of momentum (natural) for a downside reversal back in to the base area.

It may be we got that move today on accident or as a result of two events that were not planned.

The 60 min USO chart is one of the main reasons I don't believe USO is ready for stage 2 mark up, I don't believe it has the support near term to support the move which is why I suspected a pullback in the first place.

As for the FX side of things, look at these pairs and their currency futures...

 This is the EUR/USD, Euro strength=$USD weakness and that's what we have here intraday on the 1 min, but  I didn't even want to draw the VERY obvious leading negative divergence on the chart because it is so large it just pops off the chart, note to the far right around the red highlighted area, NO confirmation of the move at all on the fastest 1 min chart.

As for the Euro futures themselves...

 The 1 min chart is not confirming and leading negative suggesting this EUR/USD bounce is going to fail which suggests $USD strength and pull to the downside on oil.

 This 60 min chart of the Euro Futures shows the positive divergence to the far left that led to the last bounce in EUR/USD as well as a VERY deep leading negative divergence. This morning's move is simply a small counter trend move (yellow arrow) and should resolve shortly to the downside meaning we should see that $USD bounce / counter trend move and with that, weakness in oil via the $USD Legacy Arbitrage correlation.

This is the intraday 1 min USD/JPY with obvious weakness , however taking a closer look at the component currencies...

 Yen futures bounced, but there's no 3C positive divergence for the bounce and there's no confirmation, thus they are negative and should come back down.

I suspect this morning's market weakness with the trade data exacerbating the situation, may have caused a carry unwind as there's no divergences for a planned move, it looks like the kind of panic that would be caused by 300:1 leverage, thus the move in the Yen as it has to be repurchased/returned.

 The 5 min Yen futures is in a confirmed downtrend with no positive divergence this morning, so this morning's move looks like an unsupported counter trend bounce.

 As shown earlier today the 30 min $USDX chart which is what led to the market bounce forecast mid-last week that started Friday as well as the more important $USD forecast for a counter trend bounce, which would have a negative effect on oil prices, is still showing a VERY strong positive divergence/base or what I call gas in the tank despite some minor damage to the divergence on a relative basis (red arrow), its main signal is still leading positive.

This is the larger 60 min $USD chart and the initial bounce forecasted on April 2nd for the USD at the green arrow which was to be followed by a much larger move to the downside (2 red arrows) and we have had 1 counter trend bounce (yellow arrow) and the most recent forecast is for another counter trend bounce from here before returning to the main trend of down. However that counter trend bounce is $USD strength, thus it should act as a drag on Oil near term for our anticipated pullback.

 USO 1 min intraday...

Crude futures 5 min also not confirming the move and leading negative

Crude futures 7 min also not confirming and note there has been no positive divergence for such a move, there's no way Wall St. wouldn't take advantage of even a 1-day false head fake move like this, they simply didn't know what the Saudi oil minister was going to say as he was talking off the cuff more about faith tan actual oil policy.

USO 2 min large relative negative and stronger leading negative right now....

And the USO 2 min trend with a VERY clear leading negative divergence.

USO 3 min leading negative divergence.

AGAIN, EVEN ON THE FASTEST, SHORTEST OF TIMEFRAMES THERE IS NO POSITIVE DIVERGENCE BEFORE THE MOVE SUGGESTING IT WASN'T ABLE TO BE DISCOUNTED BECAUSE NO ONE KNEW THE SAUDI OIL MINISTER WOULD MAKE THESE COMMENTS OR THAT OIL WOULD POP ON THEM.

USO 10 min still in a large leading negative divergence and again, no positives. The one that looks like a positive at the green arrow is simply confirmation as price made a higher low.

As a head fake move, this may be an excellent area for USO pus or add to positions as failed moves reverse fast. I'll be watching for stronger signals of an imminent turn to the downside, keep an eye in the $USD for a turn to the upside.