USO/Oil Update

Speaking of multiple trend analysis, USO/Oil is one that has several interesting trades. For some time, most of 2015 we have been making the case for USO/Oil in a bottoming process to reverse the former primary downtrend to an uptrend. So very long term on a primary trend basis, I actually like USO a lot, but I don't feel we are quite done with the base area and ready for that trade.

Locally USO had been bumping in to resistance at the top of the base area. About a week or so ago I suggested that this stand-off with resistance may end with a head fake move above resistance in a "seeming" breakout, which creates strong downside momentum on failed moves, it appears that is what has happened so I'm fully expecting USO to pullback, how significantly though I'm not quite sure. It may be a pullback as initially anticipated all the way to the bottom of the base around $16 or it may be just enough for USO to gather a head of steam on a pullback (accumulate) to take a real shot at a stage 2 breakout to the "rally" portion of the primary trend.

Here's what has happened recently in USO as I suspect a near term (as in a day or so) bounce off support/resistance of the base, that "loitering" in the area and likely has to do with $USDX expectations and some very near term weakness, but I fully expect a strong pullback to follow so I suppose we could call any short term bounce the minor trend, the pullback , the swing trend and the eventual breakout to stage 2 the primary trend.

 This is the base or the second half of it on a daily chart of USO. Note before the last run that broke above the base's resistance in yellow where we saw churning on candlesticks with long upper wicks (higher prices being rejected) as well as heavy volume, the 30+% move started with a head fake below support mid-March. In similar manner, I consider this same move above resistance as the same sort of head fake, just to move in the opposite direction. This is one of the characteristics of head fake moves, they tend to move fast in the opposite direction once they occur with a lot of momentum and they tend to be excellent price-based timing signals as they occur just before a trend reversal on the respective timeframe they are observed on.

At the white arrow Friday just after Thursday's penetration of support, we have a bullish candle/reversal suggesting an upside reversal although it carries no price target. I consider this to be the weakest candlestick signal as volume did not increase on the day the ha,mer showed up, although it did show up right at the trendline suggesting very near term support along the lines of the minor bounce I'm talking about above.

 Our custom DeMark inspired Buy/Sell indicator shows 2 sell areas, the first at resistance and the second on the break above resistance which is much larger, but note the buy signal before that right at the head fake/stop run below support (green signal and yellow arrows for a head fake move or false break down).

 The longer term 60 min chart which shows some of the heaviest underlying trade has been the one the entire time, long before we broke above resistance, that suggested this move could not hold without a pullback and some work being done to repair this chart which would occur on a pullback that shows accumulation (constructive pullback). That would be where I'd be considering the long term trend/primary long position.

 This 15 min chart also shows the head fake/stop run below the base's support at the white accumulation area and yellow head fake/stop run. The shares stopped out are easily accumulated in size with no one wondering, "Who's on the other side of the trade?", an easy way for institutional money to accumulate large positions without attracting attention.

Again, at the break above the base's resistance, we see a strong leading negative 15 min chart suggesting distribution just as the daily churning candles suggest.

 However on the less influential, but nearer term 3 min chart we see not only the distribution above the base's resistance area in red, but a small (3 min) positive divergence right at the hammer Friday.

This is the intraday 1 min chart.

So I suspect a small minor term trend that sees small bounce,  this may be an excellent set up for put positions or swing USO short positions. Typically the reversal to the downside on a failed move/head fake (bull trap) is a very fast one (consider the Channel Busters and how fast they move to the opposite side of the channel).

Otherwise, I don't see any significant changes in our USO/Oil forecast.

As mentioned, I believe this has to do with the $USD and some signals there as oil is a dollar denominated asset and typically will move opposite the $USD.

 On a short term $USDX 5 min chart there's a very minor negative divergence to the far right suggesting a minor pullback which actually makes sense as I am expecting a counter trend bounce in the $USD's primary trend, this would help build the base area for that counter trend bounce.

The 30 min $USDX chart which is substantially stronger than the 5 min above, shows the positive divergence that has been the source of my belief the $USDX will see its 2 or 3rd counter trend bounce since we called for a primary trend lower breaking to lower lows as has happened.

Just as the 30 min chart is much stronger than the 5 min chart, this 4 hour chart is much stronger than the 30 min chart. These do not negate the signals of other charts, but show multiple trends singing up such as a counter trend bounce. Our April 2nd $USDX forecast called for a bounce  which occurred at the green arrow which was to be followed by a much larger move to the downside at the red arrows since, making lower lows in the primary trend as well as a lower high at the green arrow bounce.

The yellow arrows represent the counter trend bounces. I'm not sure whether to call the last one a true CT bounce or just part of this 3rd one being worked on now. The 5 min $USDX chart shows a small pullback which would give this CT bounce base a wider foot print and likely be a stronger CT bounce than the previous ones, but ultimately it should fail and make a lower low.

If you invert the $USDX expectations as oil and the $USDX trade opposite, you'll see that they confirm each other with regard to a very short term minor move, a swing counter trend $USDX bounce and larger $USO pullback and the primary trend lower in the $USD would be in line with our expectation of a primary trend higher in USO/Oil.

If I see the bounce which I have alerts set up for in oil, I'll take a look and see if there's a decent looking entry for the swing trade lower.