USO Crude

I haven't put out any new positions in USO.Crude because it is doing what we expected longer term, but it blasted right through short term expectations to the downside. Until There's a clear confirmation at this point of longer term expectations, I don't see a lot of reason to put out new positions.

Here's where we are in a nutshell.

 This is a weekly chart. We had strong negative divergences last summer in the red square for USO/Oil to come down. In to 2015, we started getting strong positive divergences suggesting it would start turning lateral from the prevailing downtrend which it did. This looked initially like a counter trend bounce would take shape and oil would head lower, but after a few weeks, there was too much accumulation in the area for a simple counter trend bounce and it started taking on the look of a large stage 1 base that could (if it did some more work), support a primary trend reversal to the upside.

 Remember the head fake move (confirmed) is one of the best price-based timing signals we have as they occur about 80% of the time just prior to a reversal either up or down in any asset and in any timeframe the trend you are interested in may be in.

On March 18th we had a head fake below support, a stop run which was accumulated as it hit stops and drew in new shorts who were squeezed as price moved back above the lower (support) trend line I've drawn in. From there we saw a +30% rally which we also suspected would break above the upper trend line in another head fake (false or failed breakout). We were looking for USO to come back down toward the bottom of the range to the $16-ish level, but USO moved lateral in a choppy range for a lot longer than anticipated, but did eventually not only confirm the head fake/false breakout, but headed lower with $19 being the area it had to break below to escape that choppy lateral range. At this point the bigger picture expectation was for USO to make a move to the lower trend line area of the range around $16 or BELOW the range in setting up another head fake/stop run which if USO had done enough work, "could" be the pivot to the longer term price /trend reversal to the upside.

"A" is the stop-run head fake that also created a short squeeze with new shorts entering and squeezed as price moved back above the $16.50 area with a run all the way to "b" which was about +30%, but we also saw that as a move that would not hold and mad a stage 1 base, a base that was incomplete and NEEDED to come back down to the lower range to finish its work.

At the small trend line to the far right by the white arrow, USO looked like it would make a short term gap fill bounce, but it just broke lower ultimately heading for our longer term/higher probability move to the lower end of the range and/or below it on a head fake.

This is the 30 min 3C chart showing the accumulation of the stops hit on the break of support at "a" and the confirmation to "b", but then a lateral range with a l;leading negative divergence suggesting not only a false breakout that wouldn't hold, but the anticipated return to the lower end of the range.

So far the 430 min chart is roughly in line with the price trend (confirmation).

 This 15 min chart shows the same thing with the lateral choppy range after the breakout failed to follow through with an increasingly negative divergence suggesting the move to the lower end of the longer term range or stage 1 base (if confirmed).

We have a slight positive right now on the 15 min chart which is actually a strong timeframe, not the largest divergence though. Also volume has been interesting in the area.

Here's a closer look at the 15 min chart.

This is mostly downside/price trend confirmation at the green arrow which means the gap at the 21st saw no 3C confirmation and quickly failed following 3C lower. However to the far right as price makes a move below the range as we anticipated months ago, we have some interesting volume and a 15 min relative (weaker form)  positive divergence.

I'm not fond of shorting an asset that has just made a potential head fake move with potential confirmation on a 15 min chart so soon. I'm also not fond of calling this a long entry as there's no reversal process in price and you know I don't expect a "V" shaped reversal here would be of any use to longer term expectations.

 Looking at USO from the more detailed, although weaker intraday 1 min timeframe, you can see where it went negative in the lateral range and finally broke below $19 although the resistance area was around $10.25, the area above $19 has become part of that lateral chop. The short term positive divergence that looked like a gap fill was probable before a move lower seems to have failed and I say seems as the gap fill theory did fail, but the larger expectation of a head fake below such a large range has not necessarily failed. This would be the much larger trade that we've been considering almost all of 2015-it's just USO needed to do more work for a base that could hold a primary trend reversal.

The 2 and 3 min chart (above) also show the same positive divergence that I suspected was for a gap fill, but now it looks as if it may be part of the larger process of the additional; base work USO would need to do.

I highlighted the increase in volume in red at the initial positive divergence as that looked like a short term downside capitulation event that was p[rimed for a gap fill before head ing lower to what has always been the expectation; a move to the lower end of the range where USO would be accumulated and with a range this large, there's no way there would be an upside reversal without a massive shakeout as the shakeout alone would be nee scary to create the kind of supply needed to accumulate in size and on the cheap to fill out and finish the base area.

 This is a stronger, more meaningful 5 min chart with the same positive divergence in the same area.

If you look at price alone you can probably easily spot the one thing I would want to see... The reversal process as a reversal on a trend this big would be a process, not an event.

 Taking a closer look at today's intraday action, there were several interesting larger volume bars among an intraday positive divergence.

This is an interesting area for price to flatten out and let USO do the work, whether it confirms as it did at the past two head fakes which formed a Crazy Ivan shakeout on both sides of the range, remains to be seen, I suspect we do see it and Brent Futures have a number of positive divergences as well, but without some reversal process in place, I wouldn't call a new position here. That said, it wouldn't take much to create such a process.

As for the Trend Channel, it's a little difficult to deploy in what is really a large range through most of 2015, but you can see the March 18th head fake and run to the upside and where the Trend Channel called out a stop at the red arrow which was not the ultimate high of the run, but it would have taken a large chunk of the move and take you out before 6 weeks of lateral chop which is pure open risk and opportunity cost.

Today's closing volume was significantly higher so we may see some near term upside, remember tomorrow after the close we have the API crude inventories and Wednesday the DOE / EIA inventories at 10:30 a.m., either event could be a catalyst to what looks like a potential head fake area.

I think this is  dangerous area for new positions without additional confirmation. While the downtrend looks pretty secure, it's also right to the exact area we expected back in May/June. It's also a potential head fake area which was expected no matter what on any upside trend reversal, the range is just to large for there not to be one.

As for taking on a new USO long position, I would much rather see more lateral price action and  3C confirmation. While a "V" shaped reversal event is certainly possible, I don't believe for a minute it would support the kind of move I think oil is capable of. However oil still has not put in the work that needs to be done at the lower end of the range, but it has finally moved to the lower end of the range.

I think patience here is absolutely necessary. There are a lot of puff pieces out in the Financial media that make me think this may indeed be a workable bottom as they are pushing hard for oil not basing until 2017. No pro tells you what they believe, they tell you what they want you to hear ad they don't do it for charity.

I just don't want to put out multiple updates with information I don't consider to be actionable, but I will update any changes of character or anything I believe is relevant.

USO is on the radar,