USO Update

It has been quite some time that I have been expecting USO to break back below the $20 area convincingly and back in to the primary trend's stage 1 base range which is approximately between $16 and $20. Last week you may recall I was looking for a convincing break below $19, although $19 is back in the range, there has been months of range bound trade in the area that needed to see a break below that range bound area.

 USO daily chart with range and USO breaking the $19 level convincingly today.

You can see this tripped up a lot of stops and created a lot of new short positions, however between the volume today and the gap, there's a good chance this creates a short term flameout on the downside or short term selling climax which could lead to something along the lines of a gap fill.

I suspect the extra bit of assistance crude needed to move to the downside came from the recent $USD strength via EUR/USD weakness.

 EUR/USD weakness just as our $USD and Euro futures charts have been showing for over 2 weeks. This in turn creates $USD strength...

$USDX over the same period moving up which seems to have triggered the historical $USD legacy arbitrage correlation, which means most assets that are dollar denominated like oil, move opposite the $USD. For instance, if the $USD is worth less, then oil has to be sold for more to make up for the currency exchange loss and vice versa.

However it looks to me that this bout of $USD strength may be coming up on a near term hiccup.

15 min $USDX. In fact, considering the carry trade unwind, it may be a bit more than a hiccup. In either case, this 15 min chart is not the only negative $USD chart, I suspect the carry trade unwind is about to continue with some force meaning near term volatility in USO could be getting a little sickening between $USD movement and what I have expected to be a last round of accumulation in the range before USO turns to a primary trend upside reversal. Again this is the larger trade I've been looking for and waiting on in USO all year, but I wouldn't enter it unless we have strong confirmation of accumulation in the base range. the area we are in now.

 This means the short term 2 min chart of $USO seen above which has had a nice negative divergence ,  is now seeing short term positive activity in an area of a large gap and climbing volume.

If I were in a USO put position, I'd be considering taking gains off the table/closing it out.

Right now there's only a USO equity short position in place at a +13% gain.

 The 5 min chart and numerous short term Oil futures charts appear to show the accumulation back inside the range I was hoping to see, although I don't consider this to be the final test and there still should be a rather significant reversal process before any primary trend reversal to the upside that holds.

The 10 min Crude (Brent) oil futures with a clean negative divergence sending price lower and a clean leading positive appearing to accumulate lower prices as we have been looking for since first calling for USO to pullback below $20 and in to its base's range.

This is reason enough for me to take any USO puts off the table for now, at least near term ones. However I'm a bit less concerned with the USO equity short.

The 15 min chart I said last week needed to see 3C make a lower move to break the "Flag-like" 3C trend, looks to be starting to which tells me that we are likely finally in the end game area , back in the range to finish up longer term base work for a primary trend reversal.

 It seems to me this 30 min USO chart which has put in a clear negative divergence is forecasting the accumulation event expected at the lower end of the range, but that doesn't mean there won't be volatility such as gap fills of days like today so for now,  I'm leaving the USO equity short open until I see a clear reversal process and positive divergence that cancel out this 30 min chart's negative divergence which fits with the kind of pullback in to the range to levels as low as $16, maybe even lower on a head fake move as the range is fairly obvious.

For now, unless I had leveraged (especially option) positions, I want to just let USO be, let the equity short stand and let the charts sort themselves out in this area.

If there is a high probability trade, I'll post it. I don't consider a probable gap fill a high probability trade in this area at this time, but the charts can change quickly.