To date I still do not have a clue as to why USO broke 180 degrees with it's $USD correlation, after all, crude is traded the world over in $USD. When the $USD falls, crude moves up to compensate, when $USD strengthens as we have seen recently, crude moves down to compensate, it is one of the most predictable FX correlations out there, so why the disconnect? I have no idea, but through it all, 3C signaled distribution in to higher prices and finally USO has felt the gravitational pull of that distribution.
Recently I have pointed out the bearish ascending wedge in USO and 3 days ago we had a very reliable Japanese Candlestick "Evening Doji Star' reversal pattern, it worked perfectly and USO confirmed with a major break yesterday and continues to move lower, which made some members a decent chunk of change in the last 2 days. This is why the market action that you can see, can rarely be trusted and why we put so much emphasis on the underlying action that shows us institutional money's footsteps in the sand.
Here's an update for USO today.
This is a daily chart of USO, at the green arrow is the bearish ascending wedge (that's right, even with climbing prices, the wedge makes the pattern bearish and the initial downside target is usually the base of the wedge around $34 in this case, but often a reversal like this is more significant). The white arrow shows the bearish evening star doji, which also broke out of the ascending wedge, something the dogma of technical analysis says it should not do, the volume was very heavy so many technical traders likely bought that breakout thinking the wedge was a failed pattern and this is likely where smart money dumped their entire position and went short, leaving retail traders holding USO at the highs at a significant loss. The two red arrows are very bearish candlesticks that are confirmation of the evening star reversal. Remember volume analysis, that doji, evening star was on heavy volume, but intraday it closed exactly where it opened, which is a sign of churning or strong hands selling to weak hands. Even simple volume could have helped tell the story of what happens next.
Short term 3C 2 min charts also showed a very negative divergence (distribution) at the doji star reversal and since USO has moved down over the last 2 days, 3C has confirmed the downtrend as being strong thus far.
The longer term 15 min hart went negative in late October and USO did fall briefly, that is when it reversed correlation to the $USD and started forming the bearish wedge, that entire period remained negative in 3C's view, showing us likely distribution in to higher pries,such is the way of Wall Street. The downside negative divergence in the red box, further confirms the strength of the downtrend.
The long term trend represented by the 30 min chart showed, just like all the other 3C timeframes, that this was indeed a distribution event with those who chased USO higher, taking on losses or soon to be taking on losses as USO moves lower. There's also more downside confirmation in the red box.
Here is the daily chart compared to the Euro, USO should trade almost exactly like the Euro, instead it broke the FX correlation right as it formed the bearish wedge. Again, as for volume analysis, the doji star and volume on that day at the red arrows, told us it was very likely that bearish churning was under way. Sometimes it is very difficult to believe the charts showing the underlying action (I've had years of experience with them and have trusted them even in situations like this where there seems to be no rationale to the price action), but when we look back at this a month from now, it is highly likely that those who entered USO short will be glad they did.
As far as my stop or where I consider USO to be beyond the point of no return, I have maintained the $36.50 level and my Trend Channel is at that exact spot, so a break of that level may offer another opportunity to short or add to USO shorts. There may be short term volatility in the area, but that may be useful in getting better positioning.