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USO DWTI Trade Setup & Entry

USO (Crude Oil ETP) is piercing through the bottom of this 60-minute bullish falling wedge pattern on what is likely to prove to be an over-throw of the wedge followed by a reversal & upside breakout. While I'm on watch for signs of a bullish reversal or possible near-term selling climax for a buy signal but with $WTIC & $CL just above my downside target of 43.50, I'm going to add USO as a long and/or a short on DWTI (3x bearish crude ETF) as an official but aggressive trade idea here. DWTI current price is 96.60. Price targets & suggested stop to follow asap although my rough stop will be on a 60-minute close below 10.15 (about 1.5% below on USO) with a minimum price target around 11.00 on USO.

Again, this is an aggressive entry in anticipation of a reversal in crude which has been in a solid near-term downtrend since early June. My plan is to only take a 1/2 size starter position (also adjusted down by 1/3rd to account for the 3x leverage of DWTI) and only adding to the position on strength in crude, not averaging down on weakness. A higher probability, more convention entry on a long in USO or DWTI short would come following decent evidence of a reversal and/or a break above the falling wedge pattern.

Member @nico1971 had inquired about crude in the trading room yesterday in which I posted the following comments & 60-minute chart (first below with the 2nd chart being today's updated 60-min): "Upon further review, I’m leaning towards another thrust down within the wedge before an upside breakout of this falling wedge pattern although it could come sooner than later. I’m also still leaning towards a move to at least the 43.50ish level on $WTIC so I’ll hold off from posting an update on the front page for now. Here’s my 60-minute chart of USO:"

 

My preferred proxy for this trade is to short DWTI (3x bearish crude etf) as that will allow me to benefit from both the price drop, should crude reverse trend soon as expected, as well as the decay suffered from 3x leveraged ETFs over time, especially if crude experiences a lot of choppy or sideways trading in the coming weeks although my price targets & expected holding period are still yet to be determined. Also note that if this trade starts to play out with the charts of crude firming up, I may close out the XOP/GUSH short trade earlier, although still profitable.

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Jul 22, 2016 12:08pm|Categories: Completed Trades - Short, Gold & Commodities|Tags: , |4 Comments

4 Comments

  1. jacant July 22, 2016 12:12 pm at 12:12 pm

    THX for update, notice that this am!

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  2. snp July 22, 2016 1:28 pm at 1:28 pm

    do you see any technical reason crude cannot double bottom to uso 7.67? it seems to me that such a dramatic decline as we have seen over the last 8 years would logically only end in a double bottom to break the cycle of lower highs.

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    • rsotc July 24, 2016 9:38 pm at 9:38 pm

      snp- While certainly a possibility, I don’t think crude ($WTIC) will revisit the $25ish lows largely because the extremely clear & powerful divergences that were in place on the weekly time frame at the lows. Another thing to watch for right now is the fact that the 50 level on the RSI often acts as support on the initial test from above following an cross back above after an oversold (30ish) reading (more so another reason for the current bounce long but also while I’m open to the possibility that it could morph into a much longer swing or even trend trade).

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  3. snp July 24, 2016 10:40 pm at 10:40 pm

    appreciate the astute technical reasons. good points.

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