The wave iv for USO bottomed right at the top of the wave i in this current 5 wave structure. Since that time, it completed a nice 5 wave move up, and, thus far, seems to be within a wave 2 of the next 5 wave rally. The last top we saw this past week at the 33.75 region looks most like a b-wave within that wave 2, which likely means that we will see one more pullback in a c-wave to the 33.25 region, or even a little deeper down to the 33.00 region.
I think that pullback would be a buying opportunity for a short- term trade which will take the USO back to the 35.76-36.00 region. You should either use a stop of 32.40 for this trade, or 32.60 if you would like a tighter stop. But, in truth, I really do not want to see the market below 32.90, since staying over that level gives us the confluence we are looking for to it the 35.75 level.
However, please note that I am clearly saying this is only a trade, unless I see further evidence that it should be a longer term hold. The issue which is concerning me is the lack of volume in what should be counted as a 3rd wave in a bullish pattern. Rather than exceeding the volume of what would be counted as wave 1 off the lows, volume has significantly dried up, which is not what we would see in a 3rd wave. This is an indication of a corrective rally rather than the start of a larger and stronger wave 3 up.
Therefore, unless we see huge buying volume come into the market for USO, I think that the 35.75-36.00 region will likely be the top for USO for the time being, which will be followed by another decline. Since the larger pattern in USO is less than absolutely clear, I cannot provide you with an accurate target for the decline at this time, but it is possible that it could approach or even break the prior low seen in July. The question will be as to how the decline sets up from a wave perspective, so we will keep you apprised of the situation once the decline begins in order to set downside targets.
Originally published on ElliottWaveTrader.net.
