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In early February I discussed a time-and-price setup in United States Oil (USO) for a possible tradable low. As it turns out, the first low was made into the key time, and the price parameters discussed in that article -- the Feb. 2 low of $36.68 -- ended up holding. A buy trigger proceeded to fire off, with a healthy rally to just beyond the 1.618 Fibonacci price extension target. This amounted to a move off Feb. 2 to a high of $42.30 on March 1.
The question today is: Will history repeat itself? Since USO is making new recent lows, I am looking at a similar time-and-price setup that suggests another possible low. Of course, the fact that the setup is similar does not mean that it will definitely put in a low. Still, I will be watching for reversal indications against these parameters in the same way I did in early February. Let's look at the current setup and go from there.
I'm currently watching a key Fibonacci price cluster of support at the $38.29-to-$39.02 area in USO. This price cluster zone includes the coincidence of at least 10 Fibonacci price relationships, with Fibonacci retracements, extensions and price projections within the cluster. So far, a low has been made directly within this zone, at the $38.87 level.
Besides the price support we are currently testing, I'm seeing two Fibonacci time cycle windows for a possible low. The USO is in the first window the first cycles, due between March 28 and March 30, and one more window that stands out -- plus or minus a day -- comes due between April 4 and April 5.
One of the most important time factors we're looking at is the 100% cycle of the prior two corrective declines. The correction from the Nov. 16 high to the Dec. 16 low lasted 21 trading days -- which is what helped us predict the last low in early February -- and the correction of the Jan. 4 high to the Feb. 2 low lasted 20 trading days. As of March 29, the price was down 20 trading days from the March 1 high. This is very similar to the last two corrective declines! If the current decline is only corrective, then it is more likely to terminate between now and early April.
All that said, if USO respects the time and price parameters discussed above, I will patiently wait for my buy trigger to fire off. If it does, I will buy some calls and look for a rally to unfold. My maximum risk will be defined about $0.50 below the price cluster zone of support that comes in between $38.29 and $39.02. If these same parameters are violated instead, I will back off the buy side until further notice.
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