Here is some loose, and I mean loose correlation analysis. USO started trading April 10, 2006. Take the closing price of USO which closed higher than GLD at the time. $68.20- $59.01 = $9.19. Now if you sold USO and bought GLD around this time you see they converge or cross 5/19/06 for what should be a $9.00 profit. This analysis only goes to 8/23. The widest spread seen in this data sample is $10.77. Convergence trades are interesting and can be applied to just about anything. They are as risky as anything else, just ask Long Term Capital Management. Risk is risk. Those guys got into trouble when the spreads got away from them. There are libraries full of this kind of trading, just some food for thought. Good luck! Seasoned traders know the importance of risk management. If you risk little, you win little. If you risk too much, you eventually run to ruin. The optimum, of course, is somewhere in the middle. Placing a trade with a predetermined stop-loss point can be compared to placing a bet: The more money risked, the larger the bet. Conservative betting produces conservative performance, while bold betting leads to spectacular ruin. A bold trader placing large bets feels pressure or heat from the volatility of the portfolio. A hot portfolio keeps more at risk than does a cold one. Portfolio heat seems to be associated with personality preference; bold traders prefer and are able to take more heat, while more conservative traders generally avoid the circumstances that give rise to heat. The above paragraph was written by Ed Seykota. I don't think I could articulate risk any better than that. USO Date Close Date Close USO-GLD 4/11 68.2 4/11 59.01 9.19 4/12 67.84 4/12 59.43 8.41 4/13 68.82 4/13 59.5 9.32 4/17 69.79 4/17 61.09 8.7 4/18 70.75 4/18 61.85 8.9 4/19 71.85 4/19 63.75 8.1 4/20 71.09 4/20 60.96 10.13 4/21 72.81 4/21 63.2 9.61 4/24 71.01 4/24 61.65 9.36 4/25 70.64 4/25 62.78 7.86 4/26 69.54 4/26 63.65 5.89 4/27 68.7 4/27 62.96 5.74 4/28 69.62 4/28 65.09 4.53 5/1 71.5 5/1 65.16 6.34 5/2 72.34 5/2 66.55 5.79 5/3 70.22 5/3 66.46 3.76 5/4 68.32 5/4 67.48 0.84 5/5 68 5/5 67.99 0.01 5/8 67.88 5/8 67.56 0.32 5/9 68.4 5/9 69.68 -1.28 5/10 69.77 5/10 70.38 -0.61 5/11 70.3 5/11 71.03 -0.73 5/12 69.11 5/12 71.12 -2.01 5/15 66.63 5/15 67.41 -0.78 5/16 66.7 5/16 68.61 -1.91 5/17 65.7 5/17 68.15 -2.45 5/18 66.74 5/18 67.46 -0.72 5/19 65.57 5/19 65.58 -0.01 5/22 66.28 5/22 65.3 0.98 5/23 67.77 5/23 66.38 1.39 5/24 66.1 5/24 64.06 2.04 5/25 67.8 5/25 64.7 3.1 5/26 67.75 5/26 65.1 2.65 5/30 68.32 5/30 65.11 3.21 5/31 67.73 5/31 64.23 3.5 6/1 66.82 6/1 62.56 4.26 6/2 68.9 6/2 63.5 5.4 6/5 68.74 6/5 63.29 5.45 6/6 68.76 6/6 62.55 6.21 6/7 67.28 6/7 62.28 5 6/8 67.12 6/8 60.91 6.21 6/9 68.07 6/9 60.45 7.62 6/12 67.08 6/12 60.03 7.05 6/13 65.18 6/13 55.92 9.26 6/14 65.79 6/14 55.62 10.17 6/15 66.16 6/15 57.32 8.84 6/16 66.25 6/16 57.68 8.57 6/19 65.54 6/19 56.36 9.18 6/20 65.29 6/20 57.3 7.99 6/21 66.35 6/21 58.33 8.02 6/22 67 6/22 57.73 9.27 6/23 66.89 6/23 57.99 8.9 6/26 67.7 6/26 58.28 9.42 6/27 68.08 6/27 57.68 10.4 6/28 68.31 6/28 57.54 10.77 6/29 69.51 6/29 59.52 9.99 6/30 69.77 6/30 61.23 8.54 7/3 69.93 7/3 62.18 7.75 7/5 71 7/5 62.5 8.5 7/6 70.77 7/6 63.02 7.75 7/7 69.85 7/7 62.63 7.22 7/10 69.56 7/10 62.02 7.54 7/11 70.08 7/11 63.81 6.27 7/12 71.14 7/12 64.92 6.22 7/13 73.25 7/13 65.55 7.7 7/14 73.22 7/14 65.85 7.37 7/17 71.65 7/17 63.95 7.7 7/18 70.75 7/18 62.9 7.85 7/19 69.85 7/19 64.03 5.82 7/20 69.1 7/20 62.54 6.56 7/21 69.52 7/21 61.71 7.81 7/24 70.17 7/24 61.14 9.03 7/25 69 7/25 61.55 7.45 7/26 69.17 7/26 62 7.17 7/27 69.68 7/27 62.9 6.78 7/28 68.5 7/28 63.11 5.39 7/31 69.52 7/31 63.16 6.36 8/1 70.15 8/1 64.32 5.83 8/2 71.12 8/2 64.75 6.37 8/3 70.56 8/3 64.12 6.44 8/4 69.81 8/4 64.28 5.53 8/7 72 8/7 64.5 7.5 8/8 71.3 8/8 63.97 7.33 8/9 71.17 8/9 64.63 6.54 8/10 69.6 8/10 63.25 6.35 8/11 69.73 8/11 62.71 7.02 8/14 68.59 8/14 62.25 6.34 8/15 68.21 8/15 62.01 6.2 8/16 67.18 8/16 62.49 4.69 8/17 66.05 8/17 61.03 5.02 8/18 66.18 8/18 61.04 5.14 8/21 67.42 8/21 62.44 4.98 8/22 67.05 8/22 62.05 5 8/23 66.24 8/23 61.83 4.41
cover USO $51.85, cover GLD $61.50. This is a profit of $.35 or $35.00. Typically would hold the trade longer but GLD is strong and may rally again. Due for an up day on oil. GLD $61.50 USO $51.85 $9.65
Here is a quick update chart on USO. It has been range bound trading mostly between $52.00 to $55.00. You could sell below $52.00 and buy above $55.00. Still bearish, today's price action was weak considering the large gasoline drawdown. Traders don't seem to buy OPEC's cuts so far. The market is still looking for a bottom. I would not go long except on a scalp, unless there is a close over $55.00.
I assume that you are saying that RSI has bottomed in September on the daily chart. You could certainly go long here. I would be cautious though; there has already been one false breakout on the daily charts. Weekly RSI 29.23.
Big down day for oil. The 52 week low was taken out at $50.50. There have been a lot of bullish signs lately on the daily charts not to mention bottom calls. This lets me know that maybe the outlook should be weekly. The 50 day exponential moving average is sitting way up at $63.20. Notice this is the second false breakout on the daily chart. With the Nymex going public should be an interesting day tomorrow. Congrats to all the traders there. I hear you near a helmet and shoulder pads to trade down there!!
is it time to go long USO or is oil going to drop to the 40's..... anyone remember the hype behind 100 oil.....too funny...im bullish on oil but its amazing how quick things turned around in the last 4 months.....
This is a post from a few days ago. Still relevant. USO broke down and took out the lows bottoming at $50.25. It closed today at $51.95 just under $52.00. Big upmove due to supply disruptions. It looks like it will enter the $52.00-$55.00 channel again. Outlook still bearish.