Oil is Not Just Oil

All Crude Oil is not alike. Crude Traders understand this but many others do not. The two major types Brent North Sea Crude and West Texas Intermediate Crude are the most important. And their relationship to each other is very important. For stock traders the ratio of the United States Brent Oil Fund, $BNO, to the United States Oil Fund, $USO, offers a way to follow the relationship. And looking at the daily chart there is a trade opportunity building right now.

bno-uso

There are 3 indicators that come together that make this ratio interesting. The Relative Strength Index (RSI) has bottomed and is turning up. The Moving Average Convergence Divergence indicator(MACD) has also bottomed and is turning up on the signal line with a cross to trigger. And the Price has bottomed. The previous 4 times, as noted above, that these have lined up this has led to $BNO outperforming $USO. The average out performance has been 11%. This represents a move back to the 2.61 ratio. Use 240 shares short of $USO for every 100 shares long of $BNO, to trade this move and a stop near a ratio of 2.33.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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