The Rule For Crude Oil: Futures Up, ETF’s Down

Oil comes in many forms and grades, and I could not even start to understand why one might be better than another. But looking at the ways to own one particular grade, West Texas Intermediate Crude (WTIC), there is an interesting phenomenon between two forms of ownership, the United States Oil Fund ETF (ticker:$USO) and the Crude Oil futures.

Crude Oil Futures

Compare the weekly chart for Crude Oil futures to USO below. There are many similarities. The Relative Strength Index (RSI) trended higher to a peak around 70 for both and then fell off a cliff to 50. The Moving Average Convergence Divergence (MACD) indicator has really been flat lined the entire move higher for both. But look closely and some interesting divergences appear. First as Crude Oil Futures were rising through 2009 and 2010, USO moved higher and then consolidated. Second, Futures moved above all of its weekly Simple Moving Averages in October 2010 and has remained there, just breaking the 20 week SMA now, the USO been in touch with the SMA’s often only break above them in February 2011 and never near the 200 week SMA.

United States Oil Fund, USO

So as Crude Oil is falling this suggests there may be less downside risk in USO than in Futures. The USO has SMA support at 37.23 from both the 50 and 100 week SMA just 2.5% below where it is at 38.10 as I write this, while Futures find SMA support all the way down to 81.33 or almost 18% lower than the current 98.85 price. If you are looking to store some of you portfolio in Oil perhaps USO is a better place to be until the carnage is over. You can always flip back into the Futures when the next uptrend begins. So a new market paradigm for Oil: Futures Up, ETF Down.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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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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