Checking the Gold to Oil Ratio

Gold ($GC_F, $GLD) has been in the dumper. Ever since it broke below 1550 it has had some big legs down and then a slow grinding recovery before it starts again. Is it over now? I don’t know. And what about Crude Oil ($CL_F, $USO)? It has had its own ups and downs. Currently it is on the verge of a beak out higher. The problem is that both have been highly volatile. That is great news if you are a day trader, but for a swing trader it leads to chop. So how do you decide to choose yellow Gold or black Gold? One way to deal with it is to look at things in pairs. The ratio of $GLD to $USO, for example has behaved in a much more civilized manner. The weekly chart below shows The failed break out of a two year symmetrical triangle before it fell to the downside. It is now pursuing the target to 2.20. Along the way it sits in a

gld - uso

position that makes it interesting for a potential trade. At the 3.83 ratio, which has been important for over 4 years, the major resistance and support levels are quite far away in either direction. Watch for the reaction to the green line. A hold and reverse has smooth sailing up to a ratio of 4.44 or 4.70. A continued breakdown sees support next at 3.19 and then 2.61. The picture favors the downside, with Gold giving up more ground to Oil, but be prepared. In rough terms, 400 shares long (short) of $USO for every 100 shares short (long) of $GLD on a move higher (lower) in the ratio could yield a dandy return.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through May 2013 Expiry and sign up here.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

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.

blog comments powered by Disqus
Dragonfly Caps Blog