Wednesday, January 31, 2007

CAL's Inverse Correlation with Energy

Today I went short on CAL, an airline stock, and went long USO (U.S. Oil Fund). Most likely, this trade is either going to pay off handsomely or hurt badly. I don't see much hope for any middle ground, as the stocks have had an inverse correlation over the past month. Oil goes up, airline stocks go down, and vice versa. I probably should not have played two entries that are so closely tied to one another. However, the charts told me those were the moves to make, so I didn't talk myself out of the trades.

Take a look at this chart below comparing CAL to OIH over the past month (USO's move is very similar to OIH), and note how perfectly these stocks move against each other.

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