Is The Oil, Stock Inverse Correlation Off? (USO, SPY)
Oil is at session lows, trading around $110 per barrel, yet stocks are currently at session lows.
We had seen an inverse correlation that whenever oil was ticking lower, stocks would move higher, but recently we've seen that disparity end, and oil prices were supporting the S&P.
Considering energy makes up approximately 20% of the S&P 500, this inverse correlation had to end sometime soon, and it appears that now is the time.
If this does in fact prove to be the case over the short and medium term, then traders may want to put on a pairs trade, shorting oil related equities and ETFs, as well as shorting the broader market.
One example of this trade is shorting the United States Oil Fund LP ETF (NYSE: USO), while also shorting the SPDR S&P 500 ETF (NYSE: SPY). You can also substitute any of the major oil exploration companies, such as Exxon Mobil (NYSE: XOM) or Chevron (NYSE: CVX).
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