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Sunday, March 1, 2009

My Theory about Goldman Sachs and Crude OIl

Early summer 2008: Oil was on a breakout trend heading toward 150 a barrel and Goldman Sachs kept raising the crude oil price objective. I realized that on days when crude oil would spike that Goldman Sachs was also trading higher. It was unusual because GS may have been the only financial stock trading higher with crude. As financials continued to melt down GS hung in there. Then crude started crashing and so did GS. At one point the pattern matching software I use correlated GS and USO (Crude Oil ETF) to be .997. GS reported their first loss ever during the same quarter that crude oil got hammered. USO lost almost 60% of its value in Q4. I think if we some stabilization in the commodity market, GS will also stabilize and perhaps go higher. We are well off the crude oil lows, but are hitting new lows on the Dow and S&P everyday. It seems GS is hanging in there and is well off the lows as well. As of right now USO and GS are nowhere near as correlated as they were in June or July but they remain over .80 which is significant. Below is a chart of both USO and GS trading from April 2008. GS is the blue line, and USO is the red line. Click on the image below to see a larger more detailed chart.




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