Oil ETF Set for a Short-Term Pop

03/14/2012 9:45 am EST

Focus: ETFs

An impending short-term bounce in crude oil can best be traded using a particular 2x leveraged ETF, writes Joey Fundora of DowntownTrader.com.

Oil may be setting up for an impulse move in the very near future. The commodity has refused to give up much ground recently, despite a bounce in the US dollar over the past two weeks.

I like to trade the double-crude ETF, the ProShares Ultra DJ-UBS Crude Oil ETF (UCO) for short-term moves, as it is more volatile than United States Oil Fund (USO) and not as crazy as the crude contract. In looking at the chart below, it is clear that volatility and volume has been contracting since the February breakout in oil.

Click to Enlarge

This is healthy behavior, and UCO has managed to remain above its breakout point near $44 the entire time. I’m not sure if oil will take off after the Fed statement this week or not, but it is poised for a strong move soon.

By Joey Fundora, trader and blogger, Downtown Trader

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