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Over the past twenty trading sessions the ProShares Ultra Dow Jones AIG Crude ETF (UCO) has been quietly exhibiting a bearish divergence with the S&P 500. Should the broad market turn lower for a few days, UCO could lose support due to its relative weakness. In addition, UCO formed a bearish reversal candle yesterday on a dramatic spike in volume. A drop below yesterday’s low of $39.79 could present a shorting opportunity. We like this short setup and are adding it to the watchlist. Trade details are provided in the watchlist section of the newsletter. The fact that commodities are not as highly correlated to the market is what allows us to consider this counter-trend setup. For those of you trading qualified accounts or those who cannot borrow shares to short UCO, buying the PowerShares DB Crude Oil Double Short (DTO) is the inverse alternative to shorting UCO.

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