Alot is being made of the upside break in oil.Today it traded above $60 before retreating.It can be questioned whether high oil is a sign of market recovery or rather a danger that will hurt already cash strapped consumers and businesses in the months to come.So what do the charts say and how can one play it if they so choose?

Let’s start by looking at energy stocks through the ETF, XLE.Notice the major rally in the past 2 months no starting to stall at resistance.This resistance is due to Nov and Dec highs, the 200 day moving average, and the broken trend line from late last year.If you are bearish, the trade is easy…short here with a stop on broken resistance.For you bulls, caution is key due to the weak volume on the rally and the declining momentum.(Click Here for Chart)

Next, lets look at the price of oil.From a weekly chart, we can see the retracement in progress and the barrel of oil starting to hit a potential speed bump.While this is far from a bear signal, it is something worth noting.

(Click Here for Chart)

Another way to play oil is through an ETF.I never would advocate going long on the USO, but going short will allow one to take advantage of the overall underperformance.The USO was designed to track the price of oil, but due to fees and other future contract details, the USO grossly underperforms oil.This year alone, it has underperformed by 35%.  If you are bearish on oil, USO puts are the way to go to take advantage of this underperformance.

(Click Here for Chart)

Happy Trades,