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For The Bold, Bearish Energy ETF Ideas

August 5, 2015 3:42 pm
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The energy sector's tale of woe has been amplified plenty of times in recent months. An abridged version goes like this: The United States Oil Fund (NYSE: USO) is off almost 28 percent over the past 90 days while the Energy Select Sector SPDR (NYSE: XLE) has tumbled 17.2 percent over the same period.


Down 15 percent year-to-date, XLE is the worst performer among the nine sector SPDRs and it is not even close. To this point in Wednesday's session, 35 energy-related ETFs have touched 52-week lows and that number does not include an array of diversified commodities funds that include oil or single-country ETFs of oil-producing nations.


Traders with a high tolerance can exploit further energy sector declines with some high-flying leveraged bear funds, including the Direxion Daily Energy Bear 3X Shares (NYSE: ERY). ERY attempts to deliver three times the daily inverse performance of the S&P Energy Select Sector Index, the underlying benchmark for XLE.


Knowing that XLE is off about 17 percent over the past three months, one would hope to see ERY higher by 51 percent over that period, but the Direxion ETF is actually up more than 65 percent. However, ERY's variance to its underlying index has ebbed a bit in recent weeks and is just -0.11 percent for the 30-day period ending Aug. 4, according to Direxion data.


It probably is not surprising that volume in ERY has been increasing as well. For the five-day period ending Aug. 4, ERY's volume 20.3 percent above the trailing 20-day average, according to Direxion data.


If a bearish view on XLE is not suitable to one's tastes, perhaps shorting riskier exploration and production names is. That group has fallen harder and faster than the large integrated oil names as highlighted by a 90-day decline of 30 percent for the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP).


For risk-tolerant traders, there is good news. That being Direxion's recent introduction of the Direxion Daily S&P Oil & Gas Exp. & Prod. 3X Bear Shares (NYSE: DRIP). DRIP attempts to deliver three times the daily inverse performance of the S&P Oil & Gas Exploration & Production Select Industry Index, XOP's underlying benchmark.


Arguably no new ETF that launched this year has been as well as timed as DRIP. The ETF hit another all-time high today on double the average daily volume and has nearly doubled in the two months since it came to market.


Month-to-date, DRIP is Direxion's second-best leveraged bear ETF and over the five days ending Aug. 4, the ETF's volume was 122 percent above the trailing 20-day average, according to Direxion data.

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