This E&P ETF Is Just Crushing It

Commodities, including oil, got some support last week when the Federal Reserve declined to raise interest rates. Oil's recent rally is borderline silly, as evidenced by the United States Oil Fund LP (ETF) USO, which is higher by almost 19 percent over the past month.

Some equity-based energy plays have been even better. For example, the SPDR S&P Oil & Gas Explore & Prod. (ETF) XOP is higher by 23.2 percent over the trailing month, as oil's resurgence has forced previously devoted short sellers to trim some of their bearish exposure to energy equities.

“Concerns about growth and the path of interest rates have eased somewhat, as commodity prices stabilized and economic data improved. That’s boosted stocks since the Feb. 11 trough, amid fears of a U.S. recession. But when asked about the timing of the next rate move Yellen responded, 'April remains a live meeting,' leaving the door open to manage an uncertain future,” noted Direxion, the second-largest issuer of leveraged exchange-traded funds.

Related Link: Short Sellers Are In A Pickle With Energy Stocks, ETFs

Not surprisingly, those gains and other impressive returns notched by rival energy ETFs in short order are making life hard for short sellers who previously attacked the energy sector with plenty of fervor. Data indicate forced short covering of energy stocks is becoming a regular occurrence, as the recent oil rally has caught many bearish traders off guard.

Leveraged Counterpart

That is to say, XOP's triple-leveraged counterpart, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares GUSH is currently loving life. GUSH, which attempts to deliver triple the daily performance of the same index XOP tracks, has more than doubled in just a month. Even with its recent double, GUSH trades at a cup of coffee handle of $5.61 as of Monday's close, explaining why the ETF is heading to a 1-for-4 reverse split on Thursday.

“Along with US stocks, U.S. crude oil was up 4.42 percent at $40.15/barrel as the market bet on a plan by oil producers to lower output to ease the global oversupply. In fact, oil prices are up sharply from their February lows, rising over 30 percent since mid-February. It’s uncertain, if oil can maintain its upward trajectory, but some traders think there is a lot of upside left for oil and gas stocks,” added Direxion.

A headwind for the likes of GUSH and XOP is the fact that energy earnings estimates for 2016 are contracting and market observers expect oil supply to continue outpacing demand.