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Some Traders Turn Bearish On Energy Sector

December 29, 2017 4:07 pm
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The energy sector still has the dubious distinction of being one of the worst-performing groups in the S&P 500 this year, but give the sector some credit. It is trying to end 2017 on a strong note as highlighted by a fourth-quarter gain of almost 6 percent for the S&P Energy Select Sector Index.

That energy index is up nearly 8 percent over the past month, whittling its year-to-date loss to under 4 percent. Tax reform and bets that oil prices will rise in 2018 are among the catalysts recently boosting energy stocks.

Those themes are bolstering the Direxion Daily Energy Bull 3X Shares (NYSE:ERX). ERX is designed to deliver triple the daily returns of the S&P Energy Select Sector Index. However, some data points suggest traders are betting on a near-term pullback for energy equities.

Enter ERX's Cousin

ERX has a bearish relative, the Direxion Daily Energy Bear 3X Shares (NYSE:ERY). That bearish ETF attempts to deliver triple the daily inverse returns of the S&P Energy Select Sector Index. The benchmark “includes domestic companies from the energy sector which includes the following industries: oil, gas and consumable fuels; and energy equipment and services,” according to Direxion.

Traders are embracing ERY. For the five-day period ended Dec. 27th, ERY's volume was more than 46 percent above its trailing 20-day average, according to issuer data. Just five of Direxion's leveraged ETFs saw greater jumps volume over those five days.

Reminding traders that leveraged ETFs are intended to be intraday trades, not held for days or weeks, is ERY's recent slide. The triple-leveraged bearish fund is down 12.7 percent over the past week.

Not Afraid

While ERY has been sliding, some traders appear to be taking that decline as an opportunity to embrace the ETF from the long side.

ERY is down more than 22 percent over the past month, but the ETF is hauling in an average of $751,000 per day in new assets over that period. Conversely, traders have been pulling money from the bullish ERX.

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