fbpx
QQQ
+ 4.14
321.28
+ 1.27%
DIA
-1.04
310.98
-0.34%
SPY
+ 1.46
381.36
+ 0.38%
TLT
+ 1.05
150.83
+ 0.69%
GLD
-0.26
174.15
-0.15%

Some Traders Betting The Energy Rally Is On Borrowed Time

by
May 31, 2018 6:11 pm
Share to Linkedin Share to Twitter Share to Facebook Share to Print License More
Some Traders Betting The Energy Rally Is On Borrowed Time

May was a big month for oil, with crude jumping over $70 for the first time since 2014. 

Even though the commodity is down slightly from its high of $72.90 on May 22, things are still looking up for the market; energy has been the third strongest sector of the S&P 500 this year.

But despite the strength in energy, signs from the Direxion Daily Energy Bull 3X Shares (NYSE:ERX) and the Direxion Daily Energy Bear 3X Shares (NYSE:ERY) could indicate short-term traders are betting on a reversal of the energy's sector recently bullish fortunes.

 

ERX attempts to deliver triple the returns of the Energy Select Sector Index while the bearish ERY tries to deliver triple the daily inverse returns of that benchmark. Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX), the two largest U.S. oil companies, combine for almost 40 percent of that index.

 

While energy stocks have been surging, Direxion data indicate traders have been taking profits in the bullish ERX while adding capital to the bearish ERY.

 

For the month of May ERX, the bullish fund, saw a total outflow of $23.33 million, while ERY saw a total inflow of over $6.29 million, according to FactSet.

 

Traders favoring ERY over ERX is notable for several reasons, not the least of which is that the energy sector is entering a time of the year that has been unkind to energy stocks. In June, the largest ETF that tracks the Energy Select Sector Index is usually one of the worst-performing sector ETFs.

 

Since coming to market in mid-1998, the Energy Select Sector ETF “has averaged a loss in the months of June, July, August, and September,” according to Schaeffer's Investment Research.

 

Neither ERX nor ERY should be held for extend time frames. Leveraged ETFs are based as intraday instruments or maybe held for several. If historical trends hold up, ERY could be a near-term idea for risk-tolerant energy sector traders.

 

Related Links:

 

What This New Sector Will Look Like.

 

A Small-Cap ETF To Consider.


Related Articles

Think The Energy Sector Can't Get Any Worse? This Leveraged ETF Is For You

Even with the benefit of some recent upside, the energy sector will rank as the worst-performing in the S&P 500 when 2020 draws to a close on Thursday. read more

Oil Volatility Continues To Drive Demand In 3X US Oil Exchange Traded Products

Due to the uncertainty that COVID-19 was going to have on the global economy in general, and crude oil specifically, West Texas Intermediate (WTI) front-month futures contracts closed at a negative price in April 2020. WTI represents the price for future delivery of a barrel of WTI crude oil. Since June 2020, WTI front-month futures contracts have traded between $34-$43 per contract. read more

Why BofA Securities Is Overweight Energy Stocks In 2021

Energy sector investors have had another brutal year in 2020, with the Energy Select Sector SPDR Fund (NYSE: XLE) on track to finish the year down more than 34%. Yet BofA Securities said this week that it is betting on a big rebound and rating the energy sector Overweight in 2021. read more

Bulls And Bears Of The Week: Chevron, Oracle, Twitter And More

Benzinga has examined the prospects for many investor favorite stocks over the past week. Both bullish and bearish calls in coronavirus vaccine contenders were seen this week. Social media platforms were represented in both categories as well. read more