Oil And Gas Stocks Tank With Record Supply Fueling Sector Sell Off: This Inverse ETF (DRIP) Offers A 200%

Direxion Daily S&P Oil & Gas Exp & Prod Bear 2X Shares (NYSE:DRIP) was rising about 4.5% Tuesday after data released by the Bureau of Labor Statistics showed the Consumer Price Index (CPI) eased to an annual rate of 3.1% in November, which matched expectations.

Last week, OPEC+ nations agreed on new oil cuts amid oil production in the U.S. reaching record levels and supply outpacing demand. Despite the news, the United States Oil Fund (NYSE:USO) fell to a five-month low the following day on Dec. 7, throwing the sector into a bear market.

Must Read: Crude Conundrum: US Oil Production Hits Record Levels, But Energy Stocks Aren't Pumping

Analysts have recently turned bearish on the sector, with Morgan Stanley analyst Devin McDermott downgrading Marathon Oil Corporation Corp (NYSE:MRO) from Overweight to Equal Weight on Monday and dropping a price target from $27 to $25. On Friday, JP Morgan analyst John Royall maintained an Overweight rating on Exxon Mobil Corp (NYSE:XOM) and lowered a price target from $134 to $127.

DRIP is an inverse double-leveraged fund designed to track companies held in the S&P Oil & Gas Exploration & Production Select Industry Index by 200%. Inverse ETFs offer a vehicle for traders to play a group of stocks bearishly, without having to open a short position.

A few of the most popular companies held in the ETF are Exxon, which is weighted at 2.54% within the ETF; Occidental Petroleum Corporation (NYSE:OXY), weighted at 1.53%; and Marathon Oil, weighted at 1.54%.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investments.

For traders looking to play the oil and gas sector bullishly, Direxion offers the Direxion Daily S&P Oil & Gas Exp & Prod Bull 2X Shares (NYSE:GUSH).

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The DRIP Chart: DRIP broke up from a bull flag on Tuesday and crossed above the 200-day simple moving average (SMA), which threw the bearish ETF into a bull cycle. The bull flag was formed between Dec. 1 and Monday and has a measured move of about 18%, which suggests the ETF could rally toward the $14.50 mark.

DRIP also confirmed a new uptrend on Monday and Tuesday, by printing both a higher low and a higher high. If the ETF falls over the next few trading days, bullish traders want to see DRIP bounce up from $12.30 mark, which would allow the uptrend to remain intact.
Bullish traders want to see continued momentum push DRIP higher and for the ETF to remain above the 200-day SMA. If that happens, the 50-day SMA will eventually cross above the 200-day, which would cause a golden cross to form.
Bearish traders want to see big bearish volume come in and drop DRIP back down under the 200-day, which could cause the ETF to form a lower low to negate the uptrend. If that happens and DRIP also falls below the eight-day exponential moving average, downside pressure could accelerate.
DRIP has resistance above at $13.42 and at $14.74 and support below at $11.93 and at $10.69.