Direxion Energy Bull 2X Shares ERX gapped down 10.42% to start the trading day on Wednesday. The ETF was erasing some of its losses in the afternoon, trading about 8% lower.
The energy sector had been enjoying a long bull cycle that began Dec. 31, 2021 and gained steam in February following Russia’s invasion of Ukraine and the oil embargoes that followed. The cycle ended on June 8 when Exxon topped out at the $105.57 mark, causing ERX begin to plummet from its 52-week high of $80.27.
ERX is a double leveraged fund that is designed to outperform companies held in the S&P Energy Select Sector Index by 200%. The index includes a variety of energy related stocks, with two giants, Exxon Mobil Corporation XOM and Chevron Corporation CVX, making up 43.78% of its weighted holdings.
A few other top 10 names in the ETF include EOG Resources, Inc EOG, weighted at 4.78%; ConocoPhillips COP, weighted at 4.56%; and Schlumberger N.V. SLB, which is weighted at 4.39% within the ETF.
It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to a long-term investment.
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The ERX Chart: ERX has been trading in a downtrend since June 8, with the most recent lower low formed on June 17 at $47.93 and the most recent lower high created at the $54.96 mark on the day that followed.
On Wednesday, ERX fell near to the last lower low and bounced up from the level, which formed a possible bullish double bottom pattern on the ETF’s chart.
- Although ERX is trading in a downtrend, the double bottom pattern may cause the ETF to form a more substantial bounce over the coming days, but other bearish signals may prove dominant.
- Despite the double bottom pattern, ERX is trading in a bearish double inside bar pattern, with all of Tuesday and Wednesday’s price action taking place within Friday’s trading range. The double inside bar leans bearish because ERX was trading lower before forming the pattern.
- If ERX suffers a bearish reaction to the inside bar pattern on Thursday, traders can expect another bounce over the next few days to at least form another lower high.
- A move lower will drop the ETF’s relative strength index (RSI) into oversold territory. ERX’s RSI is measuring in at about 34%.
- For traders who believe there is less risk and more reward to play the energy sector as a bear, Direxion Energy Bear 2X Shares ERY is one option.
- ERX has resistance above at $54.74 and $59.07 and support below at $50.10 and $47.25.
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