Quantifying the struggles of oil and the related exchange traded funds is not difficult. When including leveraged ETFs, seven of the 20 worst-performing ETFs over the past 90 days are related to energy futures or equities and that number does not include single-country ETFs with heavy oil and natural gas exposure.
Although it is down 26.4% over that period, the United States Oil Fund (NYSEArca: USO) is not one of those seven ETFs. Still, oil futures are in a precarious position, indicating that risk-tolerant investors may want to exploit further technical weakness for crude with bearish leveraged oil ETFs.
“After a 50% decline, a counter trend really took Crude to the underside of resistance and its 200 Day moving average (highlighted above), where it stopped on a dime. Since hitting resistance, Crude Oil has declined over 15% in the past month,” said Chris Kimble of Kimble Charting Solutions. “Now Crude is testing lows established earlier this year. Is a triple bottom in play or is a further breakdown about to take place?”
Traders can profit from more oil declines with ETFs such as the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO) and the VelocityShares 3x Inverse Crude (NYSEArca: DWTI). SCO tries to reflect the two times inverse or -200% daily performance of WTI crude oil while DWTI takes the three times inverse or -300% performance of crude oil. [Inverse ETFs to Hedge Against Hurdles Ahead]
All DWTI and SCO have done over the past 90 days is surge 112% and 68%, respectively. A number of factors have been contributing to the lower oil prices, including rising from the U.S. and Organization of Petroleum Exporting Countries, potential increase in exports from Iran, a stronger U.S. dollar, weakening China outlook and lower institutional interest.
However, traders have not been compelled to embrace the likes of DWTI and SCO. Since the start of the current quarter, those ETFs have lost combined $171 million in assets while $834.5 million has flowed into USO. Those flows could reverse if oil does not reverse higher.
“Humbly I am of the opinion, Crude Oil is one of the more important commodities on the planet and what it does from here would be suggesting something about the global economy, which could ripple into the stock market,” adds Kimble.
ProShares UltraShort Bloomberg Crude Oil
