Should energy sector ETFs see more waning momentum, which is exactly was seen Tuesday, the UltraShort Oil & Gas ProShares (NYSEArca: DUG) and the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY) could prove to be winning trades. ERY attempts to deliver three times the daily inverse performance of XLE’s underlying index while DUG is a double-leveraged inverse play on the Dow Jones U.S. Oil & Gas Index.
Still, bargain hunters could be lured to energy stocks and ETFs. Valuations are also sitting at relatively attractive levels as well. Looking at the energy sector’s price-to-book ratio since 1990, the sector’s valuations are hovering near lows last seen during the financial downturn. However, investors should be careful with putting too much faith in what amounts to a brief rally in the energy patch.
“We’re worried that if the overall market does continue to crack here, it’s going to be because of this sector. For that reason, we’re staying away [from the XLE],” Wald said on CNBC.
ProShares UltraShort Oil & Gas