With rate cuts potentially looming in September, hedge funds are loading up on energy sector stocks,. That could give traders opportunities in leveraged ETFs if they want to mirror their bets.
Hedge fund activity appears to be centered on scooping up shares of energy stocks after selling off shares in the industrial sector, according to a Yahoo report. With rate cut expectations coming, this could push the dollar down. And it could propel demand for dollar-denominated oil from international buyers.
“Energy drew bids from hedge funds as the most net bought stock sector on Goldman’s US prime brokerage book, which also lends trading money and tracks hedge fund trading,” the Yahoo report said. The report was referencing a note from global investment firm Goldman Sachs.
“Hedge funds last week bought oil, gas and consumable fuels and energy equipment and supplies companies for the fourth straight week,” the report added. “These speculators now hold the highest proportion of energy stocks they’ve had all year.”
4 Funds for Flexibility
Traders understand that having flexibility in markets will allow them to profit regardless of whether the energy sector trends higher or lower. Direxion offers four funds that can cater to the rising tides of the energy sector.
For a bullish play on the oil and gas sector, consider the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH). The fund seeks daily investment results of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
For a broader play on the energy sector, traders can opt for the Direxion Daily Energy Bull 3X Shares (ERX). The fund seeks daily investment results equal to 200% of the daily performance of the Energy Select Sector Index. The index is provided by S&P Dow Jones Indices. It includes domestic companies from the energy sector,. That includes the following industries: oil, gas, consumable fuels, and energy equipment and services.
The energy sector is inherently volatile. So it’s best if traders remain tactical and maintain a level of fluidity in the markets. As such, they can always take the other side if the energy sector trends lower with the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (DRIP) and the Direxion Daily Energy Bear 2X Shares (ERY). Both funds offer the same double leverage, allowing traders to maximize gains if their bearish bets pay off.
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