Exchange-traded fund (ETF) traders armed with leverage are operating in a landscape where a U.S.-China trade war, inverted yield curves and other factors affecting global growth are making for a challenging environment. However, one sector to check out could be energy, according to global investment firm J.P. Morgan.
Oil is to energy like gold is to precious metals, and the former could be seeing more price increases after they settled following the drone attacks on oil facilities in Saudi Arabia in September. However, the energy sectors as a whole could be poised for a rebound.
“We believe favorable technicals, improving fundamentals with stabilizing business cycle, and ongoing geopolitical tensions in the Middle East could help redirect flows into this universally hated and cheap sector,” said Dubravko Lakos-Bujas, J.P. Morgan’s chief U.S. equity strategist.
When it comes to worst performers on the S&P 500, the energy sector comes in second to last place, returning just 5.3% versus the broader index’s 19%. Per a CNBC report, the United States Oil Fund (NYSEArca: USO) experienced $471.6 million in outflows so far in 2019, which makes it the third-highest of all commodity ETFs.
While the U.S.-China trade war rages on, global growth prospects are lukewarm, which is putting a damper on energy gains. Furthermore, the sector is slated to experience a 28.7% year-over-year earnings decline in the third quarter, based on data from FactSet.
“The sector should be a key beneficiary of stabilization/reacceleration in the business cycle, which we expect to start playing out by early 2020,” Lakos-Bujas said.
However, this could be a buy-the-dip opportunity for bullish energy ETF traders. Either way, opportunities can be had in leveraged energy-focused funds.
Traders looking to make a play on oil can look to leveraged exchange-traded funds (ETFs). Whether they’re bullish or bearish on the commodity or the energy sector, traders have a plethora of options.
Oil bears can look to the Direxion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF (DRIP) for inverse opportunities. For bulls looking to buy on the weakness can look to the United States 3x Oil (NYSEArca: USOU), ProShares UltraPro 3x Crude Oil ETF (NYSEArca: OILU) and the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSEArca: GUSH).
Two additional funds for traders to consider are the Direxion Daily Energy Bull 3X Shares (NYSEArca: ERX) for bullish plays and the Direxion Daily Energy Bear 3X Shares (ERY) for bearish opportunities to take advantage of.
For more market trends, visit ETF Trends.