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7 Ways To Short Crude Oil Now

Crude oil has had a wild ride this year. It seemed every day in January, oil was making new lows before it bottomed in early February at $26.05.The last five weeks have been the opposite, with almost every day a green day for the black gold. Crude oil futures looked to have finally topped out at $42.49 earlier this week, before pulling back under $40.00 yesterday. Now it looks like shorts sellers of crude and oil related companies have a solid entry where they can start short positions. Both the commodity and oil stocks look to trend lower into earnings season and risk can be realized with stops at the highs of the year. Oil is due for a sell off and it wouldn’t be a big surprise if we saw a pullback to the $34-35 area sometime soon. While the pullback starts to form, investors can profit from a fall in oil by buying the ETFs below. In late January, I had a bullish view in oil that can be found here . In the write up, I suggested getting long various oil bull ETFs and a few oil stocks. If that advice was followed I would suggest taking profits, then waiting for another chance to get back in at lower prices. ETF/ETNs to short Crude oil VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA: DWTI ) – This ETN is an investment that seeks to replicate, net of expenses, three times the opposite (inverse) of the S&P GSCI Crude Oil Index ER. The index comprises futures contracts on a single commodity and is calculated according to the methodology of the S&P GSCI Index. DWTI is a very volatile product that allows bearish oil investors to maximize their gain. If oil falls 5% in a day, this ETN will rise 15%, maximizing the bearish bet that is made. DWTI will pull back fast when oil heads higher, so I only encourage short-term trading with this instrument. ProShares UltraShort Bloomberg Crude Oil ETF (NYSEARCA: SCO ) – This investment seeks to provide daily trading results that correspond to twice (200%) the inverse of the daily performance of the Bloomberg WTI Crude Oil SubindexSM. The “UltraShort” Funds seek daily results that match (before fees and expenses) two times the inverse (-2x) of the daily performance of a benchmark. Very much like DWTI, this will move higher as crude oil moves lower. If oil is at $40 a barrel and falls to $39, we would see a 5% move higher in SCO reflecting the 2.5% move in crude lower. The main difference between SCO and DWTI is what magnitude, higher or lower, a trader is looking for. ETFs to short oil and gas companies Direxion Daily Energy Bear 3X Shares ETF (NYSEARCA: ERY ) – This ETF is an investment that seeks daily trading results, before fees and expenses, of 300% of the inverse of the performance of the Energy Select Sector Index. The fund creates short positions by investing at least 80% of its assets in swap agreements, futures contracts, options, reverse repurchase agreements, ETFs, and other financial instruments that, in combination, provide inverse leveraged and unleveraged exposure to the index. ERY is the same concept as DWTI, except the shorting aspect looks to focus on actual energy companies rather than crude oil futures. This might benefit a trader if he wants to go short a basket of energy stocks right before earnings season. The trader might be thinking that because of low oil prices, these energy companies will report negative earnings, leading to lower stock prices. This event would push ERY higher even if crude oil futures remained flat. ProShares UltraShort Oil & Gas ETF (NYSEARCA: DUG ) – The investment seeks daily investment results, before fees and expenses, that correspond to twice the inverse (-2x) of the daily performance of the Dow Jones U.S. Oil & GasSM Index. The index measures the performance of the oil and gas sector of the U.S. equity market. DUG will move in a similar manner to ERY, but a down move will only reflect twice the performance instead of three times. ProShares Short Oil & Gas ETF (NYSEARCA: DDG ) – This investment seeks daily trading results that correspond to the inverse (-1x) of the daily performance of the Dow Jones U.S. Oil & GasSM Index. The investment seeks daily investment results that correspond to the inverse (-1x) of the daily performance of the Dow Jones U.S. Oil & GasSM Index. DDG will move in a similar manner, but a down move will reflect the actual move instead of the leveraged gains that DUG and ERY have. A trader will utilize the above-mentioned instruments to short oil and gas stocks. They all offer different forms of risk and can be chosen depending on the trader’s willingness to accept risk. Other ETF/ETNs that will benefit Direxion Daily Nat Gas Rltd Bear 3X Shares ETF (NYSEARCA: GASX ) – This ETF seeks daily investment results, net of expenses, of 300% of the inverse of the performance of the ISE-REVERE Natural Gas IndexTM. Energy prices are typically correlated and move together. A move lower in oil will put pressure on natural gas prices, sending this ETF higher. iPath S&P 500 VIX ST Futures ETN (NYSEARCA: VXX ) – This ETN is a sympathy and fear play if oil prices were to return to the low $30s. This kind of event would create fear, bringing a bid back to the VIX. This ETN will head higher whenever the VIX and VIX futures head higher. Original Post

Why Now May Be The Moment To Get In On Value

The market’s almost immediate plunge to start 2016 cast a pall over what might have been shiny prospects for a new year, just two weeks from the Fed’s “balanced” assessment of U.S. economic conditions and the first rate hike in nearly nine years. Often forgotten in the doom and gloom is that volatility means down… and up. What intrigues me as a 30+-year value investor is that value stocks have been among the most volatile. And that seemingly has sent investors packing. At the end of 2015, there was $2.7 trillion in growth mutual funds, almost double the $1.5 trillion invested in value mutual funds. This underallocation to value stocks could mean missed opportunity. Let’s look at a hypothetical $10,000 investment in growth, core and value segments over the last decade. We can see where an investor might have missed out in this case. Click to enlarge Opportunity in the making We believe the recent overallocation to and performance strength in momentum and growth sets the stage for investor rebalancing. While the long-term path to value outperformance is not a straight line, and may be marked by alternating spates of value and growth leadership, we fully expect that investors are going to want and need to re-allocate back to value in their portfolios. As shown below, some of the periods of greatest value underperformance are followed by some of the most significant periods of outperformance. While the timing is impossible to predict, it’s not too great a leap to suggest we may be setting up for a rotation in favor of value stocks. Click to enlarge Actively seeking value Beginning in August of last year, the market began to price in weakening global economic conditions. The bearishness tightened its grip in the fourth quarter and early 2016, and as a result, we saw defensive stocks bid up to very full prices as value stocks got cheaper. It seems clear to me that the heightened volatility over this period has created attractive valuations in certain areas of the market. Indeed, by producing dislocations in the market, volatility effectively separates the potential stock winners of the future from underperformers. As the chart below shows, the valuation spreads within sectors are wider than their long-term historic average in many areas of the market. The greater the controversy in the investment case, the greater the dispersion in valuation. That means some stocks are priced low and others high. We are seeing that most acutely in the energy sector. Click to enlarge But buyer beware: Determining which of those low-priced names are true bargains and which are priced low for good reason requires deep understanding of each industry and company. While we approach the market stock by stock, certain areas seem riper for the picking now: Banks. We see banks as less volatile than they have been in the not-too-distant past, characterized by stronger balance sheets and less volatile results. Yet, they are trading at lower valuations. Energy. The key questions here are: 1) when will oil prices bottom and 2) how high will oil prices go in a recovery? We lean to the optimistic side on both. We think oil prices could bottom in the second quarter and head up in the second half of 2016. And while the consensus sees oil recovering to $50-$60 a barrel, our year-end estimate is above $75. But selectivity is important. An investor grab for high-quality, low-risk stocks without regard for valuation or risk/reward has created some attractive long-term opportunities elsewhere in the sector, but a number of stocks in this sector will continue to underperform. Technology. By our analysis, large-cap tech stocks with high return on invested capital are trading at cheap valuations relative to both their history and the broader market, while also generating solid cash. The significant cash balances allow flexibility, and the recent price declines of fast-growing companies may create attractive merger and acquisition opportunities. Healthcare. Despite current market fears, we’ve found a number of interesting stocks that are attractively priced relative to history and compared to the broader market. Healthcare also exhibits better growth and is cheaper than other defensive sectors, such as consumer staples and utilities. The sector benefits from favorable demographic tailwinds (namely, the aging of the population) and continued innovation. Of course, this only scratches the surface. My colleagues and I are excited about the opportunity ahead. Our objective is to work from the bottom up (starting with the individual stocks) to find compelling investment opportunities that are mispriced by the market over a two- to three-year time horizon. We believe the current environment is wildly conducive to that. While we acknowledge China’s overcapacity and economic weakness, we believe the market was overzealous in pricing in the probability of a U.S. recession. In fact, February and early March have shown a reversal in pessimism… and in markets. This has created some attractive investment opportunities. In our assessment, the period of underperformance has produced some bargains and sets the stage for a rebalancing in favor of value. This post originally appeared on the BlackRock Blog.

Playing The Oil Trend With UWTI

The best way to cash in on a trend in crude oil is not by buying and selling the contracts but watching ETFs that track their prices. Over the past two years, these exchange traded funds have become very popular as oil prices plunged to sub-$30 levels. In a MarketWatch article , the VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ) was cited as being the fifth most traded security by millennials. UWTI is hardly a tool for hedging against the risk of volatile oil prices. Instead, traders use the derivative as way to bet on different oil trends hoping to cash in on the accelerated payout it offers. This ETF generates a whopping 119 million shares of average volume despite year-to-date losses of over 38%. Its popularity trumps both the iPath S&P Crude Oil Total Return Index ETN ( OIL) and the United States Oil ETF ( USO), which average about 5 million and 51 million shares with YTD losses below 25%. There’s no doubt that UWTI provides traders the opportunity to cash out on an accurate projection of oil prices, but its high leverage and volatility can translate to large, sudden losses if a trend reverses. The best way to reduce risk created by unexpected, short-term fluctuations is to buy at the very bottom of the trend and hold until it tops off in the long run. With the market beginning to tame, investors should start to consider this trade before it’s too late. During the week ending March 12th, the price of West Texas Intermediate contracts rose from the low $30’s as investors finally saw production slow down. Baker Hughes reported earlier that week that rig counts fell to an all-time record low of 480 instigating pent up bullish sentiment. Recent evidence showing a decline in production has caused gains of just over 20% in the past month of trading sessions. While analysts are looking forward to a smaller supply in the future, traders can’t ignore the risks of the current fundamental situation which is still oversupplied by the extra oil still sitting idle in storage. Given how volatile oil trading has been over the past year and a half, skeptics have reason to doubt the rebound and may even see another plunge coming. That would mean complications for those waiting to bet on a bottom. I’m here to tell you not to worry. It’s time to bet on that bottom. Introducing the Deviation Moving Average first published and constantly updated on my blog here . This indicator is similar to a trend line with an adjustment that accounts for a constant deviation in price. The blue line follows WTI price, and is coupled with the orange line, a 50-day moving average plus the 10-day moving average of the actual price’s deviation from its 50-day moving average. With this enhancement, traders can track actual price movements against a deviation that the group has determined is acceptable. Because of intraday trading, the actual price will move either above or below its trend line. Crossover points show a reversal in short-term sentiment. The gap (length of time over or under the orange line) between each point is usually the same size and the variance (absolute value of the difference between the two lines) peaks at about the same height. This idea can be better visualized by the difference chart which is plotted over the past year. In the very volatile 2015, the gaps of smaller sentiment trends lasted just under a month with variance peaking at about $4.00. Using these observations, investors can predict where a small reversal may take place and where the momentum of those reversals are pushing the overall trend. Looking back at the first chart, one can see a curious trend that has developed over the past month. The actual price has not crossed over its deviation moving average line since February 12th, 2015. In fact, the variance has continued to stay constant despite reaching a difference of over $5.00. If the volatile trend of 2015 were to continue, WTI price would have started to fluctuate back downward about a week ago. So why has this not happened? Why has the gap been sustained? The chart shows a change in trend that occurred because of the shift in expectations from oil and gas investors. With the lower rig utilization and the hope of OPEC members freezing output, the buzz saw trend has softened with stability in the long-term price a reality. The new, smaller price channel that emerges might not reach above $50, but it will ease the uncertainty that has plagued oil corporations and oil exporting countries. Because UWTI is a derivative based on the price of oil, volatility there will begin to soften like it has in the WTI spot price trend. As the danger of a sudden plunge in price wanes, it will be safer to establish a long position consisting of UWTI or other energy ETFs. From there, one can ride a long-term trend upward without having to worry about a replay of the bearish tsunamis that drowned out the first month of 2016. Even if WTI were to crossover its deviation moving average in the near future, that point would be linger around the low- to mid-$30 range which is far from the bottoms established in January. With the deepest valley in the past, a smooth, upward climb for the price of oil will allow investors to cash out using the accelerated UWTI exchange traded fund. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.