Energy
Tuesday, October 21st, 2008

Energy is getting a sentiment boost from OPEC and its plans to cut crude production 1 million barrels per day? The move of the emergency meeting for OPEC to discuss this issue to Friday is an indication the cut is on the way. While the speculation is anticlimactic the impact on the price of oil isn’t. There are some serious question about what this mean for a recovery from the global economic slowdown (alias recession)? Some speculation the production cuts might have a negative impact on a speedy recovery. Of course a speedy recovery is wishful (speculative) thinking unto itself.

The rumor led to more than a $3 increase in crude to $74.25. Equally important it provided a boost to the energy stocks which gained more than 10% yesterday. A look at the Dow Jones Energy Index shows a potential double bottom in play. The close at 452 was just above the breakout point of 450. If we can hold that today it is bullish for the energy index short term. The timeframe of this technical pattern is short, statistically making it a weaker signal from my view. However momentum is on the side of the sector.

iShares DJ US Energy Index (ARCX:IYE) is one way to play the move. $30.40 corresponds to the breakout point for the ETF. This is worth watching and playing short term as it develops. ProShares offers the leveraged version of this fund with the UltraShares Oil & Gas ETF. The leverage is 2 to 1, so yesterday with the index up 10% the fund was up 20%. This works in the opposite direction as well. Either play will give the potential benefits of rally in the sector. Risk must be taken into account using the leveraged ProShares ETF.




If you want to play the move directly in crude look at United Stated Oil Fund, USO. No double bottom in play on the chart, but the stimulus for the play is crude moving higher. This gives you the play on crude.



Instruction on the entry, exit and target for all three ETFs are listed on the ETF-IN-Play page of SectorExchange.com.

Update on Natural Gas chart of the day from last week: There is a rounded bottom trying to form on the ETF - UNG. The price of natural gas rose in early trading on Monday, but faded throughout the day. The price has held up well throughout the summer and heading into the winter months I look for it to rise on demand. I still like the opportunity here, but be patient in developing any plays.