OIL ETFS: A CRUDE OPPORTUNITY?
The big news in the market this past week has been the destruction in oil prices. With the exception of today’s slight uptrend in oil, the past seven days have seen crude prices slide precipitously. Oil now is trading at about $64 a barrel. I know that price still sounds pretty high but when compared to the July 14 high of more than $78 a barrel, the price of crude really has tapered off in recent months.
One result of the dip in oil prices has been a corresponding sell-off in energy sector investment vehicles. Take a look at the chart of the Energy Select Sector SPDR (XLE). As you can see, this ETF has dropped off sharply in recent weeks in direct response to the dip in oil prices.
In fact, since the beginning of the month, XLE plunged right through both its 50- and 200-day moving averages. But the thing I want you to notice on this chart is the last time XLE fell to these levels.
It was mid-June and we had a similar dip in XLE. Now look at what happened in the months following that June drop. You can see that XLE vaulted to new heights. Once again, it was because of a spike in oil prices. I think what we are seeing now could be the start of another buying opportunity in energy. The sell-off in recent weeks has brought XLE and other energy sector ETFs down to very attractive levels. The trading levels are so attractive that I seriously am considering a new allocation to energy in my ETF Trader advisory service.
The table above shows just how many options there are for investors who want to play the oil game with ETFs. All of these funds now are on our radar screen, since they have been victims of the decline in crude oil.
The key benchmark, in my view, is the $60 level for crude oil. If crude can stay above this level, there is a great chance that oil prices will climb back up into the $70s. If that event happens, an energy sector ETF purchased now will be a big winner going forward. If, however, oil continues to fall below the $60, it could mean a lot more downside ahead for crude and its related ETFs.
Want to find out how we’re playing the crude sell off? Click here.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
