Tuesday’s ETF To Watch: Ultra DJ-UBS Crude Oil (UCO)

by on May 8, 2012 | ETFs Mentioned:

May has gotten off to a rocky start as stocks had a rough close last week after sour employment data. Though the unemployment rate dropped to 8.1%, hiring in April slowed suggesting that the dip in unemployment was not due to more people finding jobs but to more people exiting the labor force. After one of the strongest opening quarters in more than a decade, it seems as if stocks are beginning to head south and repeat the performance of 2011 when major benchmarks burned out after a strong start. With earnings season just about over, investors will now have to focus on economic data and trends for their next big trading opportunity [see also How To Profit From Rising Gasoline Prices].

With that in mind, crude oil represents a big opportunity in today’s markets, as its price has been tanking as of late. Crude has lost more than 8% of its price in the trailing five days as investors watched the fossil fuel close below $100 for the first time in recent memory. “The Energy Department said last week that U.S. crude inventories have risen to the highest level since 1990. That was followed by the Labor Department on Friday announcing the economy added only 115,000 jobs in April, far fewer than the 165,000 analysts were expecting” writes Pablo Gorondi.

As crude continues to head lower, consumers will be waiting for some much needed relief at the pump, as gas prices have been relatively high around the country. But concerning the future of this commodity, there are conflicting standpoints. Some of the more extreme analysts feel that crude could very easily jump to $150/barrel, especially if a war breaks out involving key Middle Eastern nations. Others feel that crude is currently overvalued and will need to correct itself before it can find a safe level to settle at. Either way, it can be said, almost with certainty, that this asset will continue to remain volatile in the short term [see also 25 Ways To Invest In Crude Oil].

In light of crude’s recent behaviors, today’s ETF to watch will be the¬†Ultra DJ-UBS Crude Oil (UCO). This fund employs a 2X leverage on crude oil futures, making it one of the most volatile but potentially rewarding funds to play this commodity. Though the fund does not have much in the way of assets ($234 million), it is a popular trading instrument, as it currently has an average daily volume of 1.1 million shares. If crude continues to slide into tomorrow’s trading session, UCO will get crushed, but if the commodity were to see some relief, this ETF will profit handsomely [see also Saving For College, ETF Style: An ETF-Friendly 529 Plan].¬†

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Disclosure: No positions at time of writing.