After what’s been a seemingly endless upward streak for oil prices, they’ve come back down to earth as of late followed by a recent recovery, but more bullishness could be ahead for traders sensing continued strength in the energy sector.
However, forces of supply and demand will obviously play a part, especially with global inflation still rampant. Now, inflation fears are morphing into louder talks of a recession, which could affect demand for the commodity.
“But recession talk is getting louder and should it become reality, it will likely address some of the imbalance,” said Craig Erlam, senior market analyst at Oanda in London.
While prices of oil have come down, it doesn’t necessarily mean a weaker energy sector moving forward. A technical indicator to watch would be oil prices’ 200-day moving average, which has fallen below its average, but doesn’t necessarily mean that continued bearishness is ahead.
“In the current environment, seeing oil prices decline and break below their 200-DMA would lead many to speculate that the prospects for oil and oil-related stocks were poor with a more positive outlook for the broader stock market,” said Bespoke. "Based on experience and especially over the short term, though, the opposite has tended to be the case."
Up 15% Over the Past Month
The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH ) is up 15% over the past month, giving traders an opportunity to play on more bullishness with double the leverage. The fund could be used as an inflation hedge in the interim should prices continue to rise.
GUSH seeks daily investment results of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
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