The energy sector may be finally want to take a breather. Since March 8, the S&P GSCI Energy index has fallen over 20%, giving bearish traders an opportunity to pounce.
“Energy’s high-octane stock performance of the past year is beginning to sputter,” a Bloomberg article points out. “The strongest sector in the S&P 500 Index since the beginning of 2021 is on pace to be the weakest industry group this week.”
Russia’s invasion of Ukraine sent oil prices skyrocketing, but talks of negotiations could be tempering the recent fervor. Energy could also get a boost with a push towards renewable energy as the world looks to reduce its carbon footprint.
Still, energy has been a stellar performer for much of the year. With inflation providing the backdrop for a 2022 full of market uncertainty, it’s been an ideal hedge for rising consumer prices.
“The energy shares are still up about 95% since the start of last year, a period in which the S&P 500 has advanced around 20%,” the article adds further. “The S&P 500, meanwhile, just posted its biggest three-day advance since 2020. West Texas Intermediate futures are about $103 per barrel, after eclipsing $130 this month, the highest in more than a decade.”
Playing Bearishness in Energy
For traders looking to play more weakness in the energy sector, there’s the Direxion Daily Energy Bear 2X Shares (ERY ) to consider. ERY seeks daily investment results of 200% of the inverse of the daily performance of the Energy Select Sector Index, and accomplishes its goal by investing in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.
In the meantime, the markets are still fixated on the events going in Ukraine. The conflict with Russia “put a material geopolitical risk premium into the commodity as concerns over the availability of Russian oil have taken center stage of late,” according to KeyBank analyst Leo Mariani.
Traders will want to keep an eye on whether further negotiations prove successful. As such, a fall in oil prices and the broad energy sector could result in fruitful inverse plays.
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