Over the past decade oil has become a very popular investment theme as demand from China and India as well as other developing countries has pushed demand up to the available supply. At the same time innovative new products such as the Oil ETF have caused a sharp rise in investor demand. A persistently weak dollar over the past 10 years has also been a source of market support and many think this trend will continue or get worse. Is Oil Investing something you should consider? If the answer is yes, how should you invest?
There is really only one reason to invest in oil as a commodity and that is if you believe the price will rise in terms of U.S. Dollars in the future. If you would've purchased crude oil in 1998 when it was trading just above $10 you could've made huge profits by 2008 when prices soared to over $145 per barrel. The biggest issue with high gas and fuel prices has been that it takes the wind out of the U.S. economy which in turn causes a slowdown in consumer spending as well as gas demand. Huge swings in the demand for gasoline and fuel especially in the U.S. tends to cause big swings in the price of crude oil and related products as well. For example, after climbing from $10 all the way to $145 over a 10 year period 1998-2008 it only took about 6 months to fall all the way back to $30 during the great recession, so things can get wild.
Most people are much better off owning an oil stock etf which contains a basket of oil related stocks instead of owning the actual commodity. This is because the earnings of oil companies tend to be less volatile than the price of oil and oil companies can continue to rake in the cash even if oil prices just stay where they are instead of rising. If you look back at comparisons of the price performance between USO the most popular crude oil etf and XLE the most popular Oil Stock ETF you will see that XLE has strongly outperformed USO since it's inception and this will most likely continue into the future.
USO or even the double oil etf - UCO can be used for trading short term swings in the price of crude oil, but you need to have good timing skills to make money at that game. Another way traders use financial derivatives is to short the crude oil market by using the double short ETN DTO or double short ETF SCO. Both of these will rise 2% on a day when crude oil falls 1%. Professional traders are the ones who most consistently do well with most of these ETFs, even they have trouble getting in and out fast enough. For most of us we are much better off in a good oil stock etf such as OIH or XLE.
Wednesday, September 28
Thursday, August 25
Time To Look Into Oil Stocks?
A few months ago (in fact until a few weeks ago) oil stocks were on a roll and one of the strongest performing sectors in the market. The recent downturn however absolutely crushed oil stocks so now could be a good time to consider investing in oil or oil stocks.
My favorite ways to play oil are using the Oil Stock ETF - XLE as it tends to outperform any of the oil futures based ETFs. If you are a long term investor it's tough to beat the performance you get from ETFs like XLE and XOP.
For short term trades I used to use the Crude Oil Futures but with all the volatility I'm not comfortable being in a trade without being at my desk. So now days I tend to use the 3x Leveraged Oil ETF (ERX) for bullish moves and ERY for bearish moves. These ETFs move dramatically just like the oil futures but since you purchase them as shares you can have much more control over your exposure compared to futures contracts.
The Bullish Percentage for Oil Stocks bottomed out at 2 (most bearish since 2008) and is just turning up so that's why it's a good time to look into oil for investment opportunities!
Monday, March 14
Platinum and Palladium Down On Japanese Car Factory Shutdowns
Both platinum and palladium are lower today as Japanese car production has been dramatically reduced due to a lack of electricity and numerous supply disruptions. The Palladium ETF - PALL is trading off 1.34% while the Platinum ETF - PPLT is down 1.43% both noticeable but not nearly as dramatic as the Uranium stocks and ETF.
Palladium was the #1 performing metal in 2010 just ahead of silver so the palladium etf had a spectacular first year of trading and has become a very active contract for such a small market. In fact, it accumulated nearly $1 billion in assets in the first 12 months making it one of the most successful ETF launches of the year. PPLT (the platinum etf) also attracted $815 million in assets but the price action has been much more subdued. In fact, platinum which had a price shock earlier in the decade has been losing ground to the other precious metals consistently for the past year.
There is little doubt that this dip in automobile production is a temporary event and that worldwide production will likely still meet it's goals. But after the big run palladium has had over the past year the market was due for a breather and this event appears to be enough of a catalyst, at least in the short run.
Palladium was the #1 performing metal in 2010 just ahead of silver so the palladium etf had a spectacular first year of trading and has become a very active contract for such a small market. In fact, it accumulated nearly $1 billion in assets in the first 12 months making it one of the most successful ETF launches of the year. PPLT (the platinum etf) also attracted $815 million in assets but the price action has been much more subdued. In fact, platinum which had a price shock earlier in the decade has been losing ground to the other precious metals consistently for the past year.
There is little doubt that this dip in automobile production is a temporary event and that worldwide production will likely still meet it's goals. But after the big run palladium has had over the past year the market was due for a breather and this event appears to be enough of a catalyst, at least in the short run.
Uranium ETF Dives 20% On Japanese Reactor Worries
One of the first things that sprung into my mind on Friday as we saw the huge tsunami waves wreaking havoc in Japan was their nuclear power plants. Japan has a very limited supply of natural resources for generating electricity so they began to rely upon nuclear as their economy developed. In fact, with 53 active reactors Japan was 3 behind the U.S. and France in the number of active nuclear power plants.
This morning as news spread of yet another reactor issue and video of women and children being screened for radiation poisoning the shares of Uranium production companies such as Cameco plunged. In fact the Uranium ETF - URA which is comprised of 23 companies involved in the production of uranium dropped over 20% at one point which is very dramatic for a single session.
It remains to be seen how long the effect will last but there is little doubt that this incident will once again cast a shadow of doubt over the entire industry. The thought of radiation poisoning (a silent and deadly killer) is far worse than putting up with a little pollution which is why Coal is one of the few things that is up today. It also appears that the Natural Gas ETFs are perking up as well as the low prices and abundant supplies are very attractive in light of current events. There is little doubt that natural gas will play a bigger role in our energy future however the severe price spikes in the past decade still has energy producers leaning toward coal.
This morning as news spread of yet another reactor issue and video of women and children being screened for radiation poisoning the shares of Uranium production companies such as Cameco plunged. In fact the Uranium ETF - URA which is comprised of 23 companies involved in the production of uranium dropped over 20% at one point which is very dramatic for a single session.
It remains to be seen how long the effect will last but there is little doubt that this incident will once again cast a shadow of doubt over the entire industry. The thought of radiation poisoning (a silent and deadly killer) is far worse than putting up with a little pollution which is why Coal is one of the few things that is up today. It also appears that the Natural Gas ETFs are perking up as well as the low prices and abundant supplies are very attractive in light of current events. There is little doubt that natural gas will play a bigger role in our energy future however the severe price spikes in the past decade still has energy producers leaning toward coal.
Friday, February 4
Silver ETF - SLV Closes Above Resistance
Gold finally broke it's down trend yesterday and that's all it took to allow the silver ETF - SLV to close above the final resistance at $28. SLV is once again trading above the 10, 20, 50 and 200 day simple moving averages. In other words, the bull market is back.
About a week ago silver made an outside day key reversal and closed on the high of the day. That was the initial indication that silver had reached a selling climax. At the same time the Gold Stocks held support at the 200 day moving average. Silver had been trying to rally the past week but gold remained below the 10 day moving average (steep downtrend) so silver was having a hard time breaking out. Yesterday gold cleared both the 10 and 20 day moving averages as the Euro came under renewed pressure. This allowed silver to punch through the final moving average and close at the high of the day. Silver will often go back and test the breakout, so if that occurs and SLV can stay above $28 that would be a signal to traders that the uptrend is still intact.
About a week ago silver made an outside day key reversal and closed on the high of the day. That was the initial indication that silver had reached a selling climax. At the same time the Gold Stocks held support at the 200 day moving average. Silver had been trying to rally the past week but gold remained below the 10 day moving average (steep downtrend) so silver was having a hard time breaking out. Yesterday gold cleared both the 10 and 20 day moving averages as the Euro came under renewed pressure. This allowed silver to punch through the final moving average and close at the high of the day. Silver will often go back and test the breakout, so if that occurs and SLV can stay above $28 that would be a signal to traders that the uptrend is still intact.
Friday, December 31
Silver ETFs Finishing 2010 At Record Highs
It looks like all the Silver ETFs are going to push into the new year at all-time highs! Silver is trading at levels not seen in over 30 years and all the silver ETF contracts are making new record highs today.
Double Silver ETF - AGQ is up over 137% on the year.
The largest ETF - SLV is up almost 65.91% on the year.
SIVR is up 65.80% on the year as well.
Other less active silver funds like DBS and USV were up 65.10% and 64.45% respectively.
Closing the year at new all time highs bodes well for these markets in 2011 as well at least in the beginning of the year. Many market watchers including myself expect silver to explode to new all time highs ($50+) before this bull market is ultimately over. Whether that happens in 2011 remains to be seen.
It should be another interesting year!
Happy New Year!
Double Silver ETF - AGQ is up over 137% on the year.
The largest ETF - SLV is up almost 65.91% on the year.
SIVR is up 65.80% on the year as well.
Other less active silver funds like DBS and USV were up 65.10% and 64.45% respectively.
Closing the year at new all time highs bodes well for these markets in 2011 as well at least in the beginning of the year. Many market watchers including myself expect silver to explode to new all time highs ($50+) before this bull market is ultimately over. Whether that happens in 2011 remains to be seen.
It should be another interesting year!
Happy New Year!
Monday, December 13
Silver ETF Trend Remains Bullish
The short trade in silver using the double short silver etf - ZSL only netted $130 before the silver market found support. This market remains incredibly strong and can't even go through an overdue correction. After watching the action unfold last week I sold ZSL and purchased the silver mining etf - SIL which is the Global X Silver Miners.
The precious metals miners have been outperforming the metals since the rally began in August. During the credit crunch the miners fell much harder than metal prices so they still remain at a substantial discount to the metals on a historical basis. The following chart shows the large cap miners represented by GDX and you can see they have not made up the gap that was created during the decline in 2008. SIL didn't start trading until after the crash so that's why I used GDX for the illustration.
The precious metals miners have been outperforming the metals since the rally began in August. During the credit crunch the miners fell much harder than metal prices so they still remain at a substantial discount to the metals on a historical basis. The following chart shows the large cap miners represented by GDX and you can see they have not made up the gap that was created during the decline in 2008. SIL didn't start trading until after the crash so that's why I used GDX for the illustration.
Tuesday, December 7
Taking Another Shot At ZSL - Short Silver ETF
The silver market blasted to another new high just over $30 per ounce and everyone is bullish so it's time to take a trade on the short side. The lowest risk way to do this is using the double short silver ETF - ZSL. It's so beaten down that I was able to buy it at $10.50 per share and I'm only going to risk it to today's low so it's a pretty small bet.
I don't think the ultimate top is in for silver, but this could easily be a short term top that will lead to a moderate correction. If you look at the chart below, you can see that the Relative Strength Indicator (RSI) failed to make a new high as the Silver ETF - SIVR went to new highs. This is called Divergence and is often a sign that the market is getting over bought and is due for a correction.
The largest Silver ETF - SLV stopped right at the psychological $30 level.
I don't think the ultimate top is in for silver, but this could easily be a short term top that will lead to a moderate correction. If you look at the chart below, you can see that the Relative Strength Indicator (RSI) failed to make a new high as the Silver ETF - SIVR went to new highs. This is called Divergence and is often a sign that the market is getting over bought and is due for a correction.
The largest Silver ETF - SLV stopped right at the psychological $30 level.
Thursday, December 2
Brazil ETF Review - Putting The B In BRIC
The lead country in the emerging market BRIC community is Brazil. Rich in natural resources the Brazilian economy has been growing rapidly this past decade along with commodity prices.
The oldest and most established Brazil ETF is EWZ from iShares. As you can see from the chart below this ETF had a tremendous run from 2003-2008 then came crashing down with the rest of the global markets losing a whopping 70% only to turn around and regain much of that ground in 2009 rising as much as 150%. It's no wonder long term emerging markets investors have to develop nerves of steel in order to not get shaken out of their positions.
For the past year and a half there has been a better performing ETF available and this one is a small cap Brazil ETF that trades under the ticker symbol BRF. You can see by the chart below that BRF has been dramatically outperforming EWZ. When you think about it that makes sense because Small Caps normally outperform Large Caps following a recession. If this is true in developed nations, it's probably even more true for emerging countries. However, it will be interesting to see what happens to these Emerging Country small caps when the next financial crisis hits... I imagine it wont' be pretty.
There are several other newer Brazil ETFs as well, these include:
BRAQ - The Global X Brazil Consumer ETF
BRXX - A Brazil Infrastructure ETF
BRAZ - Global X Brazil Mid Cap ETF which focuses on mid-cap stocks.
The way things are going it's only a matter of time before Brazil will no longer be considered an Emerging Market. It seems to be developing at a rather fast pace!
The oldest and most established Brazil ETF is EWZ from iShares. As you can see from the chart below this ETF had a tremendous run from 2003-2008 then came crashing down with the rest of the global markets losing a whopping 70% only to turn around and regain much of that ground in 2009 rising as much as 150%. It's no wonder long term emerging markets investors have to develop nerves of steel in order to not get shaken out of their positions.
For the past year and a half there has been a better performing ETF available and this one is a small cap Brazil ETF that trades under the ticker symbol BRF. You can see by the chart below that BRF has been dramatically outperforming EWZ. When you think about it that makes sense because Small Caps normally outperform Large Caps following a recession. If this is true in developed nations, it's probably even more true for emerging countries. However, it will be interesting to see what happens to these Emerging Country small caps when the next financial crisis hits... I imagine it wont' be pretty.
There are several other newer Brazil ETFs as well, these include:
BRAQ - The Global X Brazil Consumer ETF
BRXX - A Brazil Infrastructure ETF
BRAZ - Global X Brazil Mid Cap ETF which focuses on mid-cap stocks.
The way things are going it's only a matter of time before Brazil will no longer be considered an Emerging Market. It seems to be developing at a rather fast pace!
Wednesday, December 1
Short Bond ETFs Spike Sharply Higher
Just yesterday long term bonds were rallying on a worsening European debt crisis but what a difference a day makes. Today all the Short Bond ETFs rallied sharply and closed with very strong gains as bond prices collapsed following the latest ADP jobs report.
Active Bond ETF Performance:
The Direxion 3x Leveraged Short Bond ETF - TMV closed up $2.51 or 6.36%
TBT the 2x Leveraged Short Bond ETF closed up $1.46 or 4.20%
TLT - the most actively traded Treasury Bond ETF closed down $2.51 or 2.56% on nearly twice the normal daily volume.
LQD - the investment grade corporate debt held up better losing only .61% as a stronger economy tends to reduce the risk premium between corporate bonds and government treasuries.
Municipal Bond ETF - MUB was down almost 1% ending a rebound rally from the $99 low set a couple weeks ago. It will be interesting to see if it can retest and successfully hold the old lows if the long term bond market continues to unravel.
Active Bond ETF Performance:
The Direxion 3x Leveraged Short Bond ETF - TMV closed up $2.51 or 6.36%
TBT the 2x Leveraged Short Bond ETF closed up $1.46 or 4.20%
TLT - the most actively traded Treasury Bond ETF closed down $2.51 or 2.56% on nearly twice the normal daily volume.
LQD - the investment grade corporate debt held up better losing only .61% as a stronger economy tends to reduce the risk premium between corporate bonds and government treasuries.
Municipal Bond ETF - MUB was down almost 1% ending a rebound rally from the $99 low set a couple weeks ago. It will be interesting to see if it can retest and successfully hold the old lows if the long term bond market continues to unravel.
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