Oil Looks Toppy: Ultrashort Oil and Gas Looks Good

This type of run simply looks overextended and toppy to me - I believe sooner rather than later (probably within a week or two) we are going to see a sharp reversal in oil to the downside. And it will take the commodities with it. Things have now moved to purely speculative mode - who else is left to buy and who is not on this train? I doubt very many....

I am going to buy Ultrashort Oil & Gas (DUG) as a "trade", not investment. This ETF has destroyed so many people, but when it reverses, I believe it will be powerful (this does not short oil directly but shorts a whole bunch of exploration companies) And yes, I am still a huge bull for the long term, but nothing straight up (or down). Parabolic moves get me thinking in a contrary nature. We appear to be nearing that stage, and I believe the the risk/reward is in my favor.

I am going to buy here in the $25.90s and see if we can sell it for $30+ within a month (that would be a nice 15%). Heck this ETF was trading there last week, so we might get it even quicker. I reserve (up to) 10% of the fund for "trades" rather than investments, so this is the first one we have had in a while.

I bought 1200 shares, creating a 2.5% stake. I'll probably be the only guy in America with this position, which makes me even more bullish. If you want less risk, I suppose you could buy a refiner or airline here which also would spike if/when oil retreats.

I tried this once before in October so you can find more information about the ETF by following this link [Oct 23: New Short Position - Ultrshort Oil & Gas (DUG)]

Disclosure: Long Ultrashort Oil & Gas in fund and personal account

Comments

[william:]

the herd is usually wrong and they have all jumped upon the oil gravy train, but I agree - we are going higher loooong term--at present we are over extended and need a hard correctiion to shake out the hedge funds, traders & speculators. DUG is an interesting play
PS we like oils esp. Kazahkstan (kaz) and (abg.to) very cheap oils that are super cheap at $80/barrel
PSS super cheap steel play--the group in major bull market
a little sleeper that deserves a serious look seeee
aljj.pk

2008 May 22 02:01 AM

[jeffreymarck:]

Your commentary jives with what I'm thinking. While the general trend for oil appears to be higher for the foreseeable future, it is very possible that there could be a sharp correction at any time. Think about what occured to the price of gold a few months ago; it dropped over $80 an ounce in a single day. If oil dropped by the same percentage, DUG could easily attain your $30 price target.

2008 May 22 07:17 AM

[zhybrids:]

Also, If oil does continue to rise, its easy for dug to go up...What happened on May 21,2008, was Oil rose over $4 bucks a barrel to around $134/ barrel and DUG Closed Up almost 3% for the day.
Why? The bear rally is over. We are selling off as I suggested would happen. Yesterday I said financials first, then techs, last commodities.
Oil is going up rapidly and now scaring all players including oil longs
Markets move on perception. That is why financials and retailers did well the past month, with no facts, just perception that things will get better soon. The perception on oil going up so quickly is that this will take down not only the U.S. but all economies remember it's perception.
“We live globally, we die globally.”
The market should continue it's decline if oil continues it's rapid climb. At some point down the road, the bubble will burst. I think this bubble will pop sooner than later and Dug would be a great trade to take advantage of a correction. High oil is a double edged sword if you get my drift.

Dug shareholders objective, we are not looking for a decline in oil, we are looking for a decline in oil and gas stocks.

Also note, as the markets crash lower on higher and higher oil prices money will flow out of consumer cyclicals including financials, tech, and retail; which will lead to a fall in the ^DJUSEN Dow Jones US Energy Index as money will be taken out of winning trades to make up for losses in other sectors.

Once again leading to a drop in the energy stocks.

2008 May 22 08:56 AM

[lakeoffice1l:]

Why take on the risk and buy at these levels.....there could be further downside......I only want DUG if it breaks out....you can do this with a buy stop to buy on a breakout. Do your homework before placing an order....

2008 May 22 09:17 AM

[omooc:]

Oils might pull back. How about oil service companies? Are they likely to follow suit? From what I have heard, the answer is negative. If so, the composition of DUG is difficult to follow.

2008 May 22 10:05 AM

[zenalgorithm:]

DUG is a broad index - safe to hold to play the big swings. I suggest holding it at least through to the 50 day to 200 day MA. Don't cut your profits short selling at $30.xx.

2008 May 22 11:15 AM

[Moby Waller:]

I forecast a coming top of $150 in crude oil prices, before a major pullback to $100, and possibly as low as $75. Another factor for a coming possible correction in Oil prices is if the Democrats look likely to win in November -- due to their likelihood of scaling back in Iraq and generally dampening tensions in the region. Article on seeking alpha here: seekingalpha.com/artic...

2008 May 22 11:21 AM

[sivere:]

Enter your comment hereWe need to develop our domestic sources asap. In addition we need to start developing alternative sources- coal, nuclear, solar, etc.

The $100+ dollar/barrel oil prices are a blessing in disguise, because they make alternatives economically possible. But they will kill us (potentially literally) if there is no organization around developing the alternatives.

This is coupled with a collapse of our financial system. That is the 1, 2 double punch and you are out.

We need, in addition to the above energy scenarios, to TakeBackTheFed.com

If we do not get off our duffs, we will truly be in trouble. NOW IS THE TIME TO ACT.

2008 May 22 03:06 PM

[surgcare:]

Good Luck $#@&* if your shorting oil .Please send what ever your taking .If the "democrats get into office in november oil prices will come down to 75 " .DUH Who do you think caused oil prices to be high in the first place . Being against coal , oil and nuclear doesn't leave much to use for energy . Explain how prices will come down when the democrats are picking a fight with OPEC ( they'll simply sell to china :what do you think that will do to the cost of oil) )and their going to raise taxes on gas and a profit tax on the oil co . No wonder we have an energy problem . With that kind of thinking ,oil will never come down .

2008 May 22 05:26 PM

[maher:]

If US or Israel take military action against the terrorists of Iranian regime, or do a naval blockade of the Persian Gulf; then we are spiking to $150-$175 in a matter of days.

If no Iran strikes, etc. occur, we are heading down on oil to below $100 in a matter of weeks, not months.

So, take your pick.


p.s.

Btw, RJ JR, stop polluting this board with your cocamammie rubbish.

2008 May 25 01:23 PM

[maher:]

If US or Israel take military action against the terrorists of Iranian regime, or do a naval blockade of the Persian Gulf; then we are spiking to $150-$175 in a matter of days.

If no Iran strikes, etc. occur, we are heading down on oil to below $100 in a matter of weeks, not months.

So, take your pick.


p.s.

Btw, RJ JR, stop polluting this board with your cocamammie rubbish.

2008 May 25 01:23 PM

[maher:]

If US or Israel take military action against the terrorists of Iranian regime, or do a naval blockade of the Persian Gulf; then we are spiking to $150-$175 in a matter of days.

If no Iran strikes, etc. occur, we are heading down on oil to below $100 in a matter of weeks, not months.

So, take your pick.


p.s.

Btw, RJ JR, stop polluting this board with your cocamammie rubbish.

2008 May 25 01:23 PM