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Amplify The Energy Sector's Catch-Up Run With This ETF

ETF Professor

Something interesting is happening in the energy patch this year and it is not just oil's status as one 2019's best-performing commodities.

What Happened

While oil prices are surging, the energy sector is being left behind...sort of. The Energy Select Sector Index (IXETR), a widely followed gauge of large-cap U.S. energy stocks, is up 16.80 percent year-to-date.

That means the energy index is beating the S&P 500 by 140 basis points. It also means that the large-cap energy index trailing the United States Oil Fund (NYSE: USO), which tracks front-month West Texas Intermediate futures, by a 2-to-1 margin.

Why It's Important

Some analysts and market observers believe oil can hold steady at current levels and still trigger upside in energy stocks. That could open the door for more upside for the Direxion Daily Energy Bull 3X Shares (NYSE: ERY). ERY attempts to deliver triple the daily returns of the Energy Select Sector Index.

“If the price of crude can hold above $60, the sector should have considerable upside, according to JPMorgan,” reports Barron's. “Energy stocks have the most potential for gains, relative to the risks, in the overall market, the bank says.”

The bullish ERY fell 6.61 percent last week, putting it among the 10 worst-performing bullish leveraged Direxion ETFs over that span, but it ERY can reclaim the area, its upside from there could be significant.

What's Next

“While insiders are buying, JPMorgan says meetings with asset managers and other indicators make it clear that the sector remains deeply out of favor with institutional investors,” reports Barron's. “Investment firms have been cutting exposure to energy to fund positions in other sectors, the bank says. Short interest is running high as more investors bet that energy stocks will underperform the market or turn negative.”

There are some inklings traders are preparing for an energy sector rally. For the 10 days ended April 4th, ERY's inflows equaled 33.70 percent of its assets under management, good for the fifth-best percentage among Direxion's leveraged ETFs, according to issuer data.

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