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The Right Leveraged ETF For Oil's Next Rally

ETF Professor

The United States Oil Fund (NYSE: USO) is off 5.5 percent over the past month, but some equity-based exchange traded funds have held up surprisingly well. For example, one of the most widely followed ETFs tracking exploration and production stocks, a group often highly correlated to oil prices, is up more than 3 percent over the past month.

That could be a sign that when oil rebounds again, leveraged ETFs such as the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSE: GUSH) could quickly get back to delivering out-sized gains.

GUSH is up 9.4 percent year-to-date and has more than doubled over the past six months, but as is the case with leveraged ETFs, particularly those tracking volatile asset classes like oil, the best application of GUSH is by short-term traders with high tolerances for risk that nimbly move in and out of the trade.

At the moment, it looks like GUSH has the potential to deliver more upside.

Related Link: A Unique Way To Play Strength In Offshore Energy Sectors

“GUSH is currently in a short term uptrend. The current price action is positive, heading towards a short-term resistance level. The 7-day moving average is above the 20-day moving average, supporting a possible up trend continuation from a technical prospective. We note that RSI is currently at 56.96, above generally accepted uptrend technical level of 50. The MACD is above the signal line and closer to crossing the zero line. A continual widening spread between MACD and the signal line continues to support the current technical trend,” according to Direxion.

GUSH attempts to deliver three times the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. That index allocates nearly three-quarters of its weight to exploration and production names with refining stocks commanding another 16.6 percent.

At the end of the second quarter, GUSH's underlying index was “comprised of 60 stocks concentrated in the energy and oil and gas sectors. As of June 30, 2016, the companies included in the Index have a median market capitalization of $4.45 billion and an average market capitalization of $20.40 billion. The components of the Index and the percentages represented by certain industries in the Index may change over time,” according to Direxion.

GUSH's index is equal-weighted and none of its holdings garners weights of more than 2.2 percent. The benchmark's top 10 holdings combine for about 21 percent of its weight.

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