Monday, January 18, 2010

The Top Oil ETFs to Buy and To Sell: Do Not Walk, Run From Leveraged Oil ETFs

Here is a look at the state of oil ETFs in terms of overbought and oversold conditions.

We computed the relative strength indicator values for all oil etfs and then sorted them by their long term time frames (monthly values). They are shown below.

(please click to enlarge)


The top 4 most oversold, in the long term, are DUG, HOU.TO, DDG,

There is something very interesting above. First of all, the only one that counts is DDG, because it is the only one that is not leveraged. Leveraged ETFs are very bad performers any medium or long term investments.

You will that within the top 4 oversold are a bull and a bear version of the same product: the Horizon's HOD and HOU. Inquiring minds might ask how this is possible, that both the long and the short are fully or near oversold. The reason is precisely, that both leveraged ETFs suffer terribly in the long term. It is simply astonishing what these products do.

Note that DDG is an inverse fund. Next comes UHN. Their descriptions are below:

  • DDG: inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas Index. The Index measures the performance of the energy sector of the United States equity market. Component companies include oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies.
  • UHN: The investment objective of USHO is to have the changes in percentage terms of its units net asset value (NAV) to reflect the changes in percentage terms of the spot price of heating oil (also known as No. 2 fuel) for delivery to the New York harbor, as measured by the changes in the price of the futures contract for heating oil traded on the New York Mercantile Exchange (the NYMEX) that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it can be measured by the futures contract that is the next month contract to expire.


There are no overbought oil ETFs in the long term, or any of the three time frames considered. However, the closest to overbought levels are SZO, in the short term (RSI of 68.1), and OIH is the closest for medium time frames (RSI of 64.8)

  • OIH group of specified companies that, among other things, provide drilling, well-site management, and related products and services for the oil service industry.
  • SZO is a PowerShares ETN based on a total return version of the Deutsche Bank Liquid Commodity Index-Oil which is designed to reflect the performance of certain crude oil futures contracts plus the returns from investing in 3 month United States Treasury bills.

You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool.

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