The Xchange Blog

Energy Stocks Heating Up Just In Time For Summer

Something big is happening in the energy sector. While traditional energy trades in the oil and gas industry have been mired in questions of depressed prices and high surplus, these conditions are changing rapidly. Gas prices have risen nationally to their highest levels since 2015 and natural gas power is anticipated to replace a portion of 25,000 megawatts of previously hydroelectric-generated electricity in the drought-riddled western United States.

Already, the concurrence of events in these industries is coming to a head for those with a close eye on the energy segments. In the interest of preparing for the summer showdown, we took a look at some of the Direxion Daily Leveraged ETFs representing the major players in energy, and which some see as most likely to see the season end in their favor.

Despite some double-digit percentage gains in the preceding months, most of the big names represented in the Direxion Daily Energy Bull 3X Shares ETF (ERX) are still below the highs seen early in the year. That surge came following signs of a shakeup among Saudi Arabia’s aristocracy in tandem with signs of success in OPEC’s plan to introduce scarcity into the glutted oil market. Those catalysts for scarcity still exist for the most part, but now are amplified by an increasingly tenuous trade outlook, further turmoil in Venezuela, and increasing crude supply from the world’s fastest growing oil exporter: The United States.

ERX and ERY vs. Energy Select Sector Index
Energy ETF Performance
Data Range: 3/1/2018 – 5/31/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance click here.

In the near term, ExxonMobil has been getting the bulk of positive attention from the recent rally in crude prices and its buyback potential. However, components Chevron and EOG Resources have both shown strong bottom line growth this year, beating analyst estimates by 25 percent in their most recent earnings report. But, investors should also remain wary if the geopolitical picture gets too harried.

Natural Gas

In the other corner is Natural Gas, as represented by the Direxion Daily Natural Gas Related Bull 3X Shares ETF (GASL) which has rallied nearly 40 percent from an early April low of about $15.50. Whereas OPEC has struggled to get lagging crude price into the “just right” level, natural gas suppliers have struggled to meet demand, cutting into some of their growth potential.

GASL & GASX vs. ISE-Revere Natural Gas Index
Natural Gas ETFs Performance
Data Range: 3/1/2018 – 5/31/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. For standardized performance and the most recent month-end performance click here.

Going forward, don’t expect that narrative to change. In fact, with crude prices rising and summer energy demand ahead, look for more new project announcements like recent ones from fracking components Continental Resources, and Devon Energy. Also be aware of international pressure on the natural gas market, which has already been huge in China and could heat up in the U.K. depending on regulatory decisions around the controversial practice of exploratory fracking.

No matter what the trend for energy stocks, Direxion has the bull and bear funds for you to trade boldly.

 

Related Leveraged ETFs:

 

 


This leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. The Fund should not be expected to provide returns which are a multiple of the return of the benchmark’s cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
 
ERX/ERY Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Energy Sector, for the Direxion Daily Energy Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Energy Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
 
GASL/GASX Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Natural Gas Industry, such as Emerging Markets Risk, for the Direxion Daily Natural Gas Related Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Natural Gas Related Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.