Energetic Trades For Energy Earnings

The Energy Select Sector Index (IXETR) is up about 4 percent, underscoring a solid performance by the resurgent energy patch.

Starting Friday, second-quarter earnings reports will test the energy sector's mettle as a slew of big-name sector components reports over the coming days.

What Happened

Energy is expected to be a primary driver of S&P 500 earnings growth for the recently completed second quarter.

“Q2 estimates moved up modestly since the quarter got underway, but the positive revisions were primarily because of the Energy sector. Excluding the Energy sector, estimates for the quarter would be modestly down in the last 10 weeks,” said Direxion.

The first test arrived earlier today when Schlumberger N.V. SLB, the world's largest oilfield services provider services provider, delivered a mixed report in which it achieved its consensus EPS estimate but missed its top-line projection by about $60 million. Schlumberger is the third-largest holding in the Energy Select Sector Index.

Why It's Important

The Direxion Daily Energy Bull 3X Shares ERX aims to deliver triple the daily returns of the Energy Select Sector Index. ERX's bearish counterpart, the Direxion Daily Energy Bear 3X Shares ERY, attempts to deliver triple the daily returns of that index.

Over the next week, ERX and ERY could see increased earnings-driven activity and volatility as a slew of the energy sectors marquee names report results. As was previously mentioned, Schlumberger reports Friday, but next brings the potential for significant opportunity with ERX and ERY.

From Monday, July 23 through Friday, July 27, seven of the top 10 components in the Energy Select Sector Index deliver second-quarter results. The July 26 and July 27 period is potentially significant for ERX and ERY because on those two days, because on those two days, just over half the Energy Select Sector Index reports earnings.

What's Next

Friday, July 27 could be an epic day for ERX and ERY because Exxon Mobil Corp. XOM and Chevron Corp. CVX, which combine for over 39 percent of the Energy Select Sector Index, deliver second-quarter results.

If ERX and ERY are accurate guides, traders are positioning for sell-the-news events. Over the past month, the bullish ERX is averaging daily outflows of over $866,000 while the bearish ERY is taking in average of $279,200 per day, according to Direxion data.

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