Looking To Play Exxon, OXY To The Downside? This Inverse Energy ETF Has 2X Leverage

Direxion Energy Bear 2X Shares ERY opened slightly lower on Tuesday, in contrast to stock futures, which were flat.

Occidental Petroleum Corporation OXY printed a fourth-quarter earnings miss on Monday after the market close but on Tuesday, the stock was trading higher. If Occidental begins to sell off later on Tuesday, the energy sector could begin to slide in tandem, which could boost ERY higher.

ERY is a double-leveraged fund that is designed to inversely outperform companies held in the S&P Energy Select Sector Index by 200%. The index includes a variety of energy-related stocks, with two giants, Exxon Mobil Corp XOM and Chevron Corporation CVX making up 43.04% of its weighted holdings.

A few other top 10 names in the ETF include EOG Resources Inc EOG, weighted at 4.49%; ConocoPhillips COP, weighted at 4.52% and Schlumberger NV SLB, which is weighted at 4.80% within the ETF.

It should be noted leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investment.

For traders who believe there is less risk and more reward to play the energy sector as a bull, Direxion Energy Bull 2X Shares ERX is one option.

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The ERY Chart: ERY reversed course into an uptrend on Jan. 27 and has made a series of higher highs and higher lows. The most recent higher high was formed on Feb. 22 at $32.03 and the most recent higher low was printed at the $26.80 mark on Feb. 14.

• If ERY moves higher over the next few days, Tuesday’s low-of-day could serve as the next higher low within the pattern. If that’s the case, ERY is likely to form another higher high in the future.
• ERY could be settling into a bull flag pattern, with the pole formed between Feb. 14 and Feb. 22 and the flag forming over the days that have followed. If the pattern is recognized and ERY breaks up from the bull flag on higher-than-average volume, the measured move is about 20%, which suggests the ETF could rise up toward $35.
• Traders who are bullish on the energy sector and bearish on ERY want to see the ETF close under the 50-day simple moving average, which would negate the uptrend and the bear flag.
• ERY has resistance above at $33.22 and $37.27 and support below at $30.16 and $25.78.

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