Mixed Market - Investing in Energy ETFs

NEWS: The Dow ended the day with a slight gain of 5 points after trading within a 72-point range for the session. The S&P 500 closed with a gain of less than 1 point and only swung a total of 8 points throughout the day. The NASDAQ was the outlier, falling 20 points or 0.9% to a new 2-month low. THE BOTTOMLINE: A fairly uneventful day on Wall Street that kept trading within a narrow range. The upside was limited due to the rise in crude prices and a downgrade of the financial sector by Goldman Sachs. The downside was protected by an oversold level that will likely force at least a short-term bounce in equities. Whether this bounce is sustainable is yet to be seen and will be my focus this week.

THE DAILY ETF UPDATE - ENERGY OR ALTERNATIVES?

NEWS: Oil continued its dominance of the markets with another gain today after the Saudi’s announce a small increase to supplies during yesterday’s OPEC meeting. The crude futures closed up $1.38 or 1% at $136.74/barrel. Should investors be focused on pure energy ETFs or look at alternatives?

THE BOTTOMLINE: The news from OPEC over the weekend tells me that supply concerns are not going to go away anytime soon, if ever. That being said, investors should be prepared for high energy prices in the coming years. When it comes to ETFs there are a number of options for investors to play high energy prices. There is the pure-play ETF that invests in the energy futures such as oil, natural gas, and heating oil. This type of ETF will let you ride the daily ups and downs of the futures market. Investors also have the option of investing in an ETF that is composed of energy stocks from a variety of sectors.

The third option is an alternative energy ETF. With over 10 such ETFs now on the market, it has become quite difficult to differentiate the players and decide which the best choice is. Most investors will be just fine with an alternative energy ETF that has exposure to all sectors such as solar, fuel cells, wind, etc. But the makeup of the ETF should be studied before making any investment decisions. The other factor to take into consideration is the newly introduced focused alternative energy ETFs. The option of investing solely in wind or solar stocks is now available to investors. Just like the entire world of ETFs, the alternative energy space has become more complicated for the individual investor. That is why you need to turn to The ETF Bulletin.

McCALL’S CALL - WORLDWIDE OILCRISIS

NEWS: Oil climbs yet another dollar today after the Saudi’s said they will increase production by 200,000 barrels per day, upping their total to 9.7 million barrels. What is next for the price of oil?

THE BOTTOMLINE: I would love to be able to share with you that I believed oil would be back to $80 within the next few months or even by 2010. However, it would do me no good to share with you something I consider to be a fantasy. After the OPEC meeting this past weekend, it is now clear to me that the Saudis do not have as much oil as they portray. There is also the issue of the Saudis believing that speculators are the prime cause of higher oil prices. Another fallacy coming from the mouth of Saudi Arabia; I give them the same credibility as the executives at the large financial firms - NONE!

I continue to stick with my theory behind high oil prices that was originally shared with you when we thought $50 oil was high. There is a major supply/demand issue that is hitting the world and that will only get worse unless we drill for more oil around the globe or immediately start to implement alternative energy sources.

SIDENOTE: The newly introduced leveraged oil ETNs from PowerShares made a very interesting move today. The PowerShares DB Crude Oil Double Short ETN (symbol: DTO) fell about 3% and traded over 500,000 shares. Meanwhile, the PowerShares DB Crude Oil Double Long ETN (symbol: DXO) gained 3% and only traded 2,000 shares. That 250-to-1 difference is an indicator that traders are making a big bet that oil will pullback this week. This is a very large bet to one side of the market and tells me (the contrarian) that higher prices are in out future.

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