Signs To Buy Oil ETFs

In a market where nobody seems to want to hold commodities, oil and its exchange traded funds (ETFs) have been hard hit by an brutal sell-off of oil futures.

Last week, price of crude oil dipped below $50 a barrel since its record of US$147 a barrel in July, writes Billy Fisher for TheStreet. Members of OPEC are scheduled to meet this month, just as fuel prices continue to sink further. Gas is at a national average of $1.83 a gallon as of Friday, while oil is still hovering around the $50 mark.

The deep plunge of oil prices is reflected in oil and energy ETFs such as:

• United States Oil Fund (USO): down 41.2% year-to-date

• SPDR S&P Oil & Gas Exploration & Production (XOP): down 38.8% year-to-date

• SPDR S&P Oil & Gas Equipment & Services (XES): down 53.4% year-to-date

• Energy Select SPDR (XLE): down 35% year-to-date

There are some financial advisers who think oil has another 10-15% before bottoming, and there are those that caution against picking a bottom for energy. It would be more prudent to first see improvements in the general market then in the sector and look for these funds to start passing their trend lines, either the 50-day or the 200-day moving averages. The market is fickle and we are looking at an uncertain sector in unprecedented times.

The truth is that no one truly knows what oil is going to do, which is why the trend-following strategy can be a good tool for investors to use, instead of making predictions and keeping your fingers crossed. This is especially true in volatile markets such as these.

It is noted that because of government programs that were intended to stabilize the financial markets, in the long run there could be implications for commodities. As $700 billion from the United States and $600 billion in China affect the economies, would could witness a rise in inflation and demand for commodities could increase.

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