Tuesday, May 20, 2008

Trade Alert: OIL DUG

We stopped ourselves out of a full position of DUG yesterday for about a $3 loss per share. Half of the shares were naked long the other half were hedged against OIL which has gone nowhere. Remember that DUG=ProShares UltraShort Oil&Gas an index which trades negatively to oil and natural gas, so which ever way oil and gas go DUG should go the opposite. But it's not. To see why take a look at UNG and OIL. UNG has finally begun to roll over as you can clearly see on the daily chart. We tried to short UNG last week, but there were no shares available for shorting which is how we ended up in DUG. But now look at OIL in the daily time frame. PEGGED! Yea pegged and going higher, by how much? I dunno but it could have an explosive break in either direction and we will want to pour in once that direction is determined. OIL will have to pull back sometime as there is a forced de leveraging underway world wide the only question is how much higher will it go first.

So there you have it UNG rolling over, OIL stuck add them up and you get the DUG breaking down under the last support it saw at around 29. Right UNG has clearly changed direction , but I don't have a strong feeling about which way oil and therefore OIL is going to break. But up or down I feel the the instrument to give us the best bang for the buck is DUG. So we will look to enter a short position on DUG on any strength (or anything) with a stop above where the gap should fill at 29. Place the stop at 30.50 to stay away from the specialist.

2 comments:

Fogifds said...

DUG closed up today. Why did this happen? A last minute short squeeze?

StockMarket -Implode said...

If it was a short squeeze or more likely a short covering on DUG then oil and/or natural gas would have had to break down as DUG trades negatively to them. See the intraday chart of OIL and the intraday chart of UNG, both up into the close and both up for the past 2 days. So without a change in direction from the independent variables OIL and UNG I can't explain it.