In the middle of all this bailout and will they or won’t they pass it hoopla, another bubble might have quietly popped: OIL. When oil was running rampant it was covered 24/7 by our concerned press. Today there is hardly a peep.
During our weekly ETF Screener analysis, we noticed one oil related ETF chart after another displaying a major sell signal, the short-term moving averages crossing under the longer-term averages. We realize oil is down nearly $50 from its highs, but the stocks in these sectors are acting like they expect much lower prices to come. When a bubble pops, as we have seen twice this decade with tech and housing, things can get real ugly. It’s not ugly for oil yet.
Aggressive investors looking to profit from a further deterioration in black gold’s price should invest in ProShares Short Oil & Gas (DDG) or for twice the fun ProShares Ultra Short Oil & Gas (DUG) as it returns 2 times the opposite of the Dow Jones Oil & Gas index; meaning both of these ETFs rise when oil goes down.
If the bailout passes in the house today, as we expect it will, oil could recover a bit on hopes the credit problems are behind us and the economy will slingshot. We are not so confident the intended consequences will be the final outcome.
We haven’t read the bill, but from we have read and heard there is nothing directly acting to stem the genesis of this problem, falling home prices. If real estate values continue to decline, more and more American’s will find their loan balance to be greater than their home’s price. The more folks that find themselves upside down in their loans, the lower, we are afraid, prices are going to go. If prime borrowers start to become a major problem too, we ain’t seen nothing yet.
Filed Under: Economic Forecast