Energy ETF (ERX) Flashes Possible Bullish Sign
The dramatic fall in oil prices over the last few weeks has garnered a lot of attention from the financial media. Oil prices dropped for 12 straight days which marked a record losing streak.
There were numerous factors behind the decline—supply and demand imbalances, political pressure, and production level disagreements are just a few.
Regardless of how things play out in the long run, there is a short-term pattern on the chart of the Direxion Daily Energy Bull 3X Shares (NYSE: ERX) that suggests a bounce may be in the works.
The fund dipped down to the $22 level on Thursday and then moved higher later that day and on Friday as well. The $22 area served as a low on October 29 and seeing these two low points in close proximity indicates a possible double-bottom pattern.
For the pattern to be confirmed, the fund would need to move above the high in between the two lows. In this case the high came at $29.05 on November 8. If the ERX does bounce back above the previous high, it would mean a 15.6% gain from the close on Friday.
One thing to keep in mind with the ERX is that it is a triple-leveraged ETF and that leverage works in both directions. If the energy sector moves up 1%, the ERX should move up 3%. If the energy sector moves down 1%, the ERX should move down by 3%. At least that is how the fund is designed to work.
Something I have noticed about the ERX is that the 3-to-1 leverage doesn’t hold up as well over the long run as it does on a day to day basis. The 3-to-1 relationship holds up much better over the short term. If you are going to invest in the ERX, you should be aware of this relationship.
ERX's RSI Indicator ascending out of oversold territory
The RSI Oscillator for ERX moved out of oversold territory on May 17, 2023. This could be a sign that the stock is shifting from a downward trend to an upward trend. Traders may want to buy the stock or call options. The A.I.dvisor looked at 30 similar instances when the indicator left oversold territory. In of the 30 cases the stock moved higher. This puts the odds of a move higher at .
Technical Analysis (Indicators)
Bullish Trend Analysis
The Momentum Indicator moved above the 0 level on June 06, 2023. You may want to consider a long position or call options on ERX as a result. In of 96 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are .
The Moving Average Convergence Divergence (MACD) for ERX just turned positive on June 02, 2023. Looking at past instances where ERX's MACD turned positive, the stock continued to rise in of 41 cases over the following month. The odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where ERX advanced for three days, in of 324 cases, the price rose further within the following month. The odds of a continued upward trend are .
Bearish Trend Analysis
The Stochastic Oscillator entered the overbought zone. Expect a price pull-back in the foreseeable future.
ERX moved below its 50-day moving average on May 02, 2023 date and that indicates a change from an upward trend to a downward trend.
The 10-day moving average for ERX crossed bearishly below the 50-day moving average on May 04, 2023. This indicates that the trend has shifted lower and could be considered a sell signal. In of 13 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where ERX declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
ERX broke above its upper Bollinger Band on June 07, 2023. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
The Aroon Indicator for ERX entered a downward trend on June 07, 2023. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
Fundamental Analysis (Ratings)
Notable companies
Industry description
Market Cap
High and low price notable news
Volume
Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
General Information
Category Trading
ERX and
Correlation & Price change
A.I.dvisor indicates that over the last year, ERX has been loosely correlated with SSO. These tickers have moved in lockstep 51% of the time. This A.I.-generated data suggests there is some statistical probability that if ERX jumps, then SSO could also see price increases.
| Ticker / NAME | Correlation To ERX | 1D Price Change % | ||
|---|---|---|---|---|
| ERX | 100% | +5.46% | ||
| SSO - ERX | 51% Loosely correlated | -0.68% | ||
| SPXL - ERX | 51% Loosely correlated | -0.98% | ||
| SOXL - ERX | 40% Loosely correlated | -0.41% | ||
| TQQQ - ERX | 37% Loosely correlated | -5.10% | ||
| QLD - ERX | 37% Loosely correlated | -3.44% |
