Oil Index Set to Fall?

June 26, 2008

The ETF that tracks the US Energy Sector (AMEX:IYE) is starting to show signs that it may be ready for a real fall. As there has been a significant increase in the noise surrounding sky-high oil prices and regulators and politicians looking to increase oversight, they will surely end up trolling for a scapegoat.

Update 6/29/08 - Prof. Greenberger who has been testifying on Capitol Hill regarding the Enron Loophole is a Andrew’s guest on TDI Podcast #63. Listen Here

(CLICK CHART FOR LARGER VERSION)

Will that cause some of the recent froth to be lifted from the energy stocks? Maybe. Take a look at the index and think about the timing potential for ETFs that short similar indicators/indicies such as the UltraShort Oil & Gas ProShares (AMEX:DUG) which has a 200% negatively correlated price to the Dow Jones Oil and Gas Index. We have been adding that position to client portfolios recently.

The chart shows a recent break below the 50 day for IYE. All things considered, I keep on recalling the phrase: Trees do not grow to the sky.

Thoughts?

Disclosure: Clients of Horowitz & Company are LONG DUG at the time of publish.

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Written by Andrew Horowitz · Filed Under Economy, Markets, Short Ideas

Comments

784CommentsOil+Index+Set+to+Fall%3F2008-06-26+15%3A11%3A08Andrew+Horowitz to “Oil Index Set to Fall?”

Jonathan Lawson on June 26th, 2008 4:14 pm

With the Fed not acknowledging significant downside risks to the economy, and just being aware of inflation risks that gave the all clear to the upside for oil, gold, and commodities. Because they did not raise rates (which would have had its own negative implications), inflation will rage on.

The market is showing us how much potential downside risk there really is.

I am looking for some type of restatement from the Fed to reassure Wall Street. They screwed the pooch with their statement. I picked up some UUP at the end of the day @ 22.44, because I am looking for the Ben and Henry road show in the next few days.
Tommi Doss on June 27th, 2008 8:32 pm

When Congress finally realizes that they were elected to represent “the People” then they will begin to enact policy changes such as futures markets limitations, a national energy policy in which Hydrogen can’t be sold on the open market but only to Americans, etc….. that they will do the right things to lead this country as “servents” not as a governing body that powers over people serving Corporate America, Lobbyists and their own needs.
Lord Jesus said ” you can’t serve two masters” because if you do you will neglect why we are here ” to love, serve and respect each other ” . If your ” God” is money then you will not help you’re fellow man and you risk total failure for our country and economy. Our money is becoming more worthless every day and in the end we will be left with rich and poor people and this is a dangerous road to follow. This is the real danger of doing nothing as leaders to counter check run away hyper inflation. The first thing congress needs to do is stop spending and balance the budget. Then pay off the internal debt, federal debt and foeign debt. Then begin a policy of rebuiling our roads, bridges, infrastructure and manufacturing base.They need to cut expenses and reduce the size of Government to save money. Invest in as many new sorts of energies as possible and remember to make products that benefit Americans with the lowest cost possible for our products . Do not serve the stock holders !!!!!!

Seve the people first !!!

Why can’t they see the real picture….maybe because they are blinded by the money.
Gary on June 27th, 2008 10:11 pm

There are so many people who think that oil is about to collapse that I do not yet buy into the argument that betting against it is the contrary position. It is possible that the IYE is starting to break down. However, it is also possible that it is preparing to break out to the upside. I think we have all heard of the old saying that a bull market climbs a “wall of worry.” Right now, oil is climbing a wall of worry and the stocks in the IYE may break out higher. Most investors have not priced these stocks for oil over $100 per barrel and I don’t think oil will fall below $100 per barrel for a long, long time. The fact that these stocks are holding their own while the rest of the market craters is a testament to their strength. If the overall markets turn up, I look for IYE to outperform on the upside as it has during the downturn.

I enjoy your blog and podcasts!
Eyal on June 28th, 2008 12:01 pm

I think that the shorts are propelling this spiral prices in oil. When everyone runs to the exist then DUG can make a huge run since there is no support for oil - it has gone up in a parabolic way. The problem is shorting a strong sector takes a lot of stomach and patience, but in the end - when they do fall - they will fall really hard.

Eyal
Jonathan Lawson on June 29th, 2008 12:05 am

I know how to finally get oil to drop. I will sacrifice for the good of us all….

I will buy the USO on monday morning. That should do it. I am very good at top ticking the market.

Tommi, you have pretty much called it like it is. I do not want government to protect me from myself. The fact that we have no comprehensive energy policy is amazing. Dems and Republicans in Congress are both to blame.

There will be a shake up in our next election, that is for sure.
joewxman on June 29th, 2008 3:32 pm

I think we are at the point in this market move where the winners are about to be taken out and shot. You may not need crude oil to go down in order to see the oil and gas stocks begin to crater. Notice btw that as crude and nat gas continue to make new highs the “dug” has not made new lows. In addtion look at the djusen chart and the crude chart and you will see lower highs on the djusen for each crude new high.

This bear down leg will not end until there is nothing left standing. Tomorrow is end of quarter. You may see some clues as to how this may break.
Son on June 30th, 2008 1:06 am

Oil hit new high soon
ROYL Skyrocket soon
Bruce on June 30th, 2008 8:57 pm

Also another very important technical indicator of money flow shows a decreasing to flat money flow trend on any of the oil names and ETFs. Top it off with Bearish divergences in the MACD in the OIH/OIX/XLE - We are due for a nice correction.
Glendon Felkins on July 1st, 2008 3:11 pm

The USA needs to find a product that the country needs that started the oil escilation, and make a shortage for them, primarily, life sustaining comodities,
Keep it going up until they can stand it and then tell them to lower the oil prices. You can tell it is a fix on the oil because nothing goes up in price as much as the oil has been and especially so fast. The name of the game is to bankrupt the USA.
Thanks
Market and Economy on April 20th, 2009 6:55 am

Baltic Dry Index - Moving……

The Baltic Dry Index, an index that follows the cost for cargo and goods traveling by sea. During its…

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