The news of the day is oil, oil and oil. Crude bulls hoping for a production cut by OPEC during their Vienna meeting have had their wishes granted. The expected curb in output is delivering epic gains to the host of exchange-traded products attached to the oil pits.
As usual, the biggest movers are twin triple-leveraged exchange-traded funds, VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (NYSEARCA:UWTI) and VelocityShares 3X Inverse Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (NYSEARCA:DWTI).
UWTI is up over 22% on the day while DWTI is down over 22%. Such eye-popping moves are what leveraged funds were created for. And, make no mistake, adrenaline junkies seeking a fix are descending on UWTI and DWTI in droves today.
Let’s see if the price action in UWTI is leaving any clues on its next move.
As designed, the action in UWTI has mimicked that of crude oil, creating a choppy five-month trading range.
On the bright side, the sideways slide has neutralized the 200-day moving average which was previously declining. I suspect, however, leveraged-fund lovers care little about the long-term. But, really, the short-run signals are the same. The trend is equally flat, complete with a meandering 50-day and 20-day moving average.
The UWTI Bull Trade
Your outlook, then, is all about how you view today’s OPEC-inspired jump. If you think this is the beginning of a multiday or even multiweek run for black gold, then hop aboard UWTI for a rousing ride. Its prior peak near $30 is a solid target for the weeks ahead.
Alternatively, you could short DWTI if that’s your thing.
For a stop loss on the UWTI long play, consider yesterday’s low ($17.35) which is now a pivot low. That gives the trade a wide berth to allow any kind of trickery before the ETN continues higher.
EDITOR’S NOTE: UWTI and DWTI will be shut down on Dec. 8.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
