Oil prices continue to be critical to the market overall, and as we wrapped up the first quarter, we saw a chance for a quick trade in a leveraged ETF as prices got back above $50 a barrel.
The ETF is ProShares Ultra Oil & Gas (NYSEARCA:DIG), which moves at twice the rate of the Dow Jones U.S. Oil & Gas Index. As oil got back above $50, it took DIG within sight of regaining long-term support. The ETF had broken below its 200-day moving average (the red line below) three weeks ago, and drifting as much as 9% below before beginning its reversal over the next few days. Last Wednesday’s volume was huge, matching the surge that preceded December’s OPEC meeting and confirmation of global supply cuts, and the Thursday morning action followed through.
DIG is currently sitting just below both the 200- and 50-day (the blue line) moving averages, and a break above could open up some nice profit potential. There are several things working in our favor. Oil prices have held above $50 and could extend the breakout rally OPEC started back in December, and DIG’s 2X leverage can make quick money on any momentum.
Then there’s OPEC again. DIG soared ahead of the December meeting, and with a lot of people expecting the organization to vote to extend its production limits at its next meeting in about a month, it’s worth noting that oil prices are shaping up a lot like they did back then. West Texas crude jumped from $45 to $54 in a matter of weeks in late November, and DIG rallied right along with it. I see a good amount of upside potential, and on the downside, I would keep a close eye on the $34 area.