As we head into the end of the year, there’s some new action happening in two areas of the market that investors have abandoned lately. I’m talking about energy commodities and precious metals, both of which have been hammered.
There are a few reasons for this. Energy has been hit by weakening economic data out of Asia and Europe, which has been at odds with the robust performance by the U.S. economy. But we don’t live in a vacuum, and as a result these globally trades assets have dribbled lower on expectations of global slowdown.
Gold and silver have been hit by a pullback in inflation expectations and a removal of some geopolitical risk with the situation in Ukraine calming down and ISIS apparently on its heels in Iraq thanks to U.S.-led airstrikes.
But the common thread here has been the strength in the U.S. Dollar. Its run higher has been incredible: The greenback has broken a long-term resistance line going back to 2005, is up 11 weeks in a row, and has only suffered three weekly declines since April. The strength is being driven by a combination of U.S. economic strength, foreign weakness, U.S. stock market outperformance, a hawkish turn of U.S. monetary policy relative to the rest of the world, and American military prowess.
But there’s evidence that traders are pricing in a reversal and moving back into energy and precious metals. Here are four ETFs ready for a turnaround.
ETFs to Buy: ProShares Ultra Crude Oil (UCO)
After dropping 25% from its June high, encouraged by poor overseas economic data, the end of the summer driving season, and the strength in the dollar, the ProShares Ultra Crude Oil (UCO) ETF has been basing since mid-August and looks ready for a turn higher. It has broken over two-month downtrend resistance and looks set for a push to its 200-day moving average and beyond as traders roll back in.
Any hiccup in the fight against ISIS in Iraq, with some reports of militants closing in on Baghdad again, will accelerate the move to the upside. I’ve recommended UCO to my Edge subscribers as one of the best ETFs to buy right now.
ETFs to Buy: VelocityShares 3x Natural Gas (UGAZ)
Natural gas, like crude oil, has been caught in the general commodities downdraft that we’ve seen over the last few months. But buyers are reengaging here as we approach what is expected to be a nasty winter. Increased demand for heating fuels, like we saw last winter, could bolster natural gas in a big way, which makes VelocityShares 3x Natural Gas (UGAZ) an easy choice for ETFs to buy.
Currently, the leveraged ETF is trading for less than half of what it reached last January amid the chill of the polar vortex. With shares preparing to break out of a three-month consolidation range, a move to the 200-day moving average would be worth nearly 40% from here. I’ve recommended UGAZ to my Edge subscribers, where it is already carrying a gain of 3%.
ProShares Ultra Silver (AGQ)
Silver and gold have both been a disaster zones as relatively hawkish comments out of the Federal Reserve in recent months, along with the dollar’s strength and a decline in inflation, have undercut the investment rationale for holding the metals.
As a result, silver futures are coming off of their most oversold condition since 2008 and are ripe for a rebound. Merely a return to the 50-day moving average would be worth a 20%-plus move from here. The ProShares Ultra Silver (AGQ) ETF is a good way to play this, but I’ve also recommended the October and November iShares Silver (SLV) Calls to my Edge Pro subscribers.
ProShares Ultra Gold (UGL)
Gold makes my list of ETFs to buy for the same reasons as silver, but the difference is that gold, while a little slower moving, is demonstrating a bit more technical strength right now than silver is.
The leveraged ProShares Ultra Gold (UGL) ETF has been hovering near $41 for the past couple of weeks as technical indicators roll up and out of oversold levels. It looks like a relief rebound is coming that should take shares back into the mid-$40s.
I’ve recommended UGL to by Edge subscribers.