Wednesday, May 21, 2008

Oil Looks Toppy to Me - Starting Ultrashort Oil & Gas (DUG)

This type of run simply looks overextended and toppy to me - I believe sooner rather than later (probably within a week or two) we are going to see a sharp reversal in oil to the downside. And it will take the commodities with it. Things have now moved to purely speculative mode - who else is left to buy and who is not on this train? I doubt very many....

I am going to buy Ultrashort Oil & Gas (DUG) as a "trade", not investment. This ETF has destroyed so many people but when it reverses I believe it will be powerful (this does not short oil directly but shorts a whole bunch of exploration companies) And yes, I am still a huge bull for the long term, but nothing straight up (or down). Parabolic moves get me thinking in a contrary nature. We appear to be nearing that stage, and I believe the the risk/reward is in my favor.

I am going to buy here in the $25.90s and see if we can sell it for $30+ within a month (that would be a nice 15%). Heck this ETF was trading there last week, so we might get it even quicker. I reserve (up to) 10% of the fund for "trades" rather than investments, so this is the first one we have had in a while.

I bought 1200 shares, creating a 2.5% stake. I'll probably be the only guy in America with this position, which makes me even more bullish ;) If you want less risk I suppose you could buy a refiner or airline here which also would spike if/when oil retreats.

I tried this once before in October so you can find more information about the ETF by following this link [Oct 23: New Short Position - Ultrshort Oil & Gas (DUG)]

Long Ultrashort Oil & Gas in fund and personal account

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