I wanted to write a quick follow-up to my previous post on oil’s upcoming decline. One of the advantages of this current investment era is that individuals are now able to profit from declining market conditions. In the past, moving ones money into cash was really the only option during a recessionary environment...or even pullbacks in certain sectors.
Today, there are a slew of short-ETFS that allow you to profit from declining prices. There are even ETFS that allow you to profit from a 2x leverage of a certain index. While the concept of shorting the markets might be foreign to many buy and hold investors- it really is just about trends. If you believe the trend is up...you go long the investment. If you believe its declining...you short it. As simple as this concept is, I have also spoken to several investors that believe that shorting companies is un-American. How can you root for a company’s price to decline? In truth, the price of an investment will decline regardless of your participation. The reason that it is declining in value is not because people are shorting the investment, but it is because the fundamentals dictate lower prices.
Rydex and Profunds are two fund families that have several short-ETFS.
http://www.rydexfunds.com/ourproducts/index.shtml
http://www.proshares.com/funds?products=98616&fundType=
In any case, one ETF that I believe should do well in declining oil & stock environment is DUG. I like this play because not only does it profit from declining oil prices, but it also profits from a declining stock market (specifically, declining oil and gas stocks). In fact, DUG has more closely tracked the equities market (on an inverse basis), than it has the oil and gas futures markets.
Full disclosure, I currently own DUG for my personal account. DUG is the ultrashort oil & gas proshares which corresponds to "twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index." Thus, if the index declines in value, you will see about a positive return twice the decline. You can see the companies that make up the index here: http://www.proshares.com/funds/dug.html?Index
I also like the below chart- the price is currently trading at near 52 week lows, and I believe it is forming a base around the $37-39.50 levels.
