Oil a Value Buy?

What should we buy?
Where should we place our money?
What are you doing with your investments?

It’s a question I get every week and one that is extremely difficult to answer but I will tell you what I am looking at:

Oil, pure crude oil

I understand that crude oil is down about 57% during the past six months and more than 43% over a one year period but I also know that the commodity is in demand. It’s in demand in the USA, Europe, Asia and everywhere else in the modern world. Countries such as the USA, China and India are not going to consume less oil as we move forward, regardless of the green energy movement (which I fully support). Traders will also return to the pit (computers) to speculate, so I see this as a very speculative vehicle (just as it has been over the past several years).

All the charts tell me the commodity is in a massive stage 4 down-trending base with the long term 200-day moving average facing down. However, oil will have several rallies that will bring it back towards the moving average based on simple supply and demand. I don’t see how a finite amount of oil will trade for less dollars per barrel in five or ten years than it does now based on an ever increasing world population and industrialized planet.

Therefore, I see oil as my “speculative value buy” for the next several years. My mutual fund if you will. Of course I will look for ideal technical setups that use favorable risk/ reward entries but I still view the play from a value perspective.

So, what will I be buying?

ETF’s are a great start; easy and simple to grab in your stock account with no futures necessary.

For long trends or bullish trends, I will buy:
(OIL) Goldman Sachs Crude Oil Total Return ETN
(OLO) PowerShares DB Crude Oil Long ETN
(DXO) PowerShares DB Crude Oil Double Long ETN

For short trends or bearish trends, I will buy:
(DOY) MacroShares Oil Down ETF (DOY)
(SZO) PowerShares DB Crude Oil Short ETN
(DTO) PowerShares DB Crude Oil Double Short ETN

More Longs:


  1. And I thought I was going it alone here. For those who like to play with nitroglycerin, there is also the Direxion 3x ETF option: ERX. This ETF tracks the Russell 1000 energy index.

    Good trading and Happy Thanksgiving,


  2. Hi Chris,

    any special considerations with ETN’s vs ETF’s? I think the doubles have fees to maintain the double status right?


  3. Whew – I might only daytrade a 3x leveraged ETF like ERX in this market. When the bear is long-dead, then maybe hold for a bit.

    I’m betting crude prices will rise. Demand should rise at these levels (it’s $1.43 at the pump locally as I write this). And even if not, OPEC (aka Oligopolistic Purists Enjoying Carbon) will have an incentive to cut production to raise price.

    Please let us know what you entry points and risk-to-reward scenarios look like when you establish them. Also, I’d be interested to hear your thoughts on oil price arbitrage/manipulation, now that it’s so blatantly apparent…


  4. Another play on oil are the two new Proshares ETF’s that just started trading today:
    Ultra DJ-AIG Crude Oil (UCO), and
    UltraShort DJ-AIG Crude Oil (SCO)

  5. Is theire a reason why you do not talk about USO

  6. Ben,
    USO and UGA are two others that can be tracked. Many exist for trading purposes.

  7. Oil will rebound back towards $80.00 soon. HUGE rally coming.


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