Trader Talk

Oil, Energy Stocks Baffle Shorts

Are energy stocks topping? With oil (the commodity) and energy stocks going parabolic in the past couple of months, it's little wonder that there has been a concerted attempt to short the energy complex this week.

Mostly, it has been unsuccessful.

You can see this in the record volume that the UltraShort Oil & Gas ProShares attracted. It provides twice the inverse performance of the Dow Jones U.S. Oil & Gas Index, a basket of stocks in the oil and gas industry. So if the index goes down 1 percent, you make 2 percent.

The United States Oil Fund, which roughly tracks the price of oil, has also attracted near-record volume this week, as traders are also able to short this fund as well.

Yesterday, there was a concerted attempt to sell off oil, as well as oil and natural gas stocks, as traders were betting that the weekly inventory levels would show a build in reserves and this would be the right moment to take profits. It didn't happen -- there was actually a drawdown in supplies, so sellers were forced to cover short positions by selling the DUG or buying the USO.

Despite the pain inflicted on shorts, this is a good sign, an indication that a fairly sizeable group is trying to pick a top in energy.

Questions?  Comments?