DUG Follow Up

DUG seemed to be on track for a long position until the global events drove oil up late last week. Initially, DUG which is an inverse ETF that tracks DJUSEN which is the Dow's Oil and Gas Index. There's about 90 components in DJUSEN raging from major integrated Oil companies to independent oil and gas. However, it is also full of servicers, such as drilling and exploration, transportation/shipping, and other support structures.


DUG actually did ok on Friday when I expected it to be down quite substantially when tracking against oil itself. Today it is down, my thoughts were as follow and I'd like to hear yours as well.


This is a hard play to analyze fundamentally because of the mix in DJUSEN. I'm thinking oil of course is spiking because the middle east is being thrown into chaos and there are a number of governments that could fall almost in domino succession, this isn't so much a demand for oil as it is the uncertainty of regime change, the closing of the Suez, possibly even OPEC itself falling apart. So if oil becomes a problem, it's not so much a service industry problem except for the fact that those service industries may be prohibited from doing what they do. That doesn't seem to bode well for the service industry if they can't get oil out of the ground and through the canal. That's why I assumed DUG did okay on Friday compared to oil. Today, not so much. While I haven't been able to track the latest developments in the Middle East the last few hours, here's what the charts look like in DJUSEN and DUG. Be forewarned though, when we have fundamental shifts of the magnitude we are seeing in the Middle East and they have not been previously discounted, sometimes, fundamentals and technicals go right out the window. However, for now, we'll look at what we have.

Looking at several charts of DJUSEN, I see the following: 

 This is a Heiken Ashi chart, not a candlestick chart, but you can see volume by price in DJUSEN, there's a small contingent of buyers that could be left in the cold "if" we were to have a sudden reversal, that can not be counted on, it' just an observation.

 Here's a closer look...

 Looking at the volume by price you can also see the trend in DJUSEN of higher prices, less volume-this is a candlestick chart. Basically this shows traders backing away from aggressively chasing prices higher. ADX which is an indicator that falls into the trend category nearly surpassed 50 and turned down, quite often this leads to a change in trend. Again though we have fundamental development in which we have no idea regarding "How discounted they are if at all" We do know the situation in Egypt was making its way around strategic forecasting sites like Stratfor back in December so it's not totally out of the blue.

 Here's an RSI positive divergence in white that kicked off the uptrend and a negative divergence in RSI currently.

 This is a daily chart of DJUSEN showing the positive divergence in 3C at the same time we saw the RSI positive divergence -June-September EXACTLY and the negative divergence in 3C now which is relative between October and the present, but the actual first dip was in November, the same as RSI EXACTLY.

 Looking at a 1 min chart of DJUSEN, we can see the positive divergences that have led to higher prices today and a slight negative divergence near the top of today's highs.



 Looking at DUG-the inverse ETF of the above DJUSEN, we see a negative divergence that is the opposite of what we see above as it should reflect and a fairly substantial positive divergence right now.

 DUG on a 5 min chart shows much the same.

 On a 10 min chart, we see the reason we started to get bullish on this trade, there are negative divergences pushing price lower, but at the lows we have seen a big expanse of a positive divergence.

 The next 3 charts are all daily and show each version of 3 C, each look nearly identical with large recent positive divergences stretching back months. This would be massive accumulation.

 Again the same

 and again the same. These chart all remind me very much of the dollar index in 2009/2010 when there seemed to be no possible reason that the dollar would go up, yet the long term accumulation on the daily charts were there and the index not only went up, but surpassed the target..  If you look at the chart until December 2009, it looks nearly identical to the chart of DUG above.

US Dollar Index Daily chart.

DUG currently

DXY0 Dollar Index 2009/2010

 DUG currently

Dollar Index 2009-2010

Remarkable similarities. However, until DUG can break out of the wedge, I feel we have to respect the fundamental events that are taking place and look for that opportunity in DUG.