GUSH ETF: Buying The Dip In Traditional Energy With Leverage (NYSEARCA:GUSH)

Bruno Poggi/iStock via Getty Images NYMEX WTI crude oil prices (CL1:COM) declined below $80 per barrel before recovering, while nearby NYMEX natural gas futures prices (NG1:COM) rallied above $3 per MMBtu before correcting. Traditional energy commodities have moved in opposite directions over the past few weeks. Meanwhile, the S&P 500 Energy Sector SPDR (XLE) is sitting at just over $90 per share, not far below the April 2024 high. Traditional energy prices could become highly volatile over the coming months before the November 2024 U.S. election, which will determine the future of U.S. energy policy. The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares ETF (NYSEARCA:GUSH) product is a leveraged exchange-traded fund, or ETF, that can be a valuable trading tool during a period of elevated price variance. Leveraged products like GUSH require attention to risk-reward dynamics because they experience significant time decay that can impact performance. Crude oil prices had corrected lower-Natural Gas was higher After reaching an $85.27 high in mid-April, NYMEX crude oil prices for August delivery trended lower, reaching a bottom in early June. Nine-Month NYMEX August Crude Oil Futures Chart (Barchart) The chart highlights that WTI August crude oil futures dropped 15%, making lower highs and lower lows, reaching a $72.44 per barrel low on June 4 before rallying to over the $81 level. Nine-Month Brent Crude Oil Futures Chart (Barchart) After reaching a $90.18 per barrel high on April 12, Brent Crude Oil futures for August delivery fell 15.2% to a $76.45 bottom on June 4 before bouncing to over the $85 level. WTI and Brent futures have rallied since the early June lows. Both crude oil benchmarks have surpassed the first short-term technical resistance levels, with Brent rising above the May 29 $84.71 high and WTI moving over the May 29 $80.11 peak. Meanwhile, NYMEX natural gas futures have moved in the opposite directions. Three-Month NYMEX Natural Gas Futures Chart (Barchart) The volatile NYMEX natural gas futures contract for August delivery rose 36.5% from $2.36 on April 16, reaching a $3.221 per MMBtu peak on June 11 before correcting 13.7% to the $2.780 level on June 24. The XLE remains near the highs The S&P 500 Energy Sector Select ETF product XLE has been in a bearish trend since mid-April 2024. Three-Month Chart of the XLE ETF (Barchart) As the chart illustrates, the XLE has made lower highs and lower lows, declining 11.5% from $98.97 on April 12 to $87.60 per share on June 17. However, the XLE remains close to the highest level since the June 2014 record peak at $91 on June 25. Long-Term Chart of the XLE ETF (Barchart) The long-term chart shows that the XLE reached a $98.97 high in April 2024, the highest price since June 2014, when the ETF rose to an all-time peak of $101.52. The XLE’s top holdings are: Top Holdings of the XLE ETF (Seeking Alpha) Over 43% of the XLE’s assets are invested in Exxon Mobil (XOM) and Chevron Corporation (CVX), the top two U.S. integrated oil companies. At $91 per share, the highly liquid XLE ETF had over $37 billion in assets under management. The XLE trades an average of over 14 million shares daily and charges around a 0.10% management fee. The blended annual $2.92 divided translates to a 3.20% yield. The XLE’s fund profile states: Fund Profile for the XLE ETF (Seeking Alpha) The XLE is a diversified traditional energy product, reflecting the share prices of the top U.S. oil and gas-related companies. The case for traditional energy over the coming months The following factors support oil and gas prices over the coming months: Summer is the peak driving season, supporting gasoline and crude oil demand. Wars in Ukraine, the Middle East, and the current geopolitical landscape are not bearish for crude oil prices. OPEC+ extended production cuts into 2025. Under the current Biden administration, the U.S. energy policy remains committed to supporting alternative and renewable fuels and inhibiting the production and consumption of hydrocarbons. While the U.S. and Europe address climate change, India and China, the world’s most populous countries, continue to rely on crude oil, natural gas, and coal for power. Most vehicles in the U.S. and Europe remain gasoline powered. Nearby natural gas prices reached lows in March 2024, at the end of the 2023/2024 withdrawal season. Increased cooling demand during summer and the upcoming peak winter demand season should keep a bid under natural gas prices over the coming months. Nearby crude oil prices reached bottoms in early June; the short-term path of least resistance has been higher over the past weeks. The leading companies are earning significant profits-The 2024 U.S. election is critical Exxon Mobil and Chevron Corporation are the leading traditional energy giants in the U.S. The latest quarterly earnings remained impressive: In Q1 2024, CVX earned $2.93 per share, beating forecasts by 2 cents per share. Revenues missed by $2 billion, but they were $48.72 billion. In Q1 2024, XOM earned $2.06 per share, missing forecasts by 10 cents, but revenues of $83.08 billion beat forecasts by $1.57 billion. Profitability is one of the most significant factors for the path of least resistance of stock prices. Exxon Mobile Seeking Alpha Factor Grades (Seeking Alpha) XOM received the highest possible profitability grade at A+. Chevron Corporation Seeking Alpha Factor Grades (Seeking Alpha) CVX also received an A+ in profitability. The average dividend of the SPDR® S&P 500 ETF Trust (SPY) is around 1.23%. XOM’s $3.80 annual dividend translates to a 3.34% yield, and CVX’s $6.52 dividend equates to a 4.12% yield. The leading oil companies pay far more attractive dividends than the most representative stock market index. The XLE’s $2.92 dividend is at the 3.2% level. GUSH is a leveraged ETF that owns some of the leading U.S. oil and gas companies The Direxion Daily S&P Oil & Gas Exploration and Production ETF tends to turbocharge the XLE’s upside performance. The top holdings include: Top Holdings of the Leveraged GUSH ETF Product (Seeking Alpha) At $35.59 per share, the GUSH ETF had $429.16 in assets under management, trades over 540,000 daily, and charges around a 1.0% management fee. In 2024, the performance of crude oil, natural gas, the XLE, and GUSH have been as follows: The continuous NYMEX crude oil futures contract closed 2023 at $71.33 per barrel and was 13.8% higher at $81.15 on June 25. The continuous Brent Crude Oil futures contract closed 2023 at $77.04 per barrel and was 10.9% higher at $85.41 on June 25. The continuous natural gas futures contract closed out 2023 at $2.514 and was 15.8% higher at $2.912 per MMBtu on June 25. The XLE closed out 2023 at $83.84 per share, 8.5% higher than its June 25 price of $91. The leveraged GUSH ETF moved 8.8% higher from $32.70 at the end of last year to $35.59 on June 25. GUSH did not leverage returns and only slightly outperformed the XLE so far in 2024 because the ETF suffers from time decay. Please fully understand the risks and benefits of leveraged ETFs like GUSH by reviewing the SEC Bulletin before placing any trades. Relatively stable prices for traditional energy shares weighed on GUSH’s performance. However, any significant rally in the traditional energy companies over the coming weeks will turbocharge GUSH. As a leveraged ETF, time and price stops are appropriate as it is only a short-term trading tool. In late June 2024, I am bullish on the sector and the potential for a significant rally in the GUSH ETF product.

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