Now Is the Time to Buy Oil ETFs

01/22/2009 11:22 am EST

Focus: ETFS

S. Wade Hansen

Co-Founder, Profiting with Forex (PFX) and Learning Markets

Oil is at support and demand is near a bottom.

After soaring to absurdly high levels just below $150 per barrel, the price of oil has lost approximately 75% of his value and settled on support at $35 per barrel. The question is: How much lower can the price of oil go?

Here's the thing: As you will see in the video (see link below), I don't think the price of oil is going to drop below $35 per barrel for the following reasons:

1) $35 per barrel was resistance for years and years. Once oil broke up above $35 per barrel in 2004, the $35 price level became a strong support level.

2) As the economy begins to rebound, demand for oil is going to increase-especially in China.

3) The future value of the US dollar (USD) is going to be damaged by all of the money the US government is pumping into the markets. As the USD goes down, the price of oil will go up.

Taking Advantage of the Boom with ETFs

One of the easiest ways you can take advantage of the coming rise in oil prices is through exchange traded funds (ETFs). Oil-based ETFs increase in value when the price of oil goes up. If you're a little rusty on your ETFs, check out Understanding Exchange Traded Funds (ETFs).

Here are a few ETFs you should look at if you believe the price of oil is going to go up:

- iPath S&P GSCI Crude Oil Total Return ETF (OIL)
- United States Oil Fund LP (USO)

Don't Agree? Think Oil is Going to Drop?

Of course, you may not agree with me. You may believe the price of oil is going to drop even further. If so, you can still take advantage of oil prices using "short" ETFs.

Short ETFs are investments that increase in value when the price of the asset covered by the investment goes down. In other words, short oil ETFs make money when the price of oil goes down.

Here are a few short ETFs you should look at if you believe the price of oil is going to go down:

- MACROshares $100 Oil Down Trust (DOY)
- ProShares UltraShort DJ-AIG Crude Oil ETF (SCO)

Click here to watch the video now:

By S. Wade Hansen of PFXGlobal.com and LearningMarkets.com

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