Stock Chart DUG

Posted by downtowntrader | 11/30/2008 06:46:00 PM | 0 comments »

Stock Chart Analysis DUG

ProShares UltraShort Oil & Gas (ETF)(Public, NYSE:DUG)

It appears to me that a Bear trap is being set in Oil stock. Many stocks recently broke down from valid chart patterns and rebounded back into those patterns. I wrote an article for Investopedia this weekend highlighting a few stocks setting up for a possible short squeeze, so as soon as it's published I will link it up.

However, I did want to post on a pattern I am seeing in the ProShares Ultrashort Oil and Gas ETF (NYSE:DUG). While Oil stocks have been absolutely crushed over the past few months, it appears that they may be ready to bounce soon. While fundamentals don't suggest a true bottom in the oil sector, the charts are at least signaling the potential for a sharp bounce higher.

DUG has traced out a very choppy Head and Shoulders top over the past three months. While it doesn't fit the typical top, DUG did hit all time highs in this pattern. It also has setup so that the neckline coincides almost perfectly with the 200 day sma for the chart. It broke the neckline at $34.50 a few sessions ago, and it looks like it would be pretty stiff resistance on a bounce back higher. Of course, being an inverse ETF, it appears the DUG is portending higher prices for oil stocks in the near term. While DUG has only been around a couple of years, it should be interesting to see what happens if DUG trades to new all time lows.

Good Trading,


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