The markets were up strong on Friday due to good news from Europe, but down yesterday. Going long on the ProShares UltraShort Dow30 (NYSE: DXD
) and short on the exchange traded funds for oil, United States Oil (NYSE: USO
) and Copper, iPath DJ-UBS Copper TR Sub-Idx ETN (NYSE: JJC
) paid off in small gains with the positions being closed. There should be larger ones ahead as the market overreacts to agreements that will not endure.
There have been well over 15 accords to resolve the European debt crisis and none have worked. There is no reason to believe this one will either. As many commentators such as Jim Rogers have pointed out, the response of central bankers creating more money rather than dealing with the underlying problems have only "kicked the can down the road."
The situation in Europe is dragging the down the price of oil and copper. No surprise here: basic supply and demand here. Europe is the second largest user of copper in the world, behind only China. It is a major consumer of oil, too.
Over the last quarter, iPath DJ-UBS Copper TR Sub-Idx has fallen by 12.24%. For the last 52 weeks of market action, it is down by 22.01%.
For the last quarter, United States Oil has fallen by 21.48%. Over the last year of trading, it is down 15.40%. Year to date, it is off by 17.53%. There is a short float of 40.70% for United States Oil.
Any gains in these exchange traded funds due to another agreement should be looked upon as an opportunity to profit. The situation in Europe is a long, long way from being resolved. With growth down in India and China, the demand for oil and copper will continue to fall, dragging down the prices for United States Oil and iPath DJ-UBS Copper TR Sub-Idx.
Like Chuckie D said with Public Energy, don't believe the hype.