What You Need to Know About Trading Energy ETFs

I’d like to use today’s Trading Lesson to caution you about trading energy sector ETFs and ETNs.

Today the Wall Street Journal reported that the U.S. Natural Gas Fund
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is trading at a 12% premium to its assets. ETFs and ETNs were created to trade at or very near their NAV, but because UNG stopped issuing new shares due to potential regulatory activities, the shares are now trading at a premium due to the demand of owning them.

Also related to this is that Duetsche Bank announced yesterday afternoon that they would temporarily stop issuing shares in DXO, their 2X Long Crude Oil ETN (you can read the story here).

What this means is that in these two cases (and likely more coming in the energy sector) you are not trading typical price patterns. There is now an added structural risk which none of these securities have seen before. And until the regulators provide direction to these energy funds, my advice is to stay clear and wait for the dust to settle. My philosophy in situations like this is “if you haven’t seen it before, avoid it”. Your trading and your money will be much safer.

Announcement: On Thursday at 4:30 PM I will conducting a presentation for our upcoming Swing Trading College. The Swing Trading College remains our number one, most popular course and this is the seventh time we’ve offered it. The class runs 14 weeks and covers short term trading of stocks, ETFs (3 weeks of ETFs), options, e-minis’ and building a full trading plan along with 4 weeks of live trading.

In this class I’ll be also introducing for the first time a new high probability stock trading strategy, along with additional trading strategies to trade ETFs including leveraged ETFs.

If you’d like to attend the presentation, you can register here.

Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.