Energy Bear ETFs Surge in 2025: Direxion ERY at $25 and ProShares DUG Near $20

Oil prices declined sharply due to disappointing Chinese economic indicators and a resurgence of COVID-19 cases, triggering a notable rally in inverse energy ETFs.

Inverse energy ETFs, which move opposite to the sector’s price trends, experienced a breakout after oil prices dropped up to 3% on Monday. The weaker-than-expected Chinese factory output and retail sales, combined with concerns over the delta COVID-19 variant, have cast uncertainty on global energy demand.

Key Highlights

• Oil prices fell amid signs of slowing economic growth in China, the world's second-largest economy, signaling reduced demand.
• Direxion Daily Energy Bear 2X Shares (ERY) surged past a symmetrical triangle pattern’s resistance, potentially targeting $25.
• ProShares UltraShort Oil & Gas (DUG) broke above its upper trendline, indicating a possible rally toward the $20 psychological level.

Phil Flynn, analyst at Price Futures Group, noted, "The rise in COVID cases clouds demand outlooks, prompting traders to hedge and lock in prices cautiously." Below, we analyze these two prominent inverse ETFs and their technical setups for potential trading opportunities.

Direxion Daily Energy Bear 2X Shares (ERY)

Founded during the 2008 financial crisis, ERY aims to deliver twice the daily inverse return of the Energy Select Sector Index. It provides leveraged exposure to major energy giants like Exxon Mobil (XOM) and Chevron (CVX), each comprising roughly 20% of the fund. ERY boasts high liquidity with over 1 million shares traded daily and a tight average bid-ask spread of 0.07%, ideal for active traders. The fund manages nearly $26 million in assets, though it has declined 52% year-to-date as of August 2024. The annual management fee stands at 1.05%, which is reasonable for short-term trading strategies.

After breaking a long-term downtrend in mid-June, ERY consolidated within a symmetrical triangle until a recent breakout above the upper trendline. This bullish move suggests a potential rally toward $25, where resistance aligns with the January swing low and the descending 200-day simple moving average (SMA). Traders should consider placing stop-loss orders just below the triangle’s lower trendline to mitigate risks of a false breakout.

Trading Insight

A symmetrical triangle pattern forms when two trendlines converge with approximately equal slopes, connecting a series of peaks and troughs, often signaling an impending breakout.

ProShares UltraShort Oil & Gas (DUG)

DUG targets twice the inverse daily performance of the Dow Jones U.S. Oil & Gas Index, which includes leading U.S. oil and gas producers such as EOG Resources (EOG), Schlumberger (SLB), and Phillips 66 (PSX). With over $19 million in assets under management and a 3.3% dividend yield, DUG offers active traders leveraged inverse exposure with robust liquidity exceeding $5 million daily and tight spreads. Despite a 50% decline year-to-date, DUG has recently shown signs of stabilization.

Similar to ERY, DUG bottomed out during summer and traded sideways until Monday’s breakout above the symmetrical triangle’s upper trendline. This breakout could fuel a sustained rally toward the key psychological level of $21, where resistance from the January low and the falling 200-day SMA may challenge further gains. To manage downside risk, traders should consider placing stop-loss orders just below last week’s low at $12.88.

Risk Management Tip

Downside risk estimates the potential loss a security may face if adverse market conditions cause its price to decline.

Disclosure: The author held no positions in ERY or DUG at the time of publication.

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