Time to Short This ETF, While Wall Street Hits the Fainting Couch

As the axiom goes, when others are fearful, it is time to get greedy, and right now, investors are getting downright panicky.

The Department of Energy's latest data show a considerable build-up in crude oil supplies, a surprise to energy traders and a drag on energy and oil prices.

On Wednesday, West Texas Intermediate, the U.S. benchmark, sank $1.33, to $45.34 a barrel. Brent crude, the international standard, fell $1.41, to $48.30.

On Thursday, both the WTI and Brent crude were hovering below $50, a level that is considered break even for energy companies.

Also weighing on energy markets are Republican presidential candidate Donald Trump's slightly improving odds of winning the election, a prospect that terrifies the investment community. Accordingly, stocks declined for a seventh consecutive day on Wednesday, the market's longest decline in five years.

The CBOE Volatility Index, known as the "fear gauge," soared almost 9% on Tuesday to its highest level since June and spiked another 4% on Wednesday.

Here is the takeaway: Oil prices and the stock market will remain volatile for at least the rest of the year, probably longer. Investors can make money from this extended period of uncertainty, by shorting the SPDR S&P Oil & Gas Equipment and Services Exchange-Traded Fund  (XES) , the benchmark for the oilfield services sector.

This ETF's major holdings are the leaders of the oilfield services sector such as Atwood Oceanics, Baker Hughes, Diamond Offshore Drilling, Halliburton, Helmerich & PaynePatterson-UTI Energy, Schlumberger, Superior Energy ServiceTransocean and US Silica Holdings. 

All these companies continue to struggle with massive debt incurred during the boom times before energy prices started to crash in mid-2014. The gyrating price of oil is making their turnaround efforts all the harder.

Energy traders were temporarily cheered on Monday, when industrial giant General Electric said that it is creating a $32 billion oil business by combining its petroleum-related operations with Baker Hughes. But the euphoria is premature, and investors should pounce on the imbalance between sentiment and fundamentals.

Schlumberger and General Electric are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stocks here. Want to be alerted before Cramer buys or sells SLB and GE? Learn more now.

After all, it was just two weeks ago when GE said it would lay off 255 workers from its Houston-area petroleum-related operations due to a lack of demand from oil and gas customers.

The SPDR S&P Oil & Gas Equipment and Services ETF has declined 0.57% year to date, compared with a gain of 3.03% for the S&P 500. 

The ETF has fallen 6.54% over the last month alone, as crude inventories remain stubbornly high, energy companies generally report weak earnings and global economic growth limps along at a meager pace. Political anxiety leading up to Election Day is exacerbating the situation.

Oil prices are off their lows of the $20s in February but can't seem to pierce the $50 a barrel ceiling for very long. While fearful traders stumble in the dark, investors should confidently short the SPDR S&P Oil & Gas Equipment and Services ETF.

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A blistering financial storm is about to hit our shores. When it hits, weak companies and their investors will be washed away. You need to put yourself on solid ground. And that doesn't just mean changing your investment allocations or loading up on cash. I'll show you how to protect yourself and prosper when you click here.

John Persinos is an investment analyst at Investing Daily.

At the time of publication, he owned stock in GE.

Persinos appears as a regular commentator on the financial television show Small Cap Nation. Follow him on Twitter.

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