Chart on Oil Ultrashort DUG (by Mike Paulenoff)

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The most recent downleg in the ProShares UltraShort Oil & Gas ETF (DUG) from 31.93 to 25.73 looks like a completed bearish structure.  The fact that prices reversed sharply to the upside today after first hitting a new low suggests strongly that the DUG hit downside exhaustion at under 25.80 earlier today.

For the time being, DUG is in the midst of a run-of-the-mill recovery rally. That said, the energy sector is so overbought and vulnerable to a period of retrenchment that this run-of-the-mill recovery rally (in the inverse DUG) could easily and quickly morph into a powerful countertrend rout, as holders of long energy positions take some of their very substantial profits.

In terms of the DUG, my initial upside target zone is 27.60-28.00.


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