ETF Energy Trader Alert – May 24, 2011

Monday’s sell-off – in both stocks and commodities – was fueled by growing concerns over Europe’s debt problems.

This, naturally, had a negative impact on the funds in our ETF Energy Trader portfolio, but the impact was minimal.

Monday’s action, though, was a clear – though modest – example of the type of short-term pullback that can create a buying opportunity for those ETF Energy Trader members paying close attention.

Here’s what I mean.

The action in the markets on Monday had nothing to do with the fundamentals we’ve based our investment decisions on.

The European debt crisis will not fundamentally change the supply-and-demand story for oil and energy in emerging markets…and it won’t have any impact at all on the global demand for new energy sources.

Sure enough, earlier this morning oil futures began to rise again – because the overall energy story is impossible to ignore.

In fact, Goldman Sachs said in a news release this morning essentially the same thing we’ve been telling you:

“The bank said the recent pullback in oil markets, which have lost around $15 a barrel compared with the highs seen in April and on May 2, provided a "good entry point for long positions in crude oil." – Wall Street Journal, May 24, 2011

But Goldman Sachs wasn’t the only one repeating our message this morning:

"Investors are realizing that at the end of the day, there's more demand for commodities than there is supply. That means the long-term trend is higher," said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York. "When there's a short-term selloff, we would take it as an entry point." – Reuters, May 24, 2011

The lesson here is simple: market volatility created by European debt issues – and other concerns – will cause pullbacks in the oil and energy sector from time to time.

But we should welcome these pullbacks…because they present us with great buying opportunities.

And to that end – I’d like to add a fund to our Watch List this morning:

SPDR S&P Oil & Gas Equipment & Services (XES) is exactly what it sounds like: an exchange-traded fund that tracks the oil & gas services sector. Specifically, its aim is to track the performance of the S&P Oil & Gas Equipment & Services Select Industry Index.

We all know that the demand for oil will continue for the foreseeable future – and that means the energy service companies will be in big demand.

XES is a great play on this angle – and with a diversified portfolio of 25 stocks, coupled with a reasonable P/E ratio of 20, this fund presents the best opportunity for us to take advantage of the oil & gas services story.

Let’s keep an eye on XES – which has traded as high as $44 within the last month. It’s currently priced at just over $39 – and a pullback to the $37 level would give us an opportunity for a nice short-term profit play.