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Discussion Starter · #1 ·
I wonder if this is a real bull market in energy? Or just a war-induced spike in oil prices, perhaps.

When the war started, I bought a small position in HUC which tracks crude oil. It's performing very well but I think XEG is probably the better vehicle, so I switched into XEG.

Looks like a bull market to me:
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Discussion Starter · #6 ·
I looked at the forward P/E ratios of the top holdings of XEG (majority of the fund). Here are the Forward P/E numbers from Yahoo Finance:

Suncor, 7.37
CNQ, 7.93
Cenovus, 7.69
Tourmaline, 8.73

If we believe their forward guidance, this sector has a forward P/E of about 8 which is about as cheap as it's ever gotten, historically. These are value stocks.

Though, I'm worried that the companies may be using optimistic projections in their guidance. Suncor is assuming $97 WTI for example which doesn't sound like a conservative estimate to me.
 

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Discussion Starter · #11 ·
Finally sold some of my AA ETFs a month ago after they plunged so much. Bought some energy. Made up my loss in less than one month. Watch market facts. Don't hang on to same thing for decades.
I thought the whole point of the asset allocation ETFs was to hold them for the long term, without trading in & out
 

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Discussion Starter · #21 ·
So why buy now?
Because nobody knows where prices go next. Many of us think stocks are going to fall more, but that's just a guess, and we could be wrong.

The diversified asset allocation ETFs invest across a broad range of assets. They are going to capture the long term "equity premium" as well as the returns of bonds.

Asset prices have recently fallen. When asset prices go down, expected future returns go up.
 

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Discussion Starter · #35 ·
Let's be clear: there is risk in energy. It almost feels like a crowded trade to me. It sure seems popular and every market technician has identified oil & gas as the only uptrend in the whole market. And people chase rising prices... everyone jumps on the bandwagon.

There are possible scenarios which could end and reverse the trend in energy. Who knows what will happen going forward, but it's not a sure thing. Might be good to check one's diversification and make sure they aren't betting the farm on energy.
 

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Discussion Starter · #40 ·
Where to go with this investment? It's hard to ignore the gains we've made and think maybe lighten up. On the other hand, if we ignore entry price and just focus on fundamentals - limited investment, declining production, inventories lower than 5 year historical averages - it looks very positive. For me it comes down to demand. If there is a recession all bets are off. I'm watching the Fed/CB action and other data for signals that indicate major economies will tip in or crash into recession.
The central banks could easily kill all demand. And China's economy isn't so healthy either.

But right now, oil is undeniably in an uptrend. Look at WTI crude for example, it could easily fall 25% and would still be above its 200 day moving average.
 

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Discussion Starter · #45 ·
Natural gas just got decimated yesterday!
Do you think the energy bull market could be fizzling out? Oil & gas has been falling hard in the last few days.

Central bank tightening is also likely killing demand. And all the speculators who went long in commodities/energy, expecting high inflation, could now get caught off-side. Maybe they will want to unwind their positions due to Fed hawkishness, driving energy down.

Remember how energy shot up really high on the inflation scare that came right before the 2008 slowdown?
 

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Discussion Starter · #51 ·
Oil and gas hasn't even corrected yet and we're calling the end of the bull market?
I'm just trying to stimulate debate and help us consider the other side of the trade. Let's remember that central banks are tightening, and that could take some steam out of commodity prices.

In a place like CMF, there's a danger of "groupthink" since this is a very energy-friendly crowd. Many people here probably want to believe that commodities & energy will remain strong. That kind of bias can cloud trading judgement.

So I think it's healthy to always ask: what's the other way this trade can go?
 

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Discussion Starter · #60 ·
North American lifestyles are very energy and resource hungry. People have gotten a free ride for a very long time. Energy costs should be much higher. Even gasoline is still pretty cheap in the big scheme of things.

We can easily see gas prices double at the pumps I think. People will adjust; our gas prices are pretty cheap today.
 

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Discussion Starter · #62 ·
I figure the markets are close to panic mode.
I'm not sure. Volume on USO is low and XLE looks pretty average too. Typically in a panic, there would be aggressive selling on high volume.

I think fear and panic could still come to the energy space... it might not be here yet. The sector could be fairly or even undervalued but that doesn't mean it can't get a quick 25% to 40% washout. Who knows though.

I am long XEG as I still think it's the most promising sector. I am prepared for high volatility and think a 25% drop could easily come.
 

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Discussion Starter · #80 ·
No, we're in overreaction territory due to recession fears. And the "overreaction territory" means the "buy more territory" to me.
Curious how much XEG (or other energy commodities/equities) you hold?

My XEG position is only 0.7% of my total portfolio as outlined here. I figure that I get enough energy equities through the TSX index anyway.

I realize this makes me a lightweight by CMF standards, but I don't want to speculate too heavily on sectors.
 

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Discussion Starter · #82 ·
RIP XEG bull market. I think the energy trade got overheated and too popular and it's unwinding fast
Too popular for sure. In other forums, I've seen many investors jumping on board the commodities bandwagon and chasing returns.

So yeah, overheated and too popular. But do you really think the XEG bull market is over?

If XEG is in bear mode now, it's actually great news for all of us as it means inflation is going to ease and all kinds of costs and headaches are going to alleviate.
 

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Discussion Starter · #93 ·
Another great indicator of an upcoming recession.
It could be. Maybe we'll get lucky and maybe a recession actually will put a stop to inflation.

Look at how bond yields are crashing now. I always considered my long energy positions to be a kind of inflation hedge ... in a way it's better for me to lose money on XEG in the big picture.
 

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Discussion Starter · #95 ·
It looks like a hard recession and there will be no safe havens. I have some comfort in having about 44% of my portfolio in fixed income and a large exposure to ST positions. Will be interested how the market reacts to the next inflation numbers
Things could also flip around dramatically in the coming months, as new inflation and economic/GDP numbers come in.

So I wouldn't come to any conclusions based on a single week. It's possible that inflation concerns and energy could even accelerate towards year end. I think this is a very unstable scenario, anything can happen.
 

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Discussion Starter · #98 · (Edited)
WTI oil is trading close to $95 this morning. Considering that oil had been hovering around $120 last month, I think this is a welcome change.

The 200-day moving average in oil is at $94 so this is an interesting level. Until now, oil has consistently been above the 200-day moving average ... a pretty good indication of a bull market.

But if oil "crashes through" the moving average to around $80, then the energy bull market might be done!

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