[james4beach]

Larry, just curious. Is this part of a diversified portfolio? Maybe you have another $3 million in other assorted stock positions. Or are you making a highly concentrated bet just on Suncor?

If you are doing this on margin, just beware that TD can change its policy at any time about which securities are eligible for margin.

 

[james4beach]

Well said doctrine ! And this is exactly why SU and XOM are the chosen stocks to play this waiting game

For anyone with money to set aside for a little while, this is a safe bet (IMHO).

I understand the argument that there isn't much downside, but I also learned some lessons during 2007-2009. One lesson was that in a highly distressed industry, it can be difficult to foresee which companies will be winners and which will be losers.

For example a company could survive by issuing huge amounts of equity and diluting existing shareholders down to nothing. You really don't know how it will play out, and you can't predict which company will emerge victorious.

The lesson I learned from 2007-2009 was that if you want to bet on a sector's recovery, it's best to use a sector index ETF. I have frequently thought of buying XEG and HMMJ for this reason. And yes it's true that XEG is a whopping 32% SU. However, it may not always be ... the beauty of the index ETF is that it will adapt and continue holding whichever company emerges as the success.

Look at XIT (tech) as an example. Initially it was extremely overweight Nortel. And later, RIM. So if you bought it at the depths of the past tech crash you would think you might be loading up on NT or RIM, two losers. But what does it hold today? It's mostly SHOP and CSU which have been two incredible performers. And they certainly weren't on the radar all those years ago!

XIT performance has been incredibly good, even if you bought it when NT and RIM dominated the portfolio. That's because indexes adapt over time, and shift weights to the best new stocks.

 

[james4beach]

Still holding XEG ! 325k profit so far

Sold SU at 21 in september for a 39k profit, the bet underperformed the SP 500

The canadian economy will be in the drain for a decade or more !

Congrats on still being long XEG. Wow +325K is... huge!

Are you "trading" this or do you plan to hold XEG for many years?

Buy When There's Blood in the Streets

Yeah but don't do it with: BBD.B , NT , GE , C , FNM , FRE , GM

Also wouldn't have worked with Canadian energy companies: AAV, BTE, ERF, GTE ... or maybe it will! I'll let people braver than me try buying those.

 

[james4beach]

Not sure, Trudeau gov is openly anti-oil. I am not convinced that things are looking good for canadian producers.

Trudeau has nothing to do with the performance of your energy stocks. If you doubt that, just look at XEG (Canada) versus XLE (global energy) ... they correlate perfectly and have performed the same.

 

[james4beach]

my god you are 100% right, thanks for the insight !

You're welcome. I'm so happy that you were able to learn something new.

(Not that you have)

That's the danger, larry, of stepping outside of one's ideological echo chamber. One starts encountering reality as indicated by data.

 

[james4beach]

Surprise that XEG is rising while the rest of the market is tanking !

Ive heard the chatter about the new "oil supercycle"

XEG is a beast lately. Congrats on your massive profit.

I forget, is this part of a diversified portfolio? If it is, I presume you'd want to take profits at some point and spread the money into more diversified investments: more stock sectors, and also bonds.

Or is the plan to continue with a highly concentrated energy/Suncor position? Are you not concerned about the downside of such a sector gamble?

 

[james4beach]

I have a pretty big Suncor position myself and I don't think I would consider selling for a while given the upside.

XEG has been steadily outperforming SU on this rebound. Wouldn't you make more money in XEG?

Over the last year, SU is up 48% and XEG is up 126%
In the last 6 months, SU is up 65% and XEG is up 81%

It seems to me that ever since covid, Suncor is underperforming the sector.

 

[james4beach]

Is anyone having second thoughts about whether the oil bull market is back? Maybe the whole thing was a bear market rally.

In any case, I could never invest in this way. I can't predict the future and don't think anyone can. In my case, I'm better off with a diversified portfolio of stocks & bonds & commodities (gold).

I've seen many people lose a lot of money doing this kind of sector / theme speculation over the years. Sometimes people gamble and win big, but that still doesn't make it a good idea.

 

[james4beach]

I'm not having second thoughts. $65 was obviously an aggressive price, but the fundamentals are pointing only one way. It's March and oil demand is already surging whereas oil and gasoline supplies are continuing to decline worldwide. Recent lockdowns in Europe suggest some demand may stagnate, and many refineries in Texas are still down, but this is just delaying the inevitable.

Here's what I still don't understand about this kind of analysis. Surely, you aren't the only person who figured out the future.

Wouldn't everyone trade on this long ago, meaning that in an efficient market, current energy/futures prices already reflect the expectation?

 

[james4beach]

There's no such thing as an efficient market.

Well, maybe efficient market isn't the right term, but I would be concerned that people with more expert / inside knowledge than me have already traded and moved the price, to the point I'm at a disadvantage.

It's the same concern that holds me back from trying to time the stock index or interest rates. Even if I was knowledgeable in these fields, I'll bet that there are a whole bunch of people at Goldman Sachs with more data than me, plus crooked insider connections and contacts at the central banks. Even if I do tons of analysis, and worked in the field, I will be at a disadvantage versus these information experts & insiders.

 

[james4beach]

I will hold the XEG position through the summer, still not sure when i want/plan to sell.

Congrats larry on this XEG position. I've traded it a bit over the years, but never caught as good a rally as you've caught here.

Assuming you're for real and not just having fun with fake numbers online...

It's good to have an exit strategy. Mainly this is about emotions, so that you don't let your emotions or beliefs (or attachment) get in the way of making money. The goal here is to make money, not to prove a point to anyone. Exit strategies help take emotion out of the game.

One idea, as you mentioned already, is to liquidate half the position and stay invested with the rest.

Another idea are the "moving averages", which I find are useful indicators of when a trend is alive or dead. It's all pretty arbitrary but as an example, you could use the 200 day exponential moving average, and sell the moment XEG drops below that level.

If you want a more sensitive trigger finger, then you can shorten that to the 100 day exponential moving average. The nice thing about this technique is that as long as the nice uptrend continues, you stay in.

The mechanics of an exit strategy are simple. You just have to decide on one. The hard part is executing on your strategy and following through with it, and fighting your emotions and attachments.

This chart shows XEG with the 100 day exponential moving average. I think this is likely a good way to identify the end of the current rally.

 

[james4beach]

Zooming into the same technical indicator described above. Another tip is to simultaneously monitor XLE (American / multinationals) since they are all closely related. The advantage of watching XLE is that you might see that one drop below the trend line before XEG does.

That would give you an early warning sign and get you ready for imminent selling. If XLE drops below its exponential moving average, it's likely that XEG will as well.

 

[james4beach]

James, just curious, why do you use the EMA instead of the SMA?

I've used both and it doesn't really matter too much. The EMA has an exponential response so it's better at responding quickly to changes, so it might be better suited for very volatile markets like energy.

But I also really like using the 200 day simple moving average.

 

[james4beach]

My problem is: exit the XEG position and then what ?

If it was me, and if this XEG position was quite large versus my "regular portfolio" I would sell some XEG very soon and redeploy that money into the whole asset allocation mix. How much to sell? I would sell enough to shrink the XEG position down to a size that it's not insanely large versus the rest of my portfolio.

e.g. maybe scale XEG down to the point where it's only 10% to 20% of your total investments (all ETFs combined).

Or if XEG is already a small % of your overall ETF total, then maybe you can leave it alone. I have no idea how wealthy you are. Maybe you've got a $20 million portfolio, in which case your $2 million XEG position is not outlandish and can be left alone.

But that's the way I would manage this, if it was my own money. I would look at the overall portfolio of all stock positions and decide how large the % XEG weight should be. For example, I do a bit of market timing in foreign markets (which is risky and speculative) and decided to make it 5% of my total. I also have some aggressive Canadian stock picks, and those are 4% of my total.

So in my case, I have 9% in this speculative, risky stuff. It used to be higher, but I scaled it down to a level that I think is reasonable.

 

[james4beach]

If you want a more sensitive trigger finger, then you can shorten that to the 100 day exponential moving average. The nice thing about this technique is that as long as the nice uptrend continues, you stay in.

Well things have changed over the last month and XEG is down quite a bit. Yesterday, XLE fell below the 100 day EMA and today XEG fell below it as well.

Now the hard part... figuring out if this is a minor correction, or if the big rally in energy is over (for now).

 

[james4beach]

My rationale for continuing to hold XEG is asking the following question

Well now there is great news for @larry81 and @scorpion_ca ... you have another chance to make a lot of money (assuming you are able to predict the market)

XEG is now looking very weak, just fell below its 200 day moving average. So the question is: do you think the bull market in energy is over? Or if this is just a breather, then I guess you'd want to start buying more.

 

[james4beach]

Ad hoc speculation in sectors has never worked for me, over the years. I have just found that I can't predict the future.

A few years ago, I remember watching experts and insiders in the energy + mining sectors trade their sectors, and fail at it. Boy did they do terribly. If people who know these sectors well can't trade them successfully, why would I be able to?

Something similar happened in tech when all kinds of tech experts and insiders (including people I work with) did horribly in tech from 2000 to 2010. Clearly, knowing a lot about a sector, or working in it, does not give someone trading skills.

 

[james4beach]

Any changes to these predictions? How about @larry81

Is XEG heading up or down from here? If someone gets this right, they can make a small fortune at this point.

I really want to trade (gamble on) XEG but am restraining myself and will watch from the sidelines.

 

[james4beach]

I've said this above but now is typically the low point in the cycle for oil

Are you the only person who knows this, or is it widely known?

And if it's widely known, wouldn't institutional investors already move the prices accordingly?

 

[james4beach]

I might add to Doctrine's post that while it is one of the most widely known seasonal trends, traders cannot bet the farm on this trend because there is always an off-chance that OPEC+ (namely SA) could upset the apple cart to wipe traders out

Good point. Seasonal trends are vague averages over many years, but some surprise can always blow away the trade.

I've never believed in placing seasonal or pattern-based trades. Seems overly simplistic in a complex market where the world is full of surprises. Reminds me of when people said the stock market can't possibly go down in an election year as the market is up in 83% of US election years.

And I actually remember some people aggressively going long in 2008 because of this "reliable pattern". Oops.