# Oil Stocks



## cash (Mar 5, 2011)

With the recent crash in oil prices, it seems like there will be some great opportunities to make money off a rebound. What are some different angles people are looking at? Here are a few things that I've been looking into. I listed the 6 month price decline. The plan would be buying them while the price is low and selling them when the rebound starts. Please provide some critique.

HUC - 1x crude oil ETF. -42%
HOU - 2x crude oil ETF. -56%
ERX - 3x crude oil ETF. American. -61%
XEG - oil company ETF. 57 holdings, mostly producers, some service companies. -33%


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## larry81 (Nov 22, 2010)

I am not a speculator but I would recommend that you avoid the 2x/2x ETF's.

Why not pick a few big tickers like SU, COS, CNQ, CHK, etc ?


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## tygrus (Mar 13, 2012)

Do you understand oil dynamics or are you just looking at charts? 

Oil is priced right where it should be historically and for it to rise to the top of its trading range again can take years. Also historically, a prolonged oil slump has triggered growth in other area namely consumer spending.

Personally, I think it is different this time. Oil is going to be in the $50 range for a while and the consumer is unlikely to take advantage of it because they are so tapped out and so many broke boomers ready to retire are going to be watching their pennies closely.

If you buy oil, but the integrated companies and ones with the least exposure to oil sands.


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## cash (Mar 5, 2011)

tygrus said:


> Do you understand oil dynamics


Yes



tygrus said:


> Oil is going to be in the $50 range for a while .


When you say a while, how long do you mean? If you mean months, then yes. Years, no. At $50 for a few years, all the producing companies in north america will go bankrupt.


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## fatcat (Nov 11, 2009)

cash said:


> With the recent crash in oil prices, it seems like there will be some great opportunities to make money off a rebound. What are some different angles people are looking at? Here are a few things that I've been looking into. I listed the 6 month price decline. The plan would be buying them while the price is low and selling them when the rebound starts. Please provide some critique.
> 
> HUC - 1x crude oil ETF. -42%
> HOU - 2x crude oil ETF. -56%
> ...


sure, my critique would be that your assumption that since they have fallen x amount implies that they are thus going to _rise_ x amount is a logical fallacy when it comes to investing

people who study oil 60 hours a week are having trouble understanding oil at present which essentially makes investing in oil right now mostly (but not entirely) speculative and when you add in speculation via leveraged etf's by an amateur who asks other for help you have pretty much left anything that can be called "investing" behind and moved into the domain of gambling

why not go to the track with your money and at least get some fresh air ?


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## AltaRed (Jun 8, 2009)

XEG is not a bad way to play an oil rebound IF one has not spent a lot of time looking at individual company financials for individual stock picks. However, there could be more hurt before there is a bonafide rebound. Be prepared to hold on tight for months to come. 

I wouldn't dream on touching the speculative ETFs. They are nothing better than a roll of the dice at a casino or a long shot at the horsetrack.


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## cash (Mar 5, 2011)

AltaRed said:


> XEG is not a bad way to play an oil rebound IF one has not spent a lot of time looking at individual company financials for individual stock picks. However, there could be more hurt before there is a bonafide rebound. Be prepared to hold on tight for months to come.
> 
> I wouldn't dream on touching the speculative ETFs. They are nothing better than a roll of the dice at a casino or a long shot at the horsetrack.


This is the kind of response I was looking for. Fatcat didn't contribute anything. What about the speculative ETF's for a short while only if/when the price gets _*really *_low?


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## Pluto (Sep 12, 2013)

cash, my perspective is to buy when others are very fearful/pessimistic because that's when the lowest prices are available. I use headlines, predictions in the media, and charts to assist in gaging degrees of fear and pessimism. 
Looking at xeg - and this requires you to look at a chart to follow - the greatest fear was between dec 3 and dec 15. We know that was the time of greatest fear because of the steep price decline and higher volume. The high volume is the fearful crowd leaving (and wishing they had sold when the price of oil was high). 
After dec 15, the rebound began. The first and possibly the biggest wave of fearful sellers has departed, allowing a bottom to form. Then a second bottom formed on Jan 12. Notice that the volume is lower compared to the first wave of fearful sellers, indicating that the decline is losing power. Plus the second bottom is not as low as the first, again indicating the decline has lost power. 

So what are your buy points: if you are really aggressive, dec 15 and jan 12 give or take a few days. Your final buy point, in my opinion, and the most conservative one, is as follows:

The afore mentioned pattern forms a w. The price of the middle top is about 15. You buy when it breaks above that. My opinion is if you wait beyond that point, you are too late. 

After you buy, don't forget to sell sometime when oil prices are high again, otherwise you will likely be one of the fearful sellers and selling about the price you paid in the first place. 

We must remember too, the currently some people are leasing tankers and filling them with oil, with no where to go right now. the strategy outlined above is based on the assumption that xeg over reacted on the downside, and has discounted the oversupply. If the assumption is wrong, the stock prices will take an additional pounding to the downside. In my experience, however, even if that happens, and the stock prices go lower, they don't stay down there for long, so don't panic, just hang on, and perhaps buy more. 

In my view, the fact you are working on the idea of buying during such fearful times means you are on the right track.


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## fatcat (Nov 11, 2009)

cash said:


> Fatcat didn't contribute anything.


sorry about that ... what i meant to say was that i think you should go *all in* on, say, ERX ... how about that ?

seriously ? ... you ask for *advice* on whether you should buy a 3 times leveraged etf ? ... really ?


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## Pluto (Sep 12, 2013)

cash said:


> What about the speculative ETF's for a short while only if/when the price gets _*really *_low?


I think you are assuming that further declines in the oil price will necessarily mean that xeg, for example, will go lower than it already has. It might not do that, as it may have seriously over reacted on the downside as the fearful exited in droves. We have had a double bottom in stock prices, and the second bottom is higher than he first. That's a clue, but not proof, that the worst is over for the stocks.


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## cash (Mar 5, 2011)

larry81 said:


> Why not pick a few big tickers like SU, COS, CNQ, CHK, etc ?



This could be done, but I would prefer XEG because:
-It's easier to manage
-Index approach has proven to be very effective, more so than stock picking in many cases


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## cash (Mar 5, 2011)

Pluto said:


> the worst is over for the stocks.


Hard to say. There will be lots of negative headlines in the news over the coming weeks; lay-offs, budget cuts, chicken little's, etc. Could go either way.


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## londoncalling (Sep 17, 2011)

Pluto said:


> cash, my perspective is to buy when others are very fearful/pessimistic because that's when the lowest prices are available. I use headlines, predictions in the media, and charts to assist in gaging degrees of fear and pessimism.


I try to do this as well but need to work on the patience aspect. I know that I will never hit a bottom but oftentimes I should be waiting a little longer to pull the trigger.



Pluto said:


> Looking at xeg - and this requires you to look at a chart to follow - the greatest fear was between dec 3 and dec 15. We know that was the time of greatest fear because of the steep price decline and higher volume. The high volume is the fearful crowd leaving (and wishing they had sold when the price of oil was high).
> After dec 15, the rebound began. The first and possibly the biggest wave of fearful sellers has departed, allowing a bottom to form. Then a second bottom formed on Jan 12. Notice that the volume is lower compared to the first wave of fearful sellers, indicating that the decline is losing power. Plus the second bottom is not as low as the first, again indicating the decline has lost power.


Explained nicely. Others would have stated this was a time when everybody was selling. kudos to you for pointing out both sides of the trade. Studying technicals is an area I would like to devote more time to as an investor as it may impact my first statement above. I try to buy in tranches to mitigate the error in purchase points usually following the wave pattern mentioned above. If I average down I minimize losses and increase profit potential on the upside. I rarely average up even though I may miss out on a nice breakout. 



Pluto said:


> So what are your buy points: if you are really aggressive, dec 15 and jan 12 give or take a few days. Your final buy point, in my opinion, and the most conservative one, is as follows:
> 
> The afore mentioned pattern forms a w. The price of the middle top is about 15. You buy when it breaks above that. My opinion is if you wait beyond that point, you are too late.
> 
> ...


Like buying, I also sell in tranches. I may leave money on the table depending on what happens but I would rather be partially right on every trade than completely wrong on any trade. 
Right now, we are in a high speculation period. Oil could rebound now, this summer or in 4 years. Markets don't like uncertainty. In times of uncertainty there can be price swings confusing most investors. Depending on your objective/perspective there are many ways to take advantage of these opportunities. Some choose to short, do options, cherry pick or rotate in and out of sectors using etfs. Many roads to wealth. To the OP clearly, you are an index/basket investor. Stay within your wheelhouse. My advice would be that if you do not use leverage already or have never bought a leveraged etf this is most definitely not the time to test it. If you like do so in a virtual account but I would not place real dollars(never have) when pushing the boundaries of my investment style. Definitely, interesting times in the cyclical commodities area. Cheers


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## MrMatt (Dec 21, 2011)

Buying into oil now is not a short term bet.
Bet on companies that look well positioned to handle the downturn.

Look for the ones who can afford to stay profitable now, or at least those who won't fail if prices stay where they are for 2-3 years, which will give them some room to manouver now.


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## gibor365 (Apr 1, 2011)

cash said:


> This could be done, but I would prefer XEG because:
> -It's easier to manage
> -Index approach has proven to be very effective, more so than stock picking in many cases


37% of XEG is just 2 stocks SU and CNQ .... why pay 0.6% MER when you can buy those 2 stocks that also pay much highed distributions?


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## My Own Advisor (Sep 24, 2012)

Like Larry81, I would be inclined to buy the top-holdings if you're wanting O&G stocks in Canada: own SU, CNQ, CVE, CPG, IMO, ECA, COS, HSE.

Then index invest everything else. Done


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## Pluto (Sep 12, 2013)

londoncalling said:


> I try to do this as well but need to work on the patience aspect. I know that I will never hit a bottom but oftentimes I should be waiting a little longer to pull the trigger.
> 
> Cheers


Thank you for your kind words. I take some criticism on this forum for paying attention to technicals. Nice to hear a kind word for a change. I'm responding in part to the patience issue. One thing that might assist you in a high volume plunge situation is 1. wait until the decline decelerates. Monitoring speed is a clue. You can see the speed in the slope of the price chart - less steep is slower speed. 2. Check the RSI indicator. When it gets below 20, it is often a bottom, if not the bottom. Getting the exact bottom isn't necessary, but by following these methods, and others you may invent your self, you improve your chances. One day, you will buy on the day of a bottom. 

Fundamentals and technicals are two dimensions of the same thing. They look at the same thing from a different perspective. 
Fundamentals tell you what you want to buy. Technicals can tell you when to buy. Why? Because prices precede the fundamentals. That means oil stocks will bottom out *before* the earnings and other fundamental data are announced. 
And on the upside, prices of stocks will go up in advance of better earnings and other fundamentals being determined and reported. Since prices precede earnings, it means the bottom fisher is well served to let the price and volume action help them with a buy point. Those who wait for the fundamental analysts to report the damage and the new outlook will miss the lowest price because they are often, maybe always, lagging the price action. 

And the other issue - the future of oil. Oil futures about 2 years out is about $67. I think buyers of oil stocks are looking ahead, and the bottom has been seen in oil stocks. Fear is dissipating, and most are moving on to other things. I think the odds are that those who expect more fear, and a further plunge are going to be disappointed because right around mid dec, the market already discounted the worst case scenario. 

there is more to this than just "oil dynamics". The technicals incorporate "investor dynamics" - their psychology. They tend to over react on the downside and no the up side. In order to capture the profit available in the over reaction, technical analysis is a great help. 

so, getting back to cash, I think you are most comfortable with xeg, as opposed to individual securities. Go with what you are comfortable with. And don't wait for the fundamentalists to give you the go ahead. the best practice is to have your fundamentals figured out in advance of the crash, so you have confidence in what you are buying, then concentrate on gaging the most fearful days, and buy then. I think that has past. Keep a diary of your thoughts and decision making process for future reference. That way, you can refer to it in the next crash and it might help you make adjustments in buying into the next great opportunity.


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## cash (Mar 5, 2011)

My Own Advisor said:


> Like Larry81, I would be inclined to buy the top-holdings if you're wanting O&G stocks in Canada: own SU, CNQ, CVE, CPG, IMO, ECA, COS, HSE.
> 
> Then index invest everything else. Done


What is your logic? You didn't explain why you'd be inclined to do this.


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## cash (Mar 5, 2011)

Pluto said:


> 2. Check the RSI indicator. When it gets below 20, it is often a bottom, if not the bottom.


Where do you look this up? What time interval for RSI <20?



Pluto said:


> so, getting back to cash, I think you are most comfortable with xeg, as opposed to individual securities.


Yeah, that sounds about right. Are there any ETF's that have similar holdings and lower mer than xeg? I couldn't find any. If crude oil gets down to $40 I might think about buying that. So much upside at that price.


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## Pluto (Sep 12, 2013)

I just use the default time interval for RSI. Isn't the default 14? You should keep in mind such indicators are a tool that can be adjusted according to your preferences and they work better after you have some experience with them and learn not to take them too literally. It requires experience to develop your judgment. And Quite frankly, I don't use rsi much. I pay more attention to price and volume as previously described - ie the high volume decline in Dec. The high volume steep decline is the fearful leaving, and when most of the fearful have left, the stock slows its decline, and bottoms. I suspect the bottom was on Dec 30. 

I suspect the mer on xeg is competitive. 

You seem to be stuck on oil going to 40, or at least lower than it is. Why do you have 40 in mind? I don't think it is wise to have a specific number in mind, and it is better to let the stock market tell you and go with that. The stock market for oil is suggesting a bottom is already in. 
I think you will find it is better if you just let the market tell you, and go with that. My best idea is, most of the fearful are gone and you won't see prices lower than 12.25 in xeg, and you won't see < 20 on the rsi. Your most conservative strategy right now is if xeg breaks through the price at the middle peak of the W pattern. If you don't buy then, it is too late, and if you wait until it does, you may get a lower price in the meantime. 

In such situations the media presents a diversity of forecasts: in my experience the worst forecast never happens. So I cross it off my list of things to worry about. So in my view don't let forecasts govern your actions. Let the market tell you what to do. Its the same with a rising market - the most optimistic forecast never happened. After you buy, don't for get to sell in a few years and don't let wondrous forecasts keep you in longer than you should be.


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## My Own Advisor (Sep 24, 2012)

@Cash, these O&G stocks have paid healthy dividends and they'll likely do so again, after this rough patch. Every industry takes its lumps now and again. So, these companies provide cash-flow to investors (like me). You can hold these major players and avoid paying a high MER fee in the process.

Other than these major Canadian O&G players, I would index everything else because I believe it's far too difficult to hand-pick stocks and come out a winner over the index year after year.


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## PatInTheHat (May 7, 2012)

Be careful with any of these x2 and x3 instruments. They should only be used for short term trades. In the long run they all loose due to decay.


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## Getafix (Dec 29, 2014)

Hey guys,

So i've made a small table with the stocks i'm planning on buying, could you guys have a look to see if i made any mistakes? Prices have obviously changed but i want to see if i calculated the dividend returns and overall yield correctly. In case you don't recognize me from my thread, i'm a newbie investor so just trying to pick some good stocks that pay Dividends. Thanks!


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## Pluto (Sep 12, 2013)

You are a little late, Getafix, so the buy price is a bit higher than necessary, but you will do OK. You are on the right track - buy quality when the industry and stocks are hammered. Then hang on until this cyclical industry is really cooking - Then sell, is my opinion. No need to hold cyclical stocks all the way down to where you bought them in the first place just for a measly dividend.


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## Getafix (Dec 29, 2014)

Unfortunately i was still in the research/education stage when the real bottom hit, so i wasn't really ready at the time. I'll buy right now and then, it's unlikely but if prices fall again, i can buy a little more.


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## fatcat (Nov 11, 2009)

Getafix said:


> Unfortunately i was still in the research/education stage when the real bottom hit, so i wasn't really ready at the time. I'll buy right now and then, it's unlikely but if prices fall again, i can buy a little more.


if you have bought all of those already (not sure if you have) i think you have made a mistake ... go to google finance and plot them all over the last year

they are all mostly tightly correlated, they move mostly (but not entirely) in tandem

your trading costs and time spent managing all 5 of those is unnecessary

i would pick two, like maybe SU and CPG, one gives you a great dividend and the other is a top to bottom major and then be done with it

there is no need to own that many names

i speak from experience on this :-(


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## gibor365 (Apr 1, 2011)

Why not to add some biggest US producers like CVX, COP, XOM ?


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## Getafix (Dec 29, 2014)

@fatcat

I have not bought anything yet, i just got back from T.D. My D.I account should be open in 2 days, so i still have a few days to decide.

I wanted to add HSE & CVE since the dividend yield was slightly better.

@gibor

Thanks, i had XOM in mind but COP and CVX also seem like good options.


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## Getafix (Dec 29, 2014)

Made a new table with a mix of Canadian/U.S/European stocks (overall yield of 4.8%) let me know what you guys think about this mix.


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## gibor365 (Apr 1, 2011)

Getafix said:


> @fatcat
> 
> I have not bought anything yet, i just got back from T.D. My D.I account should be open in 2 days, so i still have a few days to decide.
> 
> ...


Personally I like CVX and COP more than XOM


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## fatcat (Nov 11, 2009)

Getafix said:


> Made a new table with a mix of Canadian/U.S/European stocks (overall yield of 4.8%) let me know what you guys think about this mix.
> 
> View attachment 3289


with respect my friend, spending $5K on 6 different oil stocks makes zero sense to me ... pick 1 or 2 at most and be done

your trading costs will be too high to manage these ... they will move in roughly in tandem

it's just a bad idea ... i would pick one of the majors and be done with it

you know you don't get the dividend tax credit for the non-canadian stocks and you incur dividend withholding on the us stocks, right ?

spending 5K on 6 stocks in the same class / sector makes no sense, honestly


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## cash (Mar 5, 2011)

My Own Advisor said:


> @Cash, these O&G stocks have paid healthy dividends and they'll likely do so again, after this rough patch. Every industry takes its lumps now and again. So, these companies provide cash-flow to investors (like me). You can hold these major players and avoid paying a high MER fee in the process.
> 
> Other than these major Canadian O&G players, I would index everything else because I believe it's far too difficult to hand-pick stocks and come out a winner over the index year after year.


Dividend strategy, sounds good.


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