Tag Archives: iran

Oil Hits 12-Year Low: Short Energy Stocks With ETFs

No doubt, last year’s chaos in the energy sector has spilled over into this year with many stocks piling up heavy losses in the first couple of weeks of 2016. In fact, the worries have deepened this year with renewed concerns over the slowdown in the world’s second-largest economy and the Iran sanctions’ lift off. This is especially true, as the relaxation in sanctions would add a fresh stock of oil in the global market, which is already facing a supply glut. Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), is expected to increase its crude oil exports by half a million barrels a day immediately and a million barrels a day within a year of lifting the ban. Though the Iran sanctions were widely expected and the development of oil in the country will take some time to fully ramp up after 40 years, the move unnerved investors, spreading panic among them. That being said, oil price tumbled to a level not seen in more than 12 years with U.S. crude plunging below $29 per barrel and Brent slumping to below $28 per barrel. From a year-to-date look, oil price has lost more than 20% this year, representing the worst two-week decline since the 2008 financial crisis (read: 4 Country ETFs to Gain from Oil Price Crash ). Trend Remains Weak Currently, the outlook for oil and energy sector seems gloomy. This is because oil production has risen worldwide with the OPEC continuing to pump near-record levels, and higher output from the likes of U.S., Iran and Libya. Additionally, a strengthening U.S. dollar backed by a rate hike is making dollar-denominated assets more expensive for foreign investors and thus dampening the appeal for oil. In particular, it will make the borrowings for high-yield firms costlier and result in less money flows into capital-intensive shale oil and gas drilling projects. This in turn will lead to higher bankruptcies, which would hit the already battered energy sector. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. The negative demand/supply imbalance would push oil prices and the stocks further down at least in the short term. Moreover, the ultra-popular United States Oil Fund (NYSEARCA: USO ) , tracking the price of US light crude with an asset base of around $2.2 billion and average daily volume of around 32.3 million shares, has hit new all-time lows several times this year. Given the continued sell-off and the bearish outlook, the appeal for energy ETFs is dulling (read: Oil and Energy ETFs That Hit All-Time Lows ). As a result, investors who are bearish on oil right now may want to consider a near-term short on the energy sector. Fortunately, with ETFs, this is quite easy as there are many options to accomplish this task. Below we highlight them and state how each stands out among the rest: ProShares Short Oil & Gas ETF (NYSEARCA: DDG ) This fund provides unleveraged inverse (or opposite) exposure to the daily performance of the Dow Jones U.S. Oil & Gas Index. The ETF makes a profit when the energy stocks decline and is suitable for hedging purposes against the fall of these stocks. The product has amassed $14.1 million in AUM while volume is light at under 10,000 shares. Expense ratio comes in at 0.95%. It has added nearly 10% so far this year. ProShares UltraShort Oil & Gas ETF (NYSEARCA: DUG ) This fund seeks two times (2x) leveraged inverse exposure to the Dow Jones U.S. Oil & Gas Index, charging 95 bps in fees. It has amassed $46.1 million in its asset base and trades in good volume of more than 183,000 shares per day on average. DUG returned 19.8% in the first couple of weeks of 2016. Direxion Daily Energy Bear 3x Shares ETF (NYSEARCA: ERY ) This product provides three times (3x) inverse exposure to the Energy Select Sector Index. Though it charges the same annual fee of 95 bps, it is extremely popular and trades in heavy volume nearly 1.7 million shares. The fund has a decent AUM of $74 million and has gained 32% so far this year. Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3x Shares ETF (NYSEARCA: DRIP ) This ETF provides three times bearish exposure to the oil & gas exploration and production corner of the broad energy space tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $6.1 million in its asset base while trades in a lower volume of 32,000 shares per day on average. The fund charges 95 bps in annual fees and has gained 62.9% since the start of the year. ProShares UltraShort Oil & Gas Exploration & Production ETF (NYSEARCA: SOP ) This fund seeks two times inverse exposure to the S&P Oil & Gas Exploration & Production Select Industry Index, charging 95 bps in fees. It failed to garner enough investor interest with AUM of just $4.6 million and sees a paltry volume of about 3,000 shares a day. SOP is up 40.6% in the year-to-date timeframe. Bottom Line As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis. Still, for ETF investors who are bearish on the energy sector for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world. Link to the original post on Zacks.com

Will $20 Crude Soon Be A Reality? Short These ETFs

Oil has been the most perplexing commodity of 2015, with big busts and occasional rises seen in a very short period of time. In particular, oil tanked to a seven-year low on Monday after the Organization of the Petroleum Exporting Countries (OPEC) failed to address the growing supply glut. Crude plunged 6% to $37.50, and Brent oil tumbled more than 5% to $40.73. What Happened? At its meeting on Friday, OPEC members decided to continue pumping near-record levels of oil to maintain market share against non-OPEC members like Russia and U.S. in an already oversupplied market. Iran is also looking to boost its production once the Tehran sanctions are lifted. As per the Iran oil minister, Bijan Namdar Zanganeh, production will likely increase by 500,000 barrels a day within a week after the relaxation in sanctions and by 1 million barrels a day within a month. Oil production in the U.S. has also been on the rise, and is hovering around its record level. Further, the latest bearish inventory storage report from the EIA has deepened the global supply glut. The data showed that U.S. crude stockpiles unexpectedly rose by 1.2 million barrels in the week (ending November 27). This marks the tenth consecutive week of increase in crude supplies. Total inventory was 489.4 million barrels, which is near the highest level in at least 80 years. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on demand outlook. Notably, manufacturing activity in China shrunk for the fourth straight month in November to a 3-year low. The International Monetary Fund (IMF) recently cut its global growth forecast for this year and the next by 0.2% each. This is the fourth cut in 12 months, with big reductions in oil-dependent economies, such as Canada, Brazil, Venezuela, Russia and Saudi Arabia. That being said, the International Energy Agency (IEA) expects the global oil supply glut to persist through 2016, as worldwide demand will soften next year to 1.2 million barrels a day after climbing to the five-year high of 1.8 million barrels this year. In addition, a strengthening dollar backed by the prospect of the first interest rate hike in almost a decade as soon as two weeks is weighing heavily on oil price. This suggests that the worst for oil is not over yet, with some forecasting a further drop in the days ahead. Notably, the analyst Goldman and OPEC predict that crude price will slide to $20 per barrel next year. How to Play? Given the bearish fundamentals, the appeal for oil will remain dull in the coming months. This has compelled investors to think about shorting oil as a way to take advantage of the strong dollar and commodity weakness. While futures contract or short-stock approaches are possibilities, there are host of lower-risk inverse oil ETF options that prevent investors from losing more than their initial investment. Below, we highlight some of those and the key differences between them: PowerShares DB Crude Oil Short ETN (NYSEARCA: SZO ) This is an ETN option, and arguably the least risky choice in this space, as it provides inverse exposure to WTI crude without any leverage. It tracks the Deutsche Bank Liquid Commodity Index – Oil, which measures the performance of the basket of oil future contracts. The note is unpopular, as depicted by its AUM of $17.2 million and average daily volume of nearly 20,000 shares a day. The expense ratio came in at 0.75%. The ETN gained 17.5% over the last 4-week period. ProShares UltraShort Bloomberg Crude Oil ETF (NYSEARCA: SCO ) This fund seeks to deliver twice (2x or 200%) the inverse return of the daily performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $126.8 million in its asset base, and charges 95 bps in fees and expenses. Volume is solid, as it exchanges nearly 1.3 million shares in hand per day. The ETF returned 38.8% over the last 4 weeks. PowerShares DB Crude Oil Double Short ETN (NYSEARCA: DTO ) This is an ETN option providing 2x inverse exposure to the Deutsche Bank Liquid Commodity Index-Light Crude, which tracks the short performance of a basket of oil futures contracts. It has amassed $67.1 million in its asset base, and trades in a moderate daily volume of around 59,000 shares. The product charges 75 bps in fees per year from investors, and surged about 34% in the same time frame. VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA: DWTI ) This product provides 3x or 300% exposure to the daily performance of the S&P GSCI Crude Oil Index Excess Return. The ETN is a bit pricey, as it charges 1.35% in annual fees, while it trades in heavy average daily volume of 1.6 million shares. It has amassed $174 million in its asset base, and has delivered whopping returns of nearly 61% in the trailing four weeks. Bottom Line As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures (see all Inverse Commodity ETFs here ). Still, for ETF investors who are bearish on oil for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance and a belief that the “trend is the friend” in this corner of the investing world. Original Post

The Generation Portfolio: Wells Fargo, Disney, MFA Financial, Bristol-Myers Squibb

Summary Last week provided some good buying opportunities, but they became fewer as the week went along. I used the market volatility to add Disney, Wells Fargo, Bristol-Myers Squibb, and MFA Financial to the Generation Fund. The next two weeks are likely to provide more buying opportunities as the markets strive for clarity from the Fed about the timing of the first rate hike. As I explained at some length in my recent article ” The Generation Portfolio ,” I am managing a portfolio of stocks in which I do not have a personal interest for another party. The goal of the portfolio is to create a low-risk income generating machine populated with a core of Quality Stock plays. I began the portfolio from scratch during the week of 24 August 2015, though it had a large legacy position of Ford Motor Company (NYSE: F ) stock that is untouchable. I will use these updates to show what I have done with the positions and give my general strategy and thoughts on the market. Market Summary The week of 24 August 2015 was volatile. The Friday before, the market sold off heavily, and anxiety built up during the weekend. Monday morning saw a “flash crash” in which stocks and other securities either opened late or opened with unusual drops in price. However, those prices easily were the lows of the entire week. The next several days were extremely volatile, with the market rallying into a status quo Friday. For the week, the market was up slightly, but overall the market remains well off its highs. Long-Range Objective for the Generation Fund I intend to form a hard core of at least 50%-75% Quality Stocks, and around that orbit a number of more speculative REITs and other plays for cash flow. This objective is subject to tweaking. Transactions I was unable to log in first thing Monday morning, like many other traders. Once I got in, the market was too volatile for me to get a good read, so I placed no trades that day. On Tuesday afternoon, the market seemed to be providing some more good opportunities. I placed four limit orders and picked up average-sized positions (as discussed in my previous article) in the following: Wells Fargo (NYSE: WFC ) Disney (NYSE: DIS ) MFA Financial (NYSE: MFA ) Bristol-Myers Squibb Co (NYSE: BMY ) Those positions remain in the account and, including the Ford stock, are the only positions I am tracking here (there also are some other minor legacy positions). Those positions constitute roughly 10% of the entire tradeable funds as of the time of writing, the rest of the Generation Portfolio remains in cash. Analysis of Trades Due to the subsequent market rally on Wednesday and Thursday, all new positions in the Generation Portfolio show a profit. Basically, with few exceptions, the market lifted all boats on those days. This simply illustrates that timing is the most important part of trading, and you don’t need to be much of a stock picker if you can ride the general market waves higher. I placed all the trades on Tuesday, using limit orders. With a few hours left in the trading day I staggered the limit price distance from then-current prices, not expecting to pick up all four unless there was a major sell-off in the final hour of trading. So, one order was roughly .25% below the current price of the stock, the other .50% below, and so forth. Normally, those types of orders would not hit due to lack of volatility. As it turned out, a major sell program hit an hour before the close of trading, and – to my surprise – all four limit orders hit, the final one a limit order I had set a full 1% below the market price at the time, were filled. Reasons for Picking Up Those Stocks Basically, as events subsequently transpired, I could have bought practically anything when I did and the rising market would have turned them into quick winners. I consider BMY, DIS and WFC to be “Quality Stocks” as I have defined that term in my recent article linked above, and all were down substantially from their highs when I placed my limit orders. As for MFA, I recently wrote about that mortgage REIT here . It has been around as long as Annaly (NYSE: NLY ), surviving numerous Fed actions, giving me confidence in its survivability come what may. It also appeared to be heavily oversold on the chart, more so than the other REITs I am interested in. Quality of the Trades Overall, it was a successful week. My intention was to go slower than turned out to be the case in populating the Generation Portfolio, spreading it out over time more with maybe one transaction a week, but the opportunities proved irresistible. As the old military aphorism goes, no plan survives contact with the enemy. Regrets were entirely along the line of missed opportunities. I intended to pick up some Apple (NASDAQ: AAPL ), but never found a comfort zone with it. Most of the huge bargains that some traders were bragging about during the happened only during the first half hour of trading, when I was off-line. Still, I should have grabbed some, and that is the main regret for the week. Overall, only buying 10% of the Generation Portfolio’s tradeable value (less the Ford position) during a week of such bargains may seem like a missed opportunity. Perhaps it was, but I anticipate further volatility ahead, as discussed below. If not, there is nothing wrong with waiting. The Week Ahead The market likely is to be preoccupied throughout the week of 31 August with the August employment numbers that are due out on Friday. The importance of that report was heightened by an interview given on Friday 28 August to CNBC by Fed Vice Chair Stanley Fischer, and other remarks that he made on Saturday . While, as one would expect, Fischer was cagey about the likelihood of a September rate hike, one thing that he said during his CNBC interview stood out. When asked about the importance of data between the time of the interview and the Fed meeting on 15/16 September in influencing a rate hike at that meeting, Fischer said: Well, we’ve got to take data into account. Those are the only things we really have, that and our economic analysis. And if a decision is close, it will be influenced by data that [have] come in recently. Pretty much everybody expects the decision to be “close.” Since the Fed has not made a decision about rates, and Fischer stated that the data leading into the data could be decisive, that puts immense influence on the Friday jobs report. Given that statement by vice chair Fischer, I would not be surprised by some volatility both ahead of the report and immediately after its release. The consensus figure for the September 2015 jobs report is 223k jobs added, up from the 215k figure reported in August. The market easily could interpret anything above 190k jobs added as locking in Fed action. The other major market-moving event in September, aside from the Fed meeting itself, could be the government deadline for raising the debt ceiling. The Congressional Budget Office projects the debt ceiling being hit either in mid-November or December. With several US Senators running for President, Presidential politics could enter the Calculus and cause some posturing that rattles the market as has happened before. One other major factor is the statistical fact that, historically, September is the worst month for stock gains. Combined with volatility overseas in China and other Asian markets, September could provide several buying opportunities. Universe of Stocks Under Consideration The stocks at the top of my list change slightly from week to week: AAPL, MMM, JPM, JNJ, NKE, ABT, UNH, XOM, CVX, PG, PSX, UTX, EMR, PEP, GILD, UNP, RDS.B, KMI, CAT, KO, T, STWD, OXY, COP, KKR, NFLX, WMT, PANW, MO, HD, PBY, EV, SCG, DLR, KSS, BPL, OHI, ETN, PFE, GIS, KMB, CAH, TOL, FCX, CYS, NLY, AGNC. These are stocks that I am most interested in and have performed due diligence on, but market opportunities may present in other stocks as well. Important Upcoming Ex-Dividend Dates 2 September: Baxter International (NYSE: BAX ) PepsiCo, Inc. (NYSE: PEP ) Coca-Cola Enterprises, Inc. (NYSE: CCE ) 9 September: Occidental Petroleum (NYSE: OXY ) 11 September: The Coca-Cola Co. (NYSE: KO ) General Discussion I was caught completely flat-footed by the market break on Monday 24 August 2015. After I finally got into my account, prices were racing higher like a car speeding along without a driver. Charts were taking several minutes to call up, making them useless. Basically, Monday was a lost day for trading, but fortunately there was no harm done. The major lesson of the market during the week was that corporations are watching their stock prices closely for opportunities. The Goldman Sachs buyback desk had its busiest day ever on Wednesday, when the market finally resolved its weakness to the upside. People always talk about a government “plunge protection team,” but the true supporters of the market are companies using cheap credit to buy back their own stock. My sense is that anything related to financials is going to be weak during early September. While some asset classes, such as REITs, appear to have priced in much of a September rate hike, other classes might not have done so yet. When vice chair Fischer said during his CNBC interview that market volatility would play a role in whether the Fed acted, I was surprised. That seems like a screwy rationale for raising or not raising rates. He may have said that just to calm the markets, which seemed to be a major objective of Fed personnel past and present during the week. If the Fed needs market volatility to postpone a rate hike, I’m sure the market would be happy to oblige. The key for the market is the uncertainty about what might happen, not what will actually happen. Fischer eliminated one potential uncertainty when he said that rates would rise in 25 basis point increments, but that was a minor point. At this point, it may be just as important what the Fed says about a second rate hike as whether it does one in September at all. The market hates uncertainty, so my focus this week heading into the all-important jobs number will be on interest-rate sensitive stocks such as banks and REITs. It is more likely than not that a new trading range will develop in the vicinity of current levels. My eye, along with everyone else’s, has been on the energy sector. As usual, the market seized on some transient concern – Saudi Arabian troop movements, a call for an emergency meeting of OPEC – to force shorts to cover. The supply/demand imbalance continues, though, so unless the energy market finds some new worry, the current rally is likely to fizzle. In addition, the Iran deal is a lock, and that will release even more oil into the market, so I am in no rush to add the oil plays I covet, including Exxon (NYSE: XOM ) and Chevron (NYSE: CVX ). The bottom line is that the market has its eye on the Fed, and until that clarifies, the trend into the end of the year will remain unclear. Actionable Ideas I still will be keeping an eye on Apple for any buying opportunities. The REITs such as CYS, NLY and AGNC are buys on dips, as is OHI. Realty Income (NYSE: O ) I would like in the low 40s. PEP will be of interest on a dip into the 80s, where it has support. MMM around 140 would be interesting, as would JP Morgan (NYSE: JPM ) in the low 60s. Looking through the charts, there still are a number of stocks near enough to their peaks that further distribution would not be unusual at all. September definitely is a month to be opportunistic. Conclusion Last week was a successful week of trading, but volatility still looms from multiple sources. Anyone thinking that we are headed straight back to all-time highs is much more bullish than I am. The next two weeks are more likely to be a good time to be opportunistic and grab some plays on dips, especially as the market dates of doom – the jobs report and the Fed meeting – approach. Disclosure: I am/we are long CYS. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The positions being discussed are for a portfolio I manage for someone else, not my own holdings.