Suncor Energy Inc. T.SU

Oil up, Oil stocks down: Consider a pairs trade

[MigraineCall]

The last few sessions have seen a brutal drop in Canadian oil stocks, while oil itself has increased and remained strong.  OXY and DVN have taken a pounding but XOM and CVX are stable. The industry is not going anywhere, and is in the same shape as it was a couple weeks ago.

Run some chart comparisons to find which ones have been hit the most, having the largest divergences. These divergences tend to snap back.

SU is too strong.

The one I have my eye on is CNQ, vs WTI. A difference opened up of about 12%. CNQ has breached it's lower daily Bollinger band, which statistically only happens 5% of the time.

For a pairs trade, you can consider going long CNQ, and then short oil by buying HOD.

Can also be done easily with CNQ call options, and offset it with the leveraged inverse HOD fund.

Keep the quantities of each side the same magnitude so that the movements balance out, and take profits as they return to normal ratios.

Just a trade.

[MigraineCall]

I must point out add that if you are not taking positions in a stock itself to do , and using options and leveraged funds, the timeframe for this trade is short, as the decay will eat your profits. 

[matt2018]

cant expect any stock (including SU) to go up in straight line. As a long term holder, I dont check the daily trading on it. What i do check is price of Oil, the product they sell. Its very healthy here for the bottom line so I am more pleased about that and especially if they are buying back their stock. I dont really want Oil price going too high where it could start affecting the demand. If

[Experienced]

No critiscm of your suggested approach Migraine.  My only concern is that successful implementation requires a high degree of sophistication and discipline.  Not to diss anyone here, but I wouldn't recommend this approach for most people here especially if it doesn't match your risk tolerance and investment objectives.

[Torontojay]

How about this trade.  Short the Nasdaq and S&P? Buy t-bills?  I believe the S&P will trade between 3000-3600 when people begin to lose their jobs and we are in the middle of the recession. Jerome Powell reiterated his belief that we have to experience some softness in the labour market. Much to my surprise, he also said that a "soft landing" is not his baseline

[Experienced]

Jay......Less risk than the suggestion by Migraine but shorting means you are taking unlimited risk if the market moves against your position.  When I was in "the Business", very few of my clients needed to take that level of risk to meet their financial objectives.  A much safer way was to simply find ways to reduce your expenditures and increase the amount available to invest

[matt2018]

Why do people quote and follow this failure Powell anyways? He was totally cluless when he was lowering rates while they were printing non-stop stimulus cheques and he's totally clueless now (same with the clowns running things here). They kept those CERB payments going forever.  They ran an election on it and won! What do you think a new UAW deal will do to a price of a new vehicle

[Torontojay]

Hi Matt.  You are describing the price/wage spiral which is difficult to break. The way to break the price/wage spiral is the following: 1) increase the productivity rate  2) increase the labour force participation rate 3) increase unemployment  4) deleverage  Let me talk about Canada for a sec. The current productivity rate is abysmal and "gdp per capita

[Experienced]

Nice analysis Jay....partucularly liked the tap analogy. To emphasize your points, I talked in a previous post that unlike the first two of the three pigs I am building a brick house.  The houses built by the first two pigs are great as long as the big bad wolf is not around.  Once he shows up the destruction of the houses happens very quickly. To me the market is living right now in

[matt2018]

Appreciate the textbook explanation Tj but again, i just cant see it working out that way. Its a different world today with massive immigration adding more consumers for goods, housing and more candidates for the workforce. After the automakers settle with the UAW, prices are going up, they have to. If recession kicks in as you mention and new auto sales tank, there will be layoffs but prices

[Experienced]

Great discussion Matt and Jay! Seems to me that you both are talking about two different things.  In that sense both of you are right. We are here as investors and in particular, investing (or not) in an oil company. As discussed between myself and Migraine months ago, the long run price of oil will depend on whether there is greater demand destruction due to things like EVs than

[Torontojay]

Great post Experienced, thank you. 

[Torontojay]

Let me address your comment Matt.  "If recession kicks in as you mention and new auto sales tank, there will be layoffs but prices arent coming down.  Existing inventory may be discounted to clear them out but they are not going to produce any new goods to sell at a loss." - first of all, let me say that inflation is a problem until it's no longer a problem. The

[MigraineCall]

For those that are in on the pairs trade from last Thursday, we are already almost halfway there to the target gap fill. The divergence spread between CNQ and WTI has moved from about 12% when we initiated the trade, and is now tightened to around 6%, depending where you draw your lines. Although HOD has dropped by 0.5% as oil rose just slightly as it bounces it's head on the $90 ceiling

[pooltec]

MC THE MAN!!!!

[bttmfischer]

When the Tesla breaks down, will the tow truck be an Electric one to haul it to the nearest  service area, or charging station?