Twin Butte Energy Ltd TBTEF

Correction in Energy sector.

[PUNJABI]

When a serious correction takes place, things get ugly & painful. Gold & energy stocks have taken a serious beating. Some stock are creating constant new lows, most of the other stock are way down from their highs.

Money has been moving out of the stocks. There are days when the volumes are low but the stock continues to drift lower due to lack of buyers. New money stays on the sidelines until there is clear signal of a bottom. Sometimes it is difficult to catch a bottom of the stocks in correction.

During serious corrections you get additional pressure resulting from forced selling. When margin calls take place & redemption from etfs & M funds increase due to panic selling. TBE is not marginable but an investor may have other stocks that are marginable & there is leverage in the account that has to be bought in line with the reduced borrowing power as a result declining market / stock values.

Tbe is part of funds & when redemption takes place the fund has to liquidate some positions to pay.

There is rebalancing of portfolio taking place also. The whole sector is down, some stock takes more beating than other & when the rebound takes place some investors would prefer to move into to stocks that will rebound earlier & harder. Then there is also issue of tax loss selling. Most of tax loss selling takes place in November December. But some would sell earlier or in Nov & buy back in December when there is bigger pressure of tax loss selling.
Then you have a few traders that will sell if they see a stock going down to reposition at a lower price. The logic is that you are reducing your loss / cost.

Corrections are part of investment as long as one is not over extended in terms of leverage & diversification. The chances are that they be fine eventually, because time is on their side. Dividend paying stocks reduce the pain little bit.  But in some cases dividends traps the investor & prevents them from liquidating in the beginning of a correction & repositioning at lower price.

Investors with reserves do better as they can position themselves at lower cost & take advantage of correction with forced selling is taking place.

I do not like leverage for stock investments because it can put lot of addition pressure & force a bad decision. At times one can lose control of the portfolio when the broker or the market price will force you to liquidate at a huge loss.

I have a trader mentality & think & behave like a trader.  It is not better than buy & hold investor it is a different strategy.

I was looking at the chart of TBE. It has broken the historical support of $1.60 & it now trading at $1.45. Which is a very compelling price for the stock & you have fat yield of 12.89 % when the banks will give you about 1.25 % on your idle funds. You can make a very strong case for the stock to hold or even increase the position. But one has to ask the question if the correction continues how low can the stock drop. Based on 5 year chart the next huge support level is $1.25. Will it end up there is the million dollar question & I or no one has that answer.  But if it ever gets there this year then that is my load up the truck point. The chances are very low but one never knows what the stock market has in store.  My guess is that we are getting close to the end of the present correction or at least there will be some dead cat bounces. The whole sector is very very very over sold. The sector has been shorted too. Some short covering will take place. In the case of TBE, shorts have mostly covered only 1,158,000 shares are shorted it has dropped from 10.1 million in May 2014. Just over million shares shorted is a very small short position. Even the short sellers feel that the stock offers lot of value at these prices in the current correction.

It seems that the short sellers will not bother with this stock at these prices, & most of the forced & panic selling is most likely done & most sellers are getting exhausted. If crude drops a lot then you may get some more panic sellers.

Best way to survive corrections is to avoid leverage & have some reserve fund for the opportunities that are created by fire sales..