Tag Archives: etfguide

Energy Sector Crushes Conventional Wisdom

By Ronald Delegge Never mind the abysmal results of first-quarter earnings for the depressed energy sector. It doesn’t matter. And never mind the conventional wisdom of group-think and scary analyst warnings like, “Energy stocks are in deep trouble because Q1 losses will mark the first time any sector in the S&P 500 has reported an aggregate loss since Q4 2008.” Again, who cares? Price is what counts – not rigid EPS statistics – and right now energy stocks (NYSEARCA: XLE ) have ripped higher, making them the best performing S&P 500 (NYSEARCA: IVV ) industry sector year to date (YTD). ETFs like the Direxion Daily Energy Bull 3x Shares ETF (NYSEARCA: ERX ) that magnify the performance of energy stocks with triple daily leverage have delivered strong results by gaining almost 30% YTD. In other words, group-think would’ve caused you to miss this trade. And that’s why following conventional wisdom is a time honored recipe for failure. Click to enlarge Contrary to the nearly universal view that energy stocks are untouchable, on March 7 via ETFguide PREMIUM, we saw a great opportunity in oil and gas producers (NYSEARCA: XOP ) and issued the following alert: “XOP is right up our contrarian alley. It’s lost money over the past 1, 3, and 5 years with annualized losses of -9.45%. Who wants to puke? Despite proclamations that everyone will be driving Teslas by 2020, we don’t believe or agree that oil and gas demand will evaporate to zero as certain Kool-Aid drinking clean energy analysts envision. We’re buying XOP at current prices ($29.70).” XOP owns a basket of oil and gas companies like Continental Resources (NYSE: CLR ), Devon Energy (NYSE: DVN ), and WPX Energy (NYSE: WPX ). We added: “Although contrarian trades like XOP usually take longer to develop, they can be far more profitable compared to other types of trades. However, the problem of realizing profits is largely psychological. Why? Because most investors grow impatient and end up selling a great investment before it has time to blossom.” XOP has risen over +19% since our time stamped alert compared to just a +3.39% gain for the S&P 500 (See chart above). Oil and gas producers have also outperformed the broader energy sector. Much of this bounce is attributable to recovering crude oil prices (NYSEARCA: USO ), which now trade in the $45 per barrel range. Nevertheless, buying out-of-favor sectors before they start turning up is a perennial battle for most investors. Too few people do it. Why? Because they’re too scared a bottom hasn’t been reached. Bottom line: Contrarian trades – although often grueling – have a proven track record of success for patient traders and investors. It’s also why I salute all contrarians on this final day of Financial Literacy month! P.S. Contrarian trades are just one of four primary trading strategies we use at ETFguide for non-core investment portfolios. Original Post

Do You Need To Buy At Market Bottoms To Get Profitable Results?

By Ronald Delegge Legendary speculator Bernard Baruch once quipped: “Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.” Baruch was on to something. And since reams have been written and said about tops and bottoms in both individual securities along with broader markets, we can’t help but ask: Does a person need to buy at the absolute bottom to turn a profit? Hit the rewind button to July 15, 2015, when via ETFguide’s Weekly Picks we wrote the following timestamped ETF trade alert to premium members: Mining stocks are in puke territory and trading 15% below their 50 and 200-day moving average. The Market Vectors Gold Miners ETF (NYSEARCA: GDX ) is oversold and market sentiment is presently overly bearish. We’re buying GDX at current prices near $16.50. Buying depressed out-of-favor assets takes guts, but with enough patience and time, the results can be rewarding. Since our GDX trade alert on Jul. 15, GDX has been dead money and it wasn’t until Jan. 19, 2016 when GDX hit a rock bottom closing price at $12.47. The rest of the global gold mining sector too, went straight into the toilet. And now comes the fun part. Click to enlarge Since GDX’s closing bottom on Jan. 19, the fund has soared +46.05% compared to just a +2.87% gain for the S&P 500. But wait, there’s more. Our GDX position – which we did not buy at the market bottom – is now ahead by a respectable +18.11% (see chart above) and it’s still an open trade. Only a greedy slob would be unhappy with that kind of return in this kind of market. It also explicitly proves that you don’t have to buy at market bottoms to turn a profit. I would argue that having stamina, stomach, and patience (SSP) are far more important than buying stocks or whatever else at the bottom. Why? Because even a trader or investor that buys at the bottom but lacks SSP, will inevitably self-destruct. And besides that, nobody but “liars” consistently buys at market bottoms – nobody . Another real life example – and one of the most extreme cases I’ve ever seen – that buying at market bottoms isn’t a prerequisite to achieving great profits is a Portfolio Report Card I did on my Index Investing Show podcast for a 72-year old man with a $26.9 million portfolio. What did he own? This particular guy invested in biotech stocks right before the 1987 stock market crash. Bad timing. He also bought Apple (NASDAQ: AAPL ) a few years later in 1991 which again was really bad timing. It was such bad timing that ten years later, he was down 25% on his original investment in Apple! Instead of bailing, his SSP (stamina, stomach, and patience) kept him in the game and legendary results followed. Even though he missed several market bottoms in Apple, he was still able to turn an $84,000 investment into over $8 million. In summary, if you want profitable investment results, stop focusing on tops and bottoms and start cultivating SSP. Disclosure: No positions Link to the original post on ETFguide.com

Is A Liquidity Crunch In The Solar Sector Ahead?

By Ronald Delegge Stocks in the solar and alternative energy space are getting crushed. Will it lead to a liquidity crunch? Since the beginning of the year, the Guggenheim Solar ETF (NYSEARCA: TAN ) has lost a stunning 21.80% in value compared to a +0.20% gain for the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). And while a 21.8% loss is most certainly ugly, many individual stocks within the solar sector are getting slaughtered. Widely held solar stocks like SolarCity (NASDAQ: SCTY ) and SunEdision (NYSE: SUNE ) are down 55.85% and 81.92%, respectively. Others like First Solar (NASDAQ: FSLR ) have lost 17.29% while SunPower (NASDAQ: SPWR ) is down 32.99%. All of these stocks are among the top 10 holdings in the $262 million Guggenheim Solar ETF. Most solar stocks are reporting large earnings per share (EPS) losses. For third-quarter earnings, SunEdison reported a $284 million loss compared to a $283 million loss from a year earlier. That prompted its stock to sink further and the company is slashing up to 15% of its workforce and scaling back its growth plans by 20%, according to reports. The Maryland Heights, MO-based company is the globe’s largest developer of renewable energy. Meanwhile, SUNE holders are getting burned, literally. Top institutional owners of SUNE include David Einhorn’s Greenlight Capital, Daniel Loeb’s Third Point, and Vanguard. Hedge fund managers like Einhorn and Loeb are having their worst collective performance since 2011. Like SunEdison, SolarCity has negative earnings and missed its third quarter EPS of $-2.41 by 46 cents. SolarCity, which is headquartered in San Mateo, CA, designs, installs, and leases its solar power systems. (click to enlarge) Other alternative energy ETFs that own solar shares like the Market Vectors Global Alternative Energy ETF (NYSEARCA: GEX ) and the PowerShares WilderHill Clean Energy Portfolio ETF (NYSEARCA: PBW ) have dropped more than 20% over the past six months. Negative earnings coupled with crashing stock prices plus changing risk appetite by investors will lead to an inevitable shakeout in the overcrowded solar marketplace. And the liquidity crunch has already started. In the meantime, prudent investors should add these questions to their due diligence checklist before diving in: When will the risk appetite for financing the aggressive growth plans of money-losing solar projects wane? When will institutional investors with significant losses finally bail and what further impact will it have on already beaten up share prices? How will a recession or credit crunch impact the ability of solar companies to operate? How much will existing shareholders be diluted when solar companies decide to sell more shares to raise capital? With cheap natural gas prices, will utilities increase competition with solar by lowering electricity rates? Sector ETFs that invest in solar stocks, if you decide to hold them, always go into a person’s non-core investment portfolio, whereas a person’s core portfolio is always diversified across the five major asset classes via ETFs that are accurate proxies of each category. Disclosure: None Original Post