Natural gas has always had a significantly different character from other markets – even the other energies. It’s probably the punk commodity out of all the lot, given it’s penching for spiking out of the blue. In the past it tended to do it more during hurricane season, more recently in violent short-covering bursts after long bouts of drip-drip-drip downsliding. It’s been in a brutal bear market since mid 2008, mainly on the fundamentals of oversupply as more and more shale gas comes on stream – and also because of the recessionary state of the U.S. economy. Natural gas, being what it is, is mostly landlocked to North America with relatively little being exported. I remember trading the futures in the early 2000’s at around $2.40-$2.50 per Mbtu. In the great commodities rally of the mid-2000’s it reached $15.65, only to fall mightily and once again tag a recent low of $2.23, lower even than at the depths of the great 2008-2008 bear market when it touched $2.41.
So once again, this Monday it began the current 4-day short-covering spike that started from $2.23 and touched $2.81 today, before dropping back down today to close at $2.605. Last Thursday, fortuitously as it turns out, I swapped out the more conservative Encana gas producer position for the aggressive Horizons Beta-pro 2x natural gas ETF (HNU) – only because of the stunningly low price point that day. The reasoning was that it would find a bottom here somewhere soon, possibly benefit from a short-term spike, and at worst, morph into a long flat sideways market, though volatile enough to produce decent returns from my reversal system. Eventually that would feed into a more lasting rally that ERTS would continue to work from the long side. Well, things worked out much better than expected, when just two days later the price soared and the ETF gained 16%, where I took the first partial profit, selling 25% of the position. Two days later again it ran another 16% and I took profits on the 2nd 25% of the position. Which brings us to today.
Yesterday I sold the second tranche at $5.75. This morning gas edged a little higher and suddenly reversed, with the ETF collapsing back down to just over $5. So I bought back yesterday’s tranche at $5.07, rebuilding the long position to 3 of 4 allowable (per my risk management) tranches. Even if this particular spike is over, I can live with that. Being long gas at under $2.50 I think is a good risk-reward situation to be in. Right now I have an open order to buy in the last tranche of HNU at $4.09.
The two gold stocks leveraged ETFs HGU and NUGT also did great, themselves spiking out of a hole just yesterday morning on the news that the U.S. federal reserve was going to hold interest rates low through late 2014 instead of just mid-2013. That may just re-kindle the dollar-is-shit trade and get precious metals going again. Remains to be seen; however the initial reaction turned out to be decently profitable. On Tuesday, HGU filled its fourth tranche at $11.66, and today ERTS sold off a second tranche at $13.42. NUGT did really well also, yesterday morning buying at $19.39, and today also selling out a second tranche at $24.61. (Yesterday I sold the first tranche of each to capture the big one-day move.)
So gas and gold saved the day on what was turning out to be a barely break-even month. Today the portfolio is up 4% on the month and year. There was even a small contribution from the short positions, primarily in TYP and EDZ, as the S&P500 finally took a breather and coughed up 7 points. The portfolio is currently about 20% net short on a leverage adjusted basis. The way things stand, it will be more profitable now if the market tanked tomorrow rather than rose. It will be interesting to see of gas and gold can keep pushing higher, or if they were just one-week wonders.
| TRADING | 26-Jan-12 | UPDATE | 670 | |||||
| # | Trade | Qty | Stock | Symbol | Price | Acct | ||
| 1 | Sold | 2.9% | HBP Glb Gold 2X ETF | HGU | @ | $13.42 | 1 | |
| 14 | Sold | 2.1% | Drxn Gold Sh 3X ETF | NUGT | @ | $24.61 | 2 | |
| 20 | Bought | 1.9% | HBP Nat Gas 2X ETF | HNU | @ | $5.07 | 4 | |
| Qty % is the portfolio weighting | ||||||||
| EXTENSION REVERSAL TRADING SYSTEM (ERTS) | ||||
| *********************************************************** | ||||
| 26-Jan-12 | ||||
| S&P500 | 1318.4 | -7.6 | -0.6% | |
| TSX | 12464.3 | -74.9 | -0.6% | |
| *********************************************************** | ||||
| PORTFOLIO STATUS | ||||
| Market | JAN 12 | YTD | Incep | |
| Canadian Dollar | 0.9982 | 1.9% | 1.9% | -3.8% |
| S&P500 | 1318.4 | 4.8% | 4.8% | 4.1% |
| TSX | 12464.3 | 4.3% | 4.3% | -5.7% |
| Weight | ||||
| Portfolio % USD | 34.7% | 1.4% | 1.4% | 14.2% |
| Portfolio % CAD | 65.3% | 6.4% | 6.4% | -2.2% |
| FX | ||||
| PORTFOLIO EQUITY | CAD | 4.0% | 4.0% | 4.2% |
| USD ERTS vs SP500 | USD | -3.4% | -3.4% | 10.1% |
| CAD ERTS vs TSX | CAD | 2.1% | 2.1% | 3.6% |
| ERTS vs SP500/TSX | CAD/USD | 0.2% | 0.2% | 5.8% |
| Inception is 30 Jun 11 | ||||
| *********************************************************** | ||||
| Portfolio Direction | Long | Short | Net | |
| Position | 19.0% | 20.0% | -1.0% | short |
| ETF Leverage-adjusted | 39.5% | 59.9% | -20.4% | short |
| CURRENT POSITIONS | ||||
| STOCK/ETF | SYM | LAST | Profit | WGT |
| CASH | 61.1% | |||
| Drxn Gold Sh 3X ETF | NUGT | $24.29 | 1.86% | 4.2% |
| HBP Glb Gold 2X ETF | HGU | $13.22 | 1.57% | 6.5% |
| HBP Nat Gas 2X ETF | HNU | $5.15 | 1.46% | 5.6% |
| Potash Corp | POT | $45.99 | 0.73% | 2.7% |
| Drxn Real Est 3X ETF | DRN | closed | 0.34% | 0.0% |
| Silver Wheaton | SLW | closed | 0.33% | 0.0% |
| Cenovus Energy | CVE | closed | 0.28% | 0.0% |
| Drxn Energy 3X ETF | ERX | closed | 0.24% | 0.0% |
| Cameco | CCO | closed | 0.23% | 0.0% |
| Teck Corp | TCK.B | closed | 0.19% | 0.0% |
| Drxn Energy 3X Sh ETF | ERY | $10.20 | 0.00% | 2.2% |
| Drxn Gold Sh 3X Sh ETF | DUST | closed | 0.00% | 0.0% |
| Drxn Tech 3x ETF | TYH | closed | 0.00% | 0.0% |
| Claymore BRIC ETF | CBQ | closed | 0.00% | 0.0% |
| Drxn Em Mkt 3x ETF | EDC | closed | 0.00% | 0.0% |
| HBP Glb Gold 2X Sh ETF | HGD | closed | 0.00% | 0.0% |
| Drxn Real Est 3X Sh ETF | DRV | $31.91 | -0.19% | 2.0% |
| EnCana Corp | ECA | closed | -0.36% | 0.0% |
| Drxn Em Mkt 3x Sh ETF | EDZ | $14.06 | -0.67% | 8.0% |
| Drxn Tech 3x Sh ETF | TYP | $12.97 | -0.92% | 7.8% |
….
