Oil Stocks
The Story Behind Canadian Mining Speculation
I just finished reading a tiny little 100 page book by the title of "The Story Behind Canadian Mining Speculation". It was written about 50 years ago by T.H. Mitchell and it should be a must read for any current mining speculator. If you can get your hands on it that is. Try searching for it at your university library because that is where I found this copy. Anyways, here are some great bits of information that I got from the book:
It should be clearly understood by the Canadian investor that the majority of the "penny" stock companies are worthless and always will be worthless. This has been proven time and time again. Yet their stocks have a definite value as a speculative trading medium; in other words, the stocks themselves are not worthless so long as somebody is willing to buy them. Thus, one has to be pessimistic about the possibilities of the companies, yet optimistic about the profit opportunities which their stocks present. And these are the sentiments which guide the professional traders.
Covered My CUX Short Position
CUX crossed its 30 day moving average today so sticking with my Trend Following approach, I had to cover my short position.
Another Way To Follow Trends
In my introduction to Trend Following, I was telling you that a way to judge a stock's trend is to simply see whether the current price is above or below its 30 day moving average.
This is a valid system but there are many other ways to follow trends too.
There is a very useful graph in the Trend Following book which shows the best moving average combinations that have given the best returns when backtested.
The best moving average combination is the 50 day and 110 day moving average combination. This combination produces an outstanding 20-22% average profit per year.
And according to this combination, Silvercorp is still in an uptrend, unlike if it is evaluated solely on a 30 day moving average.
Therefore as long as the 50 day M.A. stays above the 110 day M.A. the stock should keep rising.
As you can see by the chart above, the trend is still down for CUX. My other short candidate YRI is actually still in an uptrend if you use this combination so I might have to cover that for a tiny loss.
$1-trillion energy bonanza still buried
EDMONTON - A new energy treasure map drawn by industry and government experts points the way to a $1-trillion oil and gas bonanza buried in aging wells in Western Canada.
The astronomical added wealth can be reaped chiefly in Alberta by investing $12 billion to $15 billion over the next 15 years to tap oil and gas left behind by conventional production methods, the new guide estimates.
Gains of six billion barrels of oil and 22.5 trillion cubic feet of gas can be made by using known technology to improve recovery of discovered resources to 36 per cent of the amount in the ground from the current western Canadian average of 27 per cent, the experts predict.
"We're saying that is do-able," Eric Lloyd, president of Petroleum Technology Alliance Canada, said in an interview Monday as the study team led by his group and a government-industry information partnership known as EnergyINet launched efforts to ensure production improvements are made.
Hitting the increased efficiency target would generate $1 trillion or more in added industry and government revenues even if oil fell to an annual average $45 US a barrel and gas remained in its recent weakened price range of $7 per thousand cubic feet, Lloyd said.
A 'Short' Experience
I have never shorted a stock in my life until today. I thought it was very risky because there is the possibility to lose more than you put in if you short a stock and hold on while it goes to the moon.
However, my readings on Trend Following have changed my opinions.
As long as you put in proper stops before you short a stock, there is no more risk than going long that same stock.
So today I decided to short 2 stocks in very little quantities to test the trends with little risk because I am putting in very small amounts of capital.
What are they?
Well I looked at the 52 week lows yesterday and I saw a name I have heard before: Centurion Energy: CUX.TO.
Except I remember it when it was one of the highest flying stocks, now it's a dog. So what do you do with dogs? You short them!
As you can see, the trend is obviously down and the price is well below its 30 day Moving Average (blue line).
My exit strategy is either get out at $7.70 which is a 25% stop loss or when the price crosses the 30 day M.A. However, if the stock continues to go lower (maybe around 15% lower than these levels), I will probably double by short position.
