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Right Round Baby Right Round (Cestrian Stocks Bulletin - Issue #148

Cestrian Stocks Bulletin
Right Round Baby Right Round (Cestrian Stocks Bulletin - Issue #148
By Cestrian Capital Research, Inc • Issue #148 • View online
Like A Record, Baby.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
Even Hogs Get Full Sometimes
If you’ve had a successful investing year in 2022 so far, congratulations. Unless you’re a permabear and you made money for the first time since 2008. That’s not skill. That’s just the investment strategy known as the Get Off My Lawn portfolio. But if you successfully jumped off of the growth rocketship and have been riding the oil train ever since, we salute you, O Investing Genius.
For all other mortals, you may be scratching your head saying, what did I do wrong? I sold growth at the end of last year because, you know, it was all getting too easy so of course it was going to end. I diversified into all manner of value stocks, some FANGs, some trackers, heck I even bought bonds and oil and the Dow! And it has still all gone to h*ll! Whyowhyowhy? Etc.
Well, the very simple reason is that energy has hogged money all year. How much money has it hogged, you say? We have news. All the money.
Look - here’s the energy sector versus most all other sectors (we use the SPDR sector ETFs as proxies to show this) from the end of November 2021 market peak to the middle of June 2022.
Oink! Oink!
Oink! Oink!
See? ALL the money.
Now on the one hand this is rather unusual. You would expect a shift from growth to value, tech to defense, that sort of thing - happens every now and then just to keep your average maven happy. Well. not happy. They don’t like being happy. Gives them a little adrenaline, enough self-belief to wave the walking stick at those pesky kids for the next 10 year period in which investing in the future is a better idea than siphoning cash out of the past.
But that there isn’t growth to value. That there is an extreme form of a cunning Big Money trick that is not usually so transparent.
Sector rotation.
Last year, when retail was busy hogging crypto, Big Money was quietly buying up Exxon Mobil and WTI futures, not noisily enough for many people to notice, and all the while appearing on CNBC saying, wow, this growth rocketship huh, it’s got a way to go yet. Big Money was distributing tech and buying energy. It was doing so for two reasons. One, energy was so beat-up it couldn’t even crawl back from school. And two, Russia actually told everyone they were going to invade Ukraine and so that meant likely sanctions and that would obviously mean higher oil and gas prices. So that made the plan all the better. Well done Big Money. This kind of thing is why, in fact, they are Big Money.
If you’re Big Money and you look at that chart above - what do you suppose your Dick Dastardly moneymaking plan might be? To hog more oil wells? To buy up more intermediate distillate distribution businesses? Nope. Let Joe P. Retail, who is now an energy-sector ninja, (that’s his new FinTwit handle anyway) buy that stuff. He can buy your energy stuff that you are quietly distributing in the market.
Here’s what happened last week.
Sassen Frassen Rassen
Sassen Frassen Rassen
Most sectors down. But energy? Drilling for victory. That’s Big Money starting to distribute the spoils in order to deploy them elsewhere.
In our premium service, Growth Investor Pro, we spied this early and called a short $XLE trade with the appropriate levels of stops and price targets. It’s going rather well. We then shared it with our Cestrian ETF Select readers last week, after which it continued to do well.
We want to invite you to join that ETF Select newsletter. It sounds incredibly dull, but it’s going somewhere very exciting. It’s going to focus on sector rotation as a theme - and do so through bear markets and bull markets. Because this we believe is one way to keep ahead of Big Money, or at least to walk only a couple steps behind them, riding their coat-tails. The first win in the strategy is that short-$XLE idea, which we can tell you was not a fashionable idea in the market a few weeks back when we raised it. It will become more market-fashionable as time goes by we expect, by when we expect to have covered the short and banked the gains.
Our ETF Select letter - maybe we could call it The Cestrian Sector Selector - is we going to provide some very actionable ideas on both the long and short side. And we think this method can run for a long time.
As a reader of this, our most-fun-newsletter-to-write, we would like to offer you a discounted annual membership of ETF Select. Rack rate is $149/yr; you can sign up in June for just $99 for your first year. All you have to do is click here. Every issue gets emailed to you and you can read old notes on the newsletter’s website.
Energy is now under distribution - that means other sectors are under accumulation. That is where we will be looking for ETF long ideas; and once those sectors rise and weaken we’ll have short ideas there too. You see the idea here. And we are rather excited about its future.
Cestrian Capital Research, Inc - 19 June 2022
DISCLOSURE - Cestrian Capital Research, Inc staff personal accounts hold short positions in $XLE.
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