Energy Sector Goes From Manic to Panic and Back Again

Author Larry Berman

Posted: 2 May 2012 re-posted from etfcm

The TSX touched the 200 and 50-day averages yesterday on the back of another strong surge in the energy sector, while the banks remained soft. We often see banks begin to adjust a few weeks before earnings, and this time is no different. The energy sector went from manic to panic and now to maniac again in “hopes” that nat gas has made a major low. While likely very close, we see another test below $2 before a major bottom is likely to be confirmed.

For every 1% the TSX can bounce, take 5-10% of equity exposure off the table. We are quite confident that we have a date with 11,500 before we see 13,000, but following that plan, you would be nearly fully out of the TSX if by some miracle, the TSX moves higher.

Do not bet on crude oil going to $115 any time soon, but there is a big position between Brent and WTI to unwind, and forced spread trades can move markets for longer and farther than anyone can speculate. Outright shorts and hedges using HIX should be considered if the TSX reverses to the downside above 12,500.



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