Home Agriculture and Soft Commodities Buying Energy Stocks And Commodities Makes Sense Now – Mike Swanson (08/11/2021)

Buying Energy Stocks And Commodities Makes Sense Now – Mike Swanson (08/11/2021)

The stock market is sagging. On one hand it feels like nothing is happening with the market averages barely moving. But this lack of movement is happening after the S&P 500 made a new high a month ago. There has been no real buying ever since or exciting trading action for people. Two weeks ago when FB, MSFT, AAPL, and AMZN all reported earnings they simply sold the news. Most of them were down yesterday.

Most fad stocks that make up the Robinhood 100 list have been fading since February. So, have most small cap stocks, with the Russell 2000 lagging the S&P 500 and thousands of penny stocks not compliant with SEC regulations set to be essentially delisted in just a few weeks.

In my view, pair trade situations where one shorts lagging past fad winners and goes long stocks that are set to really go up for years (they pay dividends and have earnings instead of losing billions) makes a lot of sense. There is now an entry point for energy stocks and commodities overall.

By pair trading I mean essentially going long some stocks and shorting others. This is what the original hedge funds did and is a way to help limit your risks in the market.

The price of oil pulled back over 10% from its recent high and helped to finally bring a dip in energy stocks that appears to be over. Take a look at instance at shares of Exxon.

XOM pays a 6% dividend. I own shares of it. Notice that its shares are stabilizing right above its 150-day moving average.

Commodities as a whole put in a secular bottom last year. Remember when the oil futures market briefly went negative in 2020? Secular bottoms lead to bull markets that last for years, but all bull markets go through periods of pauses and consolidation.

This is what has been happening overall with commodities in the past few months. But they are not crashing or collapsing. In fact, they are doing just the opposite as you can see from the DBA ETF.

I own a position in the DBA ETF and have it in my IRA and main account.

Gold, and silver, are working on a bottom after dumping last week.

I talked about the markets and various trends with Jim Goddard of www.howestreet.com yesterday in this interview.