XLE: Is It Totally Insane to SHORT it?

Discussion in 'ETFs' started by shortie, Feb 24, 2011.

Your Best Guess on XLE

  1. 1-2 Weeks: LONG, 2-3 Months LONG

    10 vote(s)
    58.8%
  2. 1-2 Weeks: LONG, 2-3 Months SHORT

    3 vote(s)
    17.6%
  3. 1-2 Weeks: SHORT, 2-3 Months LONG

    2 vote(s)
    11.8%
  4. 1-2 Weeks: SHORT, 2-3 Months SHORT

    2 vote(s)
    11.8%
  1. bone

    bone

    From the Hedge Fund Association, a white paper entitled: "Creating Alpha with Market Neutral Strategies"

    " Market neutral investing is perhaps the purest form of alpha as, by definition, it removes exposure to market direction and produces alpha through security selection. It usually involves the simultaneous purchase of an undervalued security and short sale of an overvalued security. Thus, the return depends on the spread between the long and short positions. A bond market neutral strategy would hedge out interest rate risk, to ensure that gains from the long position, due to upward movements in bond prices, would be roughly offset by losses from the short position. Unlike traditional investing, which concentrates on absolute returns, or returns relative to a benchmark, market neutral returns depend on the spread or relative value between the securities bought and sold regardless of movements in
    market direction. An equity market neutral portfolio is constructed
    similarly, but this time exposure to beta, the sensitivity of the
    portfolio’s movement to the general market, is hedged. A true
    market neutral fund will have to balance the beta on the long and
    the short side to hedge out stock market risk effectively. A market
    neutral approach can be applied to various asset classes, such as
    equities, government bonds or mortgage-backed securities and
    forms the basis for several investment strategies: convertible
    arbitrage and risk/merger arbitrage. "
     
    #21     Feb 24, 2011
  2. how about a concrete example? pick a stock and we will watch stock/XLE spread for 1 month.

    p.s. Bone, by my estimate you own me >$200 for turning my thread into your Ad campaign :)
     
    #22     Feb 24, 2011
  3. bone

    bone

    Shortie, I like your enthusiasm.

    I'm not going to completely break down a trade for you - my clients would be furious. I'll point you toward a path to enlightenment:

    SLB and APA both have greater than a 98% positive correlation to XLE.
     
    #23     Feb 24, 2011
  4. S2007S

    S2007S

    When the sell off starts on this one it will be good for at least a 40% collapse!!
     
    #24     Feb 24, 2011
  5. bone

    bone

    Last time crude got to $145ish, a couple DOE reports came out and showed that demand fell like a meteor from the heavens. The Summer driving season was non-existent and refineries were actually turning away supply and they almost stopped cracking gasoline. Several months later, we were trading at $35. Demand is not a constant, and I am sure that the producers were selling HEAVILY into the last rally which was purely a speculative financial bubble. The lesson was that Americans will stop driving with $4 gasoline.

    [​IMG]
     
    #25     Feb 24, 2011
  6. this is interesting if true
     
    #26     Feb 25, 2011
  7. bone

    bone

    No "if true" about it. Which one holds a trend better ? Which one keeps you in the trade longer without getting shaken out ? Which one is easier to read ? Which one is cheaper to capitalize and leverage ? Which one is more consistent, month in and month out ?

    [​IMG]

    [​IMG]
     
    #27     Feb 25, 2011
  8. XLE approaching multi-year high today
     
    #28     Feb 25, 2011
  9. Maverick74

    Maverick74

    So is it up too much yet?
     
    #29     Feb 25, 2011
  10. as i mentioned in my opening post, the RSI divergence is still in place. there are maybe other signs of a possible top as well, not sure...
     
    #30     Feb 25, 2011