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The Moment Of Truth

|Includes: AAPL, AEM, APC, BNS, Baytex Energy Corp. (BTE), CPD, CVX, ENB, FCX, FM, FTS-OLD, GDX, GDXJ, GILD, JPM, MET, MSFT, RY, SPY, SU, TD, TU, V, VET, WPM, XOM

Investing today has become a mine field of broken trends, Fed flip-flops and frustrating volatile markets. But every now and then an opportunity of a lifetime comes along and you take a chance.

In my case, if you've been following along, was to buy oil heavily after I called the low in February. I made back most of my 2015 losses in just a few months with up to 35% of my portfolio exposed to oil. As oil rose, I sold and took profits, first bringing my oil holdings down to 25% until the end of April and then now at 15%. I am still significantly long in oil, but I've reduced my exposure and now have 25% in cash.

I was also fortunate to have invested in commodities late last year as I felt that there were too cheap to ignore. Probably more luck than brains, but 2016 has been pretty good to me, so far.

But all that cash is earning nothing and over the past few weeks has buffered my losses simply by not going down. That's the one nice thing about holding cash (temporarily).

My trading activity tailed off a bit in May and early June, but I am back at it full force as the market declines. Stocks that had run up, have pulled back nicely. I've started writing many more options on companies that I both want to trade and want to own. Most of my investing is long term equities put away in my RRSP (tax advantaged) account where I do very little trading. No more than 10 trades or really position adjustments per year.

My new trading account is another story all together where I have made 123 trades with a 64/31 win loss ratio. My total income from January to today is $8,436. Not a huge sum of money, but I'm doing this with $40,000 exposure to the market. Clearly moving up by a factor of 10 would make this number much more interesting, but my initial goal was only to earn additional income on top of my long holdings. Personally, I'm satisfied with my 21% YTD return.

And don't think this was a walk in the park. I spend a lot of time reading and studying the market and follow several authors here on SA who assist me in understanding how the market works. Robert P. Balan has been a tremendous help in giving me the confidence to press on and know the twists and turns of the market as only he does. It's important to know that I have time to do this. My trading takes about 30 minutes as normally I'm writing monthly options, but adjustments need to be made and that takes time.

I've also had my share of being on the wrong side of the trade. Losing $1,000 in a few hours isn't fun but I learned a valuable lesson with that trade. I quickly switched from long to short and recouped $700 by the end of the day, but trading requires the ability to cut your losses and press on. This is critical, in my opinion.

So what's the moment of truth? That is the time when you make a life changing sized investment on your own investment thesis.

I am going to list the companies that I trade (as well as hold long) and you may want to do your own research on them. I've chosen them all for very specific reasons.

Oil

BTE, APC, VET, SU, RRX, CJ, XOM, CVX,

Commodities & precious metals

FM, FCX, AEM, GDX, GDXJ, SLW

Blue Chip

MET, JPM, GILD, AAPL, MSFT, V and SPY

Canadian Large Cap

BNS, TD, RY, FTS, BEP.UN, CPD (pref fund), ENB, T

My Thesis

Oil bottomed in February and I was certain that was the bottom. I have traded in and out of oil and recouped my 2015 losses. I have learned option trading and have made 123 trades so far this year.

My thesis is that we are at a turning point in oil. The market has recently dipped and so has oil. It seems clear to me that oil is leading the market. Oil production has been falling since July 2014 and falling more now that hedges have worn off. OPEC and specifically, KSA have won. The price of oil doubled from lows and is now pulling back.

GS came out recently and said that oil was balancing sooner than they thought and they've given up on their $20 oil thesis. I knew they were wrong and have made hundreds of comments about oil balancing much sooner.

Both oil shorts and oil longs are now at their highest level in years, this can only mean volatility. Robert P. Balan has written extensively on this topic. https://seekingalpha.com/instablog/910351-robert-p-balan/4888979-shortage-capital-surplus-turmoil-may-soon-decimate-global-oil-production-shale-hype-won-t

The stage has been set.

But what has it been set for? Is oil going to continue down? Is it going to make new lows? When will it finally recover?

The best time to buy oil stocks for long positions is when prices are dropping like now. This may be the best chance yet to start a position and if oil continues to fall, then to average down. Or in my case, I am already writing puts and rolling forward as they decline and I will build another large trading position in oil. I will also add to my favorite long holdings VET and SU. I have an income goal that I'm trying to reach and VET under $40 really appeals to me.

My thesis includes two scenarios , both with the same ending. Oil dips now to just $45 and goes straight to $60. Or oil dips lower and takes longer to get to $60. I believe that $60 is coming sooner or later and almost certainly by the end of 2016. I don't expect it to be all straight up and I have no idea how much the market has priced in. I also believe that shale will start to hedge over $50 (which is the case now for all of 2017) and this may buffer a rise above $60, but this thesis will take several months to play out and there should be additional dips this summer if you just aren't ready yet.

I would add a word of caution, that I am not a professional investment advisor and I would urge you to do your own due diligence.

Disclosure: I am/we are long BTE, APC, VET, SU, RRX, CJ, XOM, CVX,FM, FCX, AEM, GDX, GDXJ, SLW,MET, JPM, GILD, AAPL, MSFT, V,SPY,BNS, TD, RY, FTS, BEP.UN, CPD, ENB, TU.