November 28, 2010 | In: Energy
HOU and HOD
I am starting now to shift into commodities as the predictability and the stability are much better than other equities (finances, pharmaceuticals, etc..). Two stocks I have discovered and started trading lately are HOU and HOD.
HOU and HOD are priced in the Canadian Dollar (which is a great way to invest your Canadian Dollar money while avoiding exchange rates). Here’s how (theoretically) these two stocks work, if oil goes up, let’s say 1%, HOU goes up 2%, and HOD goes down 2%. Realistically, however, since HOU and HOD are both stocks, they are also subject of supply and demand that may not be proportional to the supply of the demand of oil, and, needless to say, they are also subject to speculation. For example, oil goes up 1%, but investors think that there’ll be more good news coming (demand on oil is higher due to low reserves or harsh whether, for example) so HOU goes up 4%, and HOD goes down 4%.
Take a look at the monthly charts for both HOU and HOD:
You can easily notice a pattern, if HOU is around $6.30 (I would buy HOU even at $6.50), then it’s a strong buy, if HOD is around $8.50 (I would buy HOD even at $8.70), then it’s a strong buy as well. HOU has excellent support at $6.20 (which is more or less when oil is around $80), and HOD has excellent support at $8.00 (which is when oil is in the high 80s). HOU, in my opinion, is highly representative of the stock market health (when oil goes up, it means that the dollar is going down, and the markets are going up, this is the case for the last few years anyway).
You can also easily see that every day there’s either a dramatic fall or surge in one of these stocks. Although this seems very risky, if you enter the stock at the correct price, you won’t have to suffer, just don’t buy HOD above $9 and don’t buy HOU above $7 and you should be OK. Of course, these prices are good when oil is set to hover in the 80s level (it is very obvious that there is very strong support at the $80 level set by oil producing countries, such as OPEC, and large investment firms).
The key to these stocks is patience, and faith. When these stocks go down, buy, they will ultimately go up, and you will make money on your investment.
Some words of caution: don’t panic, don’t buy a lot, don’t get greedy, don’t hold these stocks for a long (or even medium) time (just sell when you can), and don’t play this game with money that you will need in a couple of months.
Note: HOU stands for “Horizons Oil Up”, HOD stands for “Horizons Oil Down”.