Postal takes profits, numerous OSX downgrades & "we don't have to worry about OSX 85 anymore"...
So, who is right & who is wrong ?
Well I think the answer is that volatility rules; allways has, still does & allways will in the cyclical Oilpatch. How you manage that volatility & manage your money will determine the winners & losers from here on out in the Oilpatch.
Per this thread's sentiment meter being a contrarian indicator; this quote was a great example of a potential "top" coming soon to this leg:
"I guess we won't have to worry about the OSX returning to 85 anytime soon<vbg>!"
My, my - how soon we forget and isn't it allways those "late to the party" that are the one's eventually to be seen dancing on the table's celebrating; just before the lights come on & they then realize that most everyone else has allready left the party & it's time to go home (VBG) ?
I think we need to realize that the "tops" to these OSX legs come not just from selling & major profit taking; but many times just from buying fatigue.
Once the major institutional rotational buying ends - we float lower, that triggers some profit taking; sentiment then changes, the spin doctors come out & now we are at the Sept OPEC meeting & futures sell off...and a pullback is thus formed...
There is a very strong similarity to where we are right now in the Oilpatch valuations and where we were in Oct 1997. I think we are "still" perhaps 2 quarters away from that "Blow Out" reporting quarter to where nearly across the board - companies report huge breakout sequential - qtr to qtr earnings & backlog increases.
It's very easy to come out & wave the pom-poms everytime the sector rallies - But; I don't remember many of these same cheerleaders here at the bottoms, or on the first few major rallies - where the "real" money was made(the Feb - mid April OSX rally from 80-125) ) but; I do recognize a lot of cheerleading over this actual, pretty narrow & very volatile trading range from mid April of 120-135 here.... 10-15 points & now we're bulletproof - with no worries about OSX 85, or 100 ?
Well I don't think so; not yet. And remember back in Oct 1997; we hit OSX 140 only to retreat to the OSX 80's by January and it took 6 months to move back to OSX 120 - never returning to our original highs.
The OSX pulled back 40% from those Oct 1997 highs - and that high was 9-12 months before earnings actually peaked for the OSX co's. - keep that in mind.
Now I don't necessarially think this leg has ended; a 30 point move from the OSX 115 base takes us to OSX 145ish. That 30 point move has been a traditional "leg" to OSX moves before fatigue hits. We could easily top out right here, or perhaps waffle a bit and actually reach 145ish perhaps.
But, remember; we are hitting many target prices - triggering downgrades and that also happened in the fall of 1997. Valuations just got a bit ahead of fundamentals. Also; Sept 1999 was a tip of the hand on how the Momenteum players will trade the E&P's off of commodity prices. - have we not learned that the NG shortage stories allways peak well before the shoulder season & sentiment is traditionally at its zenith here ?
I'm not predicting an October 1997esque type of pullback to OSX 85; but I also do not discount the possibility & I certainly "aint" going to be dancing on the tables singing "we don't have to worry about OSX 85, or the big bad wolf anymore"... not yet. Earnings - not commodity prices; will make me dance on tables...but; when I do my dance - bank on the fact that I will also have the money in my pocket when I do...
Above all; This is a time where prudent money management rules.
The time to be margined & leveraged and where the "BIG" money was made in the OSX - was back in the dark days of the fall of 1998; those rolling trading ranges from OSX 48ish to the 70's - thru the spring of 1999. And then the "Big Daddy" run from Feb to mid-April this year, that took the OSX from the 80's to 125 - "THAT" was actually the prime "risk vs reward" spot to be "leveraged/margined" - that was where the "easy & the big money" was made & some of us actually have most of it in the bank...
Many of us were both here in the "dark days" in the fall-winter of 1998 and also were "leveraged" to the "Big Daddy" run from Feb to mid April. For those that were here in the fall of 1997, or the spring-summer of 1998; let alone the tradeable rolling waves of late 1998 - to early 1999; a little "respect & restraint" & a profit taking mentality on sentiment tops was hopefully ingrained.
From mid-April to the present; many of us here took substantial profits - much to the chagrin of the cheerleaders here. But, I am confused at that criticism; as the OSX has been in a pretty narrow base of late - with highs from OSX 125 to 136. This narrow basing band gave many the opportunity to exit the OSX; let it base - trade what was a great "risk vs reward" play in the original April NASDQ blow off - which was the risk vs reward equivalent of the Feb to April OSX play - with similar 50% short term returns and to also buy some longterm value plays,establish initial positions in XAU stocks, or merely to go fishing etc...
No one has missed anything from April to the present.
Also; per:
"I guess we won't have to worry about the OSX returning to 85 anytime soon<vbg>!"
The parallels here to Oct 1997 should not necessarially be "feared", but rather "respected" - as we are at a very similar stage of the earnings growth cycle, same valuation PE multiples in drillers & service - same commodity price sentiment area in E&P's etc. We very easily could see OSX 85 in a "worst case" scenario - that being a overall market selloff & a simultaneous Sept OPEC production increase and a corresponding retrace in crude futures; or a more reasonable, but yet substantial (still catastrophic if on full margin) retrace to OSX 100 on merely a profit taking pullback, or from an exodus of the momenteum money - ala~ Sept 1999's E&P blow off; as the momenteum players cash in E&P's & the Momenteum names in the OSX to return to Techland.
To not remember & learn from "recent" Oilpatch history; is surely to be destined to repeat it.
I think many here have learned the danger of being on "full margin" & the double edged sword nature of that. The OSX - driller & service companies are "not" cheap based on "today's" earnings - far, far from it and the E&P's while printing money & showing great earnings - allways trade off of & peak on the turn of commodity price expectations - again, remember Setp 1999. But; the Oilpatch in general; is STILL cheap based upon the expectations on another 12+ mos. of $3.75+ NG & $25ish crude oil however...
So,criticzing profit taking on sentiment tops, let alone technical, or fundamental turns; is uncalled for - just as any "dancing on the tables" & crying the big bad wolf is dead - is as well.
We aren't quite there yet & when we are; I hope to have allready cashed in quite frankly.
Anytime we are traded upon & are valued upon "expectations" - which by the way; is 90% of the time during upcycles in the Oilpatch -> when we finally begin to trade on actual earnings - it's often after the peak and one should have allready taken profits.
As we still are trading on "expectations" - being it future earnings ramping for drillers & service, or for Oil & Gas commodity prices to sustain the present sterling earnings of the E&P's - ie: them having "not" peaked as yet; and as expectations = volatility'; we've had volatility and to not think that Mr. Volatility will pay us another visit here to the downside is unrealistic.
Also, as we've got a while before Q3 earnings come out - we are primarially going to trade off of Oil & Gas commodity prices. As such; - to not expect, or prepare for a Sept 1999 type of commodity price volatility for Gas, or to respect the political pressure we will place on OPEC come the Sept meeting - a mere 60 days before the Presidential Elections; is a mistake.
The eventual "bulletproof" run up will occur off of that sequential bust out reporting quarter. I do NOT think that will come in Q3. But, I do think Q4, or Q1 2001 will be that "blow out" sequential quarter that shows those huge dayrate ramps for the drillers along with positive backlog builds for fab's & the cap ex expenditures on new contracts that are presently being bid upon here in the early 2nd half of 2000. I think that that "leg" of the rally off of that "sequential breakout" reporting quarter will be the "bulletproof" leg that leads to the ultimate high of the OSX and will be another profit taking exit point. I think it comes off of Q4, or Q1 2001 reporting - potentially making the ultimate OSX high occuring in approx Feb- May of 2001.
To not expect - or more importantly; to not respect - the "risk" of continued major volatility here is ignornant. That "respect" is best personified by prudent money management.
We just saw a couple of healthy indicators - the XOI rallying and the back & filling into the small caps - with UFAB & others rallying 10-15% in a single day. That's a good sign.
This is a great time for savy Oilpatchers to take some profits on the toppy momenteum fav's here & to rotate some funds to either cash - to later buyback on pullbacks, or more importantly; to rotate to small caps , laggards & later cycle plays. That's how I am playing this portion of the Oilpatch cycle. I've got my pom poms still in the closet - I don't intend to do my "Billy White Shoes Johnson" End Zone shuffle-dance untill I've put yet another "leveraged" OSX leg into the bank. I do think we've got one more "leverageble" run to this cycle; but I prefer to wait for either a substantial pullback, for individual blow offs - or strong bottoms for laggards like FGH, or MDR; or for positioning myself on the next pullback for that "sequential breakout quarter" which I think comes off of Q4, or Q1 2001 reporting...
I think taking profits here on substantial breakouts - especially E&P's or OSX mo-mo fav's & keeping some cash (definitely NOT being on heavy. or perhaps on ANY margin) and continually rotating to laggards, small caps & late cycle plays is the smart, savy way to play this stage of the Oilpatch Rally.
I don't think we've seen the highs; but I don't think we've seen the end of the volatility either & anyone who discounts a return to OSX 100, or even a worst case scenario - 85; merely needs to look back to a very recent October 1997... but; I realize in "internet time" that 3 years ago is ancient history (VBG)...
PS Who said - "I got rich by continually selling too soon" ? |
