<Not being a short term trader, the decline in the OSX is not that big a deal>
... ststimon; that all depends:
Actually; if you are investing, or trading - in a cyclical sector - you had better have some significant "degree" of "short-termedness" in your mindset; or you'll eventually be roadkill... and that concept is historically supported & is beyond discussion.
Once again; if we should have learned anything from 1997-98 and all other prior Oil cycles; the peak in shareprices & the OSX index; will ALLWAYS arrive very early in relationship to commodity prices and earnings peaks.
It is imperative that one exits into incredibly high sentiment - because the turns are nearly allways unexpected, occur into sterling underlying fundamentals and become very volatile.
My entire commentary on - October 1997-esque Deja Vu all over again; was initially met with much criticism here.
I posted in August; that I took the vast majority of my money out of the market - completely out.
I am "trading" with only approx 25% of my profits made over the last 18-24 months; of which I was virtually 100% invested in the Oilpatch - other than a forray into the April-May Naz DCB and presently the building of a portfolio weighted position in the Gold stocks & some shorts/puts in Tech.
If I lose every penny I presently have in the market - I still retain 75% of my profits made over the last 18-24 months; that is how protective of my profits I am being & how negative on the risk vs reward opportunities that I am on this overall market.
Yes; even with a historic combined high in commodity prices, even with historically record setting earnings, even with earnings estimates set to double into next year in many cases; I sold & exited the Oilpatch to a major degree ... because of two reasons:
1. History dictates that I must exit very, very early and into bullish sentiment & underlying fundamentals and commodity prices.
2. Because we are the very small tail; wagged by a very big, overvalued & high risk dog (broad market).
The overall market valuations (see the 20 year NAZ chart from my prior post) the overall market risk, the rising credit quality issues from the corporate bond market to the front lines of consumer finance; the drying up of the capital markets, to the unsustanability & irony of King Dollar & our present account deficit, to our slowing GDP which under 2.1% actually erases our budget surpluss, to the probable peak in commodity prices - which traditionally signals the exit of the "non-beliver/casual" energy investors; all triggered my belief that not only was the "Big & Easy" money all ready made; but that this was also a "historic" if not a once in a lifetime "gift" from the Market God's - of whose pendulum if it historically "over-swung" to the downside; may occur more quickly & go deeper than many suspect.
I respected Buffet's refusal to participate, his terming of the valuations assigned to this Tech/NAZ boom as irrational. I respected Julian Robertson closing up shop, of Shopkorns exit, of Soros folding his fund and of Vinik's exit from the market.
I both respected & feared that 20 year NAZ chart.
So; stsimon; I have to respectfully disagree with you - in your comment of - "not being a short term trader, the decline in the OSX is not a big deal" ...
I vehemetly disagree; it SHOULD be a very big deal; as you've got a 50:50 chance that it is either the "pause that refreshes; ala - Oct 1997 Deja Vu all over again & we could have some ways yet to go; or it is the turn & rollover of the cycle and its allready underway ...
Either way; continually taking profits into major rally legs; using tight trailing stops here at a mature point in the cycle and being patient & slowly re-averaging into major declines; if at all - is paramount to cyclical investing/trading survival.
It is very, very hard to ignore the singing siren of the deep - that being $35 Oil & $6/$7 Gas along with record earnings & very positive underlying fundamentals; but one must realize that we are the tail - that most definitely does NOT wag the dog... quite the contrary. And that the overall market risk is and will cap our fundamentals - regardless of how positive they may be. And that the pause that refreshes is usally a little longer & deeper than most anticipate and patience is usually exponentially rewarded in times like these...
But; could I be dead wrong & could we turn & run up ? yes.
But, the $64 question is how soon and then how far & how fast ?
What is the risk vs reward opportunity vs. the likliehood that the OSX turns & runs to new highs ?
Is getting one more bite at an OSX 120-125 apple here worth going against the market tide here ? - especially; given how many times we've allready been here & done this ?
... I guess that's an individual situation; that we've all got to frame within our own circumstances, within our own risk parameters and within our degree's of profit , or loss to date.
With a slowing US economy, with still delayed Cap Ex spending; will the Oil Majors turn loose enough Cap Ex Spending soon enough to support the OSX going to a new high & a higher trading range ? Will commodity prices alone be enough to take us higher ? They haven't in the past , why would they be now ? Are we closer, or further to lower, or higher sustained commodity prices ? - and how will the market trade that concept ?
Are we controlled by our own destiny/fundamentals here; or by the exodus of the casual Oilpatch investor ?
Are we trading on our internal fundamentals, or are we being traded by the traders ?
Ststimon; this decline is quite obviously a big deal...
If you don't belive so; ask those that went "max margin" at OSX 120 & saw a minimum of a 40% portfolio hit in days/weeks.
Ask anyone who merely held & watched their portfolio's shrink 20%.
Ask them again in a month, or so; if we do see a true Oct 97esque mid cycle correction and we see another 20% down ...
Ask them again in 6 months; if indeed this was Oct 1997 Deja Vu all over again & we never again see those former highs & the cycle is all over & the vast majority finally sell out & exit this "cyclical" sector that far too many will trade as "Growth Stocks" - at approx OSX 45-60 & will result in the vast majority of Oilpatch investors who were in "early & cheap" - giving back "ALL" of their gains & profits; and more importantly - "all" of those who were "not early & cheap" - lose 20, 30, 40% in their forray into a cyclical sector that they unfortunately took an attitude of - "that not being a short term trader, a 30% decline from the top was - "not a big deal"...
Ask anyone who was here in 97-98 about how a company could implode in half; into record earnings reporting; staring analysts estimates of doubled earnings just a few quarters out.... and PS: - those analysts were right, those companies actually did double earnings into those quarters as they also got sold off to levels of 1/2 of where the pause that refreses originated...
Listen & learn...
One does NOT have to exit the Oilpatch entirely and that is not what most here are suggesting; but what we are suggesting is that one should have allready taken profits; have triggered stops and should be prudently patient on any re-entry purchasing and should also be realistic and plan accordlingly any future portfolio moves; that indeed the highs of this cycle may have allready come & gone...
You don't have to play every hand with all of your chips...
If those of us who are conservative here are wrong - it takes a 15-25% rally pop for you who didn't exit; just to return to where we left... I'll take that position and one of waiting for a potential OSX 80 buying/trading opp and more importantly; a position of waiting untill the external factors that are unfortunately controlling our destiny here in the oilpatch to unfold - signaling the return of an attractive risk vs reward trading/investing opportunity where the oilpatch once again finally controls its own destiny via the obviously positive underlying fundamentals - and are to where we are no longer merely the tail wagged about by a very big & angry dog...
To each their own... live & learn. |
