rock - re: 1997 - 98
Rock; the OSX sold off & literally crashed in a straight line down from OSX 140 to 80ish over 4-5 months; starting in Oct 1997 - the crash was in the fall/winter of 1997 - with still strong O&G prices (historically).
The "rally" we had in the spring of 1998; OSX 80's to 120 was in my personal opinion; due to earnings & Oilpatch activity "still" accelerating even though O&G prices started to correct - but still remained in a historically normal band.
The collapse in the OSX stocks occured at the end of May/first of June 1998; and this collapse in the OSX fortold of the collapse in Oil Prices - which occured later in 1998.
We should not ignore; the collapse of the OSX here as a "potential" signal that the cure for $35 Oil is $35 Oil and that the commodity futures market pendulum may once again "over-swing" to the downside.
This "could" be the same trap that some here are falling for - ie: we're oversold here and are surely going to bounce back; because earnings, activity, cap ex, project contracts etc are all still positive... this created the bounce from OSX 80 to 120 in 1998 and it should also create a bounce potentially here into year end, or in early 2001. But, the question is; have we allready seen the top in the OSX as we did in 1997 ?
But, one very negative major difference here - is that the OSX is clearly not controlling its own destiny "shareprice-wise". The broad market conditions are quite the opposite as in 1998. External market events such as the overall broad market correction/selloff & the Election effect are capping the obviously very positive underlying Oilpatch fundamentals.
Personally; I'd much rather have the market wind at my back when I make a re-entry.
Also, if one carefully analyzes how much time the OSX spent in the 110-120 range; it wasn't very long. We spiked up in the summer-fall of 1997; then crashed. We spiked up in April-May 1998; then crashed. The tops were "fleeting" moments in time - just as they have been here of late...
I'm not saying that this cycle is the same as 1997-98; of course it is not. It has some similarities and many differences.
Not "all" the "rules" apply; but what my point is - is that "many" of the "rules" - most definitely "do" apply...
Among those rules:
One must arrive very early in cycle - into negative sentiment to capture the bottoms.
One must exit in what most view as "mid-cycle" to capture the top in sharprices & the OSX index - as the earnings, Cap Ex, Rig Count & Commodity Price cycles do not coincide with the shareprice cycle. - sometimes they do temporarially, but they continually disconnect & sometimes briefly re-connect; with the Shareprices & the Index themselves often influenced more by external market factors than by its own internal fundamentals.
The $64 question here for Oilpatch investors is very simple:
Can & will the Oilpatch control its own destiny in "this" market environment ?
... my answer is no; as it obviously is not of late - even with alltime record earnings reporting in some sectors (E&P's), alltime high combined Oil & Gas commodity prices, near alltime low storage levels and with overall still very positive underlying fundamentals & earnings projections.
The next question is then; when will it (control its own destiny) ?
... my answer is we must "wait & see" - as that is exactly what the Oil Majors are doing and that is exactly what those who are rapidly exiting & selling the Oilpatch stocks are doing - "getting out" so they can wait & see.
Hopefully most allready took their chips off the table (at least some, or most of the chips anyway); because presently if you have not; you're really re-acting & not acting; not controlling your own destiny - much the same as the sector is experiencing. If you're still fully invested here; you are truly in a tough position and at the mercy of the markets whipsaw.
Do you sell here 45 points from the top, 30 points from the banded range of late ? Do you hold, hoping for the bounce ? But, can the OSX bounce if the DOW & NAZ continue to selloff to substantially lower levels ?
... tough questions, tough call.
The primary question I believe must now be asked; is do I "now" - right here & now; want to make a bet at the time that the OSX has most disconnected from its underlying fundamentals, earnings and commodity prices - into the highest degree of risk & volatility in the broad market over this boom cycle; when its clear the Oilpatch Stocks are not controlling their own destiny - but instead are being whipsawed by external factors & events....
- to "perhaps" catch a run back up to OSX 115 ?, 120 ? 130 ? 140 ? - ie: "been here & done that" range ?
- and/or to go to "new highs" - ie: beyond "been here & done that" range ?
... imo; what are the odds that the OSX is going to break against the grain into a slowing economy, into a market meltdown to "new highs" ?
- the realistic question then is merely - do I want to accept greatly increased risk here, at the peak of disconnection from fundamentals & commodity prices to "perhaps" go to where we've allready been - ie: the top of the banded trading range of OSX 100-130ish that we've seen for 6 months ?
... not a tough call imo.
It's "wait & see" time and any significant re-entry by me; will be when I see the issue's negatively impacting the broad market resolved and most importantly; when the Oilpatch regains control of its own destiny and re-connects with commodity prices and its positive underlying fundamentals - and not untill !
I think I am very much in agreement with many here on the still very positive underlying Oilpatch fundamentals and especially for perhaps sustained surprisingly positive commodity prices; but where I disagree; is on how the market is going to trade these fundamentals in "this" market environment.
I see the total "disconnect" - I see the cap the overall market risk has placed on those fundamentals presently; I see the total disconnect and I can see it continuing... many here do not. I see the possibilities for $40-$50 Oil; but I also acknowlege that the pendulum can over-swing to the downside as well. It's all about picking high reward/low risk spots in mature points of the cycle & hopefully with the market winds at ones back & this "aint" one...
I remain;
Sitting (Golden) Bull |
