I've used Fidelity Select Energy as my OSX surrogate. As I've mentioned in the past, I consider those who hit the bottoms and tops of these trades to be lucky or liars. I happened to get lucky in this instance, hit FSE at the exact bottom at 20, and feed it out at 26-27. My only patch position this weekend is CED (the Rodney Dangerfield of O&G) which is left over (bought @ 29) from my profitable NG play of last year. So I've had pretty good success with this sector, much better than my going on two year buy and hold, wait for the monster home run bet I have on the junior PMs (the most inefficiently priced public trading market on the planet).
I think there is a huge secular bull move coming in the patch, but I don't think it starts in the next few weeks. This awful head fake of the last year is really going to cause long term damage to oil production, as producers will be slow to aggressively explore again. For that reason I'm sensing that the initial subsector to play will be those with the goods in the ground more than than OSX, and I'm thinking the mid tiers like CED and AOG, with some smaller names to spice it up: KCH, GAU, maybe PEL. It's maybe just a bit early on the small ones. Tax loss selling?
Also oil is being used for geopolitical purposes that have nothing to do with long term supply dynamics (extremely bullish). IMO it is US policy to bolster Russian and Mexican oil production, and become their "best customer", so as to move away from the ME as much as possible. There is no way the US is going to allow Middle Eastern sources to win this game of chicken with Russia, as the later needs to be cultivated. Put Caspian Sea in our vocabulary, this time for real. I may even wander into that historic grave yard for investors, Russian oil companies (with strong western alliances). Any ideas?
Therefore, I see the US filling up the SR with premium price off market oil purchases from Russia and Mexico, letting the Saudis sell the world all the cheap oil they want. The Saudis can only sell so much anyway because the tankers and refineries aren't there to take it. As this scenario works out over the next several months, the second great trade (metals being the first with even greater upside) of the next five years will develop, and I'm not talking about 30% head fakes this time.
With that backdrop there is a psychological moment to strike again. I don't use TA for this. I gauge other people's sentiment and I'm looking for silence and neglect. Right now too many are looking for the big buying opportunity as if a bell will be rung, and there are those who have been trapped that will sell and shift money off to the latest "hot thing" (apparently tech, gawd!) to get slammed dunked on.
What I'm looking for appears like my PM&BM thread does right now: quiet, as all the excitement is gone. In these kind of markets you've got to be IN FRONT OF sentiment shifts. As a result the best opportunity as we go to year end will be PM and base metals. Copper has had a nice turn, and I've hardly heard a beep out of anyone. Energy is still early, but probably too late to sell. |
