Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: 2sigma who wrote (52117)	8/6/2004 3:20:54 AM
From: macavity	Read Replies (2) of 74559

I have no idea why they are behaving the way they do. Usually (with Gold this is true) the stocks have a greater leverage to changes in the commodity price than the simple commodity. I.e. If the company is profitable at 20$ a barrel then at 40$ it is more than twice as profitable due to the relationship of fixed and variable cost - i.e. its fixed costs have not changed/doubled. When the commodity races off and the stocks underperform, then I believe that Mr Market is telling you something (assuming the companies are competent). With Gold this relationship (stocks lead) has kept me out of a lot of trouble - for example $HUI is currently underperforming the metal. With Oil stocks it may be different, but I have no reason to believe it should be - the commodity reacts to shorter-term news events/expectations; the stocks to longer-term expectations. IMO the stocks are not saying that we are going to get 50$/barrel (long-term) but the commodity may get there (short-term). If the commodity is unconfirmed by the stocks then I really have doubts on any new paradigm. That is my theory. My P&L from the past 2 days says the complete opposite and I am close to being stopped out. I will wait for a new low in the weekly bars to re-enter, with a macd-histo bear signal. QM<42.60 looks like my new (breakdown) level. I am of the view that we are about to enter a recession. On quarterly charts lows have been broken for both $SPX and $NDX - yesterday was a new closing low for both. Oil is essentially demand driven over the cyclical timeframe(as supply is run by idiots OPEC). If as I believe that the US may begin to head into a recession ($SPX<1060) and crazy China uses brute measures to reduce growth, then demand will start to fall. If this is true then we could see a significant top in oil. For now it is in a Secular/Cyclical and Intermediate Bull, and I should leave top-picking to the smart or the lucky. Who knows? Not me! Short QM -macavity

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