******* The Song Remains The Same *******
Greenlaw re: the OSX & Energy Stocks.....
You've been around a while...curious as to what you see out there in the 'patch.
Here's my take...
As all Successfull Traders know - everything we need to know, we learned in Kindergarten, or from 70's Rock Lyric's & Albumn Titles... ie:
~~~~~~~~~~~~~ The Song Remains The Same ~~~~~~~~~~~~~~
...Thank You, Led Zepplin
Oilpatch Bulls keep making 3 very Big, very Important Mistakes and sadly it's the same one's they've made the last 4,5,6 OSX, XNG sub-cycles....hence - "The Song Remains The Same."
1. Is it Real, or is it Memorex ?
re: Revolution vs. Evolution:
The vast majority of Oilpatch Bulls keep viewing Peak Oil as an inevitible coming Shock/Crisis Event...in essence, a Revolution and not a normal Market Transition & Evolution.
They see a New Paradigm with an Armageddeon Oilprice & Shareprice Spike Ending to the Story and the Trade....versus a Volatile Transition, but one that will inevitably be solved by the Free Markets.
2. They all must have watched way too many 50's & 60's-era Westerns where the Good Guy's always win....because they failed to realize that ...sometimes the Bad guys - actually win:
ie: BAD MACRO - always Trumps Good Micro.
Bad Macro Economic Fundamentals -will always Trump Good Micro Oilpatch Fundamentals.
They have in every single prior Oilpatch/Energy Cycle... and once again the mantra for the Oilpatch Permabulls is the same as it has been for the last 4/5 subcycles:
"This Time It's Different...now, part IV"
That highly predictible trading behavior of Permabulls also endorses the "Nature" portion of the Nature vs. Nurture debate; so whenever the opportunity presents itself - don't hesitate to Trade the highly predictive trading Habits, of not so succesfull people.
3. Ignoring the 11th Commandment in Cyclical Sectors:
ie: The Oilpatch is, was and will always be - a Cyclical Sector.
- primarially because of the cyclicality of Global Economies.
ie: The Baltic Dry Index and it's shipping rate chart have been feature stories in every major newspaper in the last week... WSJ, FT etc. Those Shipping Rates for commodities such as iron ore, grain, coal, etc. have fallen 25% in 6 weeks...amidst news all across the horizon of a slowing Global Economy and Inverted Yield Curves.
...this atop a historic Debt & Credit Bubble - with a US Consumer having basically a "0 Savings" Rate and Consumer Sentiment/Spending which is 2/3rds of US GDP now hanging out in the wind - levered to a Housing Bubble in a jobless & wagless hedonic voodoo economy propped up on cheap credit and the inability to take on any more debt, let alone make the payments on what's coming due & in many cases... perhaps at higher rates & payments....with the "Get Out of Jail- Free" Card removed by new Bankruptcy Reform Laws.
China's rate of growth is already slowing...and when/if the US enters recession (and I think we're heading there in a beeline) then China deaccelerates to negative growth and Oil Prices plummet imho.
US Dollar Counter-Trend Rally also not reflected in present Crude Oil Prices...but, imho - will be soon.
My bottomline:
I closed out my OSX shorts a while back that were instituted on the - "Too Far - Too Fast" January to March Parabolic Top...but, I still do have some LEAP & out of the money, outlying calls on a few plays.
My Trade in this environment at OSX 140ish - is an options straddle on either 120, or lower, or 160, or higher....as the one thing for sure - is that we're not staying at 140.
If Oil spikes thru $60/$65...we see OSX 165-175...if Crude cracks thru $45/$40... OSX 120-110ish, or less.
So I keep a moving Options Straddle in place with a bit of a bearish trading bias.
- I prefer to patiently wait for upside rallies to show a hint of exhaustion and then go short....ride them down, taking only what the market will give me - not getting greedy and then when closing out my shorts; taking a portion (10%ish) of my profits and buying out of the money LEAPS & Calls - reinstituting the "straddle"....and then taking profits on my Calls & LEAPS on the next - higher/highs Rally and if Inventory & Economic Fundamentals remain the same - reinstituting my Shorts...
I won't buy any common shares long... as I think Crude Oil is over-priced here, but the shares are fully, if not at least fairly priced here...but, I will take a "portion of my Short profits" and buy some LEAPS & far out of the Money Calls as Levered "0 cost" Insurance to something going crazy in Iran with the US and/or Israel hitting their Nuclear Plants and them then shutting down the Straits of Hormuz etc... or, merely if the Crude Oil Bulls get more Irrationally Exhuberant and gun' Crude higher yet...because imho, Crude Oil is NOT "trading freely" in the Futures Market... but, that's another story.
BP's Lord Browne has basically taken the same stance that XOM's Lee Raymond has ... amazing that these Big Oil CEO's at the frontlines of the "real" market have the chutzpah to disagree with Matt Simmons behind his Burlwood Investment Bankers Desk (vbg).
BP's Lord Browne says quote/unqote: there is no shortage of Crude Oil...no crisis....bottlenecks in refining, China Demand Surge, underinvestment of the 1990's coming back to haunt us...all yes, but Crisis ? - No.
Says...in 3/4 years demand/supply strains will be resolved.
OSX'rs worst nightmare is US Economic slowdown - which will exacerbate China's already slowing demand growth and given Europe's slowing Economy... Oil Prices, especially given inventory levels... have SIGNIFICANT downside.
I think US Policy was let's say... "in favor" of these High Oil Prices...as a means to slowing China's Nat Resource grab...but, as the US Economy rolls over and joins Europe..."gaming" Oil will no longer be an option & Oil falls hard & fast.
My very small "straddle" position in LEAPS & CALLS won't really matter unless we see OSX 165+ & in that case, I'll be glad I was a PIG-bear and not a HOG-bear on Oils...but, I'm not short here presently.... but, will be upon either further Economic Weakness and/or a break in Crude Prices...but, my favorite shorts are the high-flying Nat Gas E&P's...because Nat Gas has ridden upon Crude Oil's coat-tails here...and Nat Gas E&P's have the most Mo-Mo Spec Money in them of any subset of Oil/Energy Stocks.
Oilpatch Permabulls need to look at the Homebuilders and their PE's if they think that their "CYCLICAL" Sector is still undervalued. Unlike many of the Big Oil's and Refiners, or E&P's - many OSX plays do NOT have great earnings and are VASTLY over-priced compared to many Homebuilders whose PE's at Peak Cycle are still in the single digit's and whose Earnings are much stronger than the Oilpatch plays for the most part.... say hello Refining Stocks ~ especially in the wake of a New Wave of Global Refining Capacity coming online...per the recent G-7 Meetings.
PS: We had quite a Battle between Traders on the Old Strictly Drilling Thread in 2000-2001 over making the leap from Black to Yellow Gold as the coming "Cyclical" Play:
Just to update the Battle between Old Yeller & Peak Oil:
finance.yahoo.com
...the Yellow Dawg still rules ~
* Stand like Mountain, but flow like Water *
PS S: NEM had 3 Million Shares over & above average volume today on an up day...directly into a Dollar Rally and a Strong Dow (for now...).
PS S S: Michael Jackson get's acquitted.
The Star Witness Child's Mother becomes this case's Mark Furman.
The Jury votes EMOTIONALLY against the Mother they didn't like (who snapped her fingers at them during the trial); instead of voting LOGICALLY with the preponderance of the Evidence.
O.J. / Mark Furman Deja Vu all over again... where the Jury disliked and EMOTIONALLY reacted to Mark Furman vs. the preponderance of the LOGICAL evidence.
People act, vote and buy stocks EMOTIONALLY... not LOGICALLY.
Michael Jackson, O.J. and Peak Oil...
The Song Remains The Same ~
People Act Emotionally....
But, in the Market - Go Long the Logic & Short the Emotion.
$` |
