ljimi,
In my message to you, I mentioned we might see a reversal today or tomorrow in the OSX. I should nave mentioned if your time frame is more than a day or two, then playing this bounce isn't a very good risk vs reward play.
A different way of looking at this, which may better explain my position, is that for the last 50 days, the average price for the OSX has been, "85 and change." The average price for the OSX over the last 200 days has been, "85 and change." The last 50 days are no different than the last 200 days. In other words, there isn't a trend.
I think we make the mistake of saying we are bullish or we are bearish. I have been very careful not to say I'm in either of those camps. The OSX hasn't been bullish or bearish over the last 200 days, it has been neutral or should I say, ..... trendless.
In a trendless market, you have clearly defined trading ranges. The type of trading ranges that Tex referred to by mentioning channelingstocks.com. (I hate their commercial, but their message is very valuable to those with an open mind and the ability to change strategies as the market changes.)
In a trendless market, you buy in the lower end of the trading range, sell in the higher end. We are currently in the higher end of that trading range with regard to the OSX. This isn't the place to take a position unless you're looking at capturing one or two day moves in the price.
The fundamentals for the OSX may be excellent, but what good is that if we don't break out of this 200 day trading range?
Ed Ajootian was kind enough to link an article to me about technical analysis and the oil service sector. (Thanks Ed! I don't normally read any of the articles posted here, but since you linked it to me, I thought you meant for me to read it.) The author of that article and I are saying the same thing but in a different way. Here is part of that article:
>>> While futures traders assess the odds of further oil price rises, Thomson's Fitzgerald feels the Phlx Oil Service Index ($OSX: news, chart, profile) still appears "to be a fairly good bet for bulls."
He noted that the sector tracker appears to be on the verge of breaking above a downtrend line that originated in Spring 2001. <<<
Two things.
1. I have maintained I agree with the fundamentals and the OSX may be a good play for the bulls.
2. I have strongly recommended waiting for that trendline to break before getting back in.
Up to now, the OSX has on several occasions looked like it was on the verge of breaking that trendline, spoken about in the article. But it hasn't!
Then the author had this to say, immediately below his comments listed above.
>>> Fitzgerald said a solid break above that line would "extremely bullish" for oil service stocks, and target gains for the index to as high as 160.
But what will become of the index, if crude futures fail to keep rallying? Is the potential gain worth the downside risk? <<<
There's that, "but what if" question. Will the index keep rallying? I don't know the answer to that question. That's why I locked in my profits at OSX 88, profits from the OSX down in the 70's.
If that trendline is broken, and done on above average volume, the potential gain is worth the risk, in my opinion. I may lose 5-10 OSX points by waiting, but what I will not lose is profits. I can live with losing 5-10 points of potential. I can't live with losing 5-10 points of profits.
In a trendless market, the odds say you don't buy in the high end of a trading range. You wait for the break out. For those who still have profits, I'm not suggesting they sell here, although I did. But they should have a selling point, in case we do drift back, and I don't mean an OSX 75 either.
My analysis has been very consistent in what I've been trying to convey. If you're an oil service bull, the time to buy was sub 80, not 85 or 86 unless you're looking for a very short term trade. One may buy this range and be successful, but that doesn't mean it was a good strategy.
In the game of baseball, you may swing at a pitch outside the strike zone and get a hit. I'll bet you won't find a single Hall of Famer that would suggest that swinging at pitches outside the strike zone is a winning strategy over the long term.
Buying stocks when they are in the high end of their trading ranges is akin to swinging at pitches outside the strike zone. It may work occasionally, but the odds are against you on a consistent basis, and if one is going to be successful in the investing game, consistent profits is the only way they are going to be successful over the long term.
A major brokerage house reported that from the mid 80's to mid 90's, the greatest boom market of our generation, only 8% of their retail customers showed a profit over that time frame. 8%! A lot of fundamental analysis went into those picks. What didn't go into those picks was a common sense approach of when to buy and sell those picks.
An aggressive hitter, a successful hitter, waits for their pitch. They wait for a pitch they can drive. Our advantage is we can't get called out on strikes. We can only strike out by swinging at those bad pitches and missing.
In investing, like in baseball, only a few get to the Hall of Fame. Only 8% of retail investors showed a profit during the "Great Boom." It all comes down to timing. Not just the buying point, but the selling point as well. Every stock has a trading range most of the time. A good trader or investor will wait for a pitch they can drive. They will buy in the lower end of the trading range. Once you hit the ball, you can't score if you don't run the bases. Running the bases in our game is taking profits. In our game, it pays to sell in the higher end of the trading range. Taking that extra base is what will get you out.
da-in-the-zone-bum |
