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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (14233)	5/21/2004 12:23:06 PM
From: gregor_us	Read Replies (1) \| Respond to of 110194

The Contrarian Position in Oil: Long Oil Stocks. This is what very few have understood: oil stocks have languished because of the fear of high oil. Yup. I said it. The oil stocks are unloved when oil is above 40, because traders think 40+ oil is just a set up for a fungo-boomerang back below 40, which would only take the oil patch down too if the oil patch was "foolish" enough to drive higher on 40+ oil. So what the oil stock traders want to see is an oil price between 35-39, which takes all the heat and panic and media off the sector, and drives consumer psychology back in the right direction. Oil stock traders have been worried about Demand Destruction at 40+ oil. What oil stock investors need I realize is stable oil, to run the price targets and the earnings projections. Oil stock traders have had every right to fear a lemming, retail crush to buy the oil stocks, only to get smashed by volatility in the oil price. Here's how everyone got this trade wrong: they saw/see the greed in the oil futures and assumed it was in the oil stocks too. But it wasn't. It isn't. The oil majors as a group made their power move last Autumn, and have not put on a sustained show of strength since DEC 2003. The oil futures market and the options market have instead put on a show of sustained skepticism. The former remains in backwardation, and call options remain cheap, IMO. So what happens now? The fear over oil volatility is still in the market so I conclude oil stocks are set to be range-bound, as usual. What would help would be a multiple test of 40 oil, or some consensus that 35-40 oil was the new range.