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

To: mishedlo who wrote (68471)	8/18/2006 12:30:15 PM
From: Wyätt Gwyön	Respond to of 110194

i agree that we agree more than our argument makes it appear. sometimes it's difficult to have a discussion like this on SI because one gets caught up in particular words or phrases and that gets away from the gist of thet argument. let me clarify: i think sentiment is a short-term indicator that flucuates wildly. energy can and will be short-term overly bullish, and short-term overly bearish. it may be overly bullish now, for all i know. long term, i think that sentiment oscillation can be ignored and the market weightings are the things that matter more. you could pick a time two years ago when sentiment on energy was overly bullish--if you'd bought then you would have gotten a 20% whacking, but you'd still be up 100% from your buy-in today. as you suggest, energy's weighting can rise simply by energy stocks treading water while other sectors tank. that hasn't happened yet, but it could indeed happen. also, while i think energy will go north of 20% eventually, i do not necessarily think it will take out its 1980 high of 30%, even in an orgasmically bullish energy scenario. why? because energy weighting in SPX is determined by the megacaps, and i don't think the megacaps are the place to be. i don't own them. they are facing dwindling production, arbitrary "renegotiation" of concessions in exporting nations, and possibly windfall taxes in the Greedy States of America. my opinion is that it is the niches that have a better chance of doing well--the small caps, the developed oil sands, the odd refiner (VLO). that is where i have been positioned in the market and it has paid off. i have no idea whether it will keep working. i don't think anybody else does, either. i was as surprised as anybody by the great month of January--most were incredibly bearish then and missed the best month in ages. my strategy is to simply hold an exposure level that allows me to sleep at night. i will sleep whether we have $200 oil or $50 oil. if it goes up to $200, great, kaching. if it goes down to $50 and the stocks take a 40% hit, great time to suck it up and up the exposure, to get paid a great deal by panicked sellers for providing them an exit. i am constantly on the lookout for "what could go wrong" with the energy outlook. i have never been 100% "all in" as that goes against my PF mgmt principles. my range of fluctuation is like 20-80% with 20 and 80 both being extreme. i was at 80% at the end of January and reduced to 20% by the next day (as i mentioned on yr thread at the time). so that is an indication of my flexibility to change outlook if i consider an extreme beating likely. i endured several painful drawdowns last year so i decided to be very proactive this year, and it paid off in Jan. but trying to get too cute means selling at the beginning of Jan like all the people on the Thermometer Thread, and missing the best one-month return in the entire energy bull run. fwiw, right now i'm at a 40% exposure.