Monday, August 4, 2008

It was worth a shot

With crude oil sinking again today on economic slowdown worries, energy stocks have tumbled and even Exxon Mobil, fresh off its humongous earnings report last week, has broken support. I wrote this up in this morning's newsletter and while there was no trade trigger on it, I hope astute readers saw the technical breakdown when it happened. At that point is was worth a short!

Last week, I wrote in Barron's Online that energy stocks were attractive again. It was simply based on the risk/reward ratio they presented after falling hard and landing on support. But over the course of the week they failed to rally and as I always say, strong markets do not hang around support for long. With today's oil plunge, it looks as if the trade failed.

However, since we had good money management controls in place - in other words, a stop - we took only a few lumps. It could have been a home run but we ended up grounding out to the pitcher. Better than a double play, though.

But nothing ventured nothing gained. We have to take prudent risks in the markets or we'll never earn anything, The secret is to live to trade another day.

We'll revel in the success of our trade in T-3 Energy, which was stopped out at a nice profit this morning.

So, oil drops on a weak economy. But inflation is at a 27-year high. But gold is falling, too.

Something is very weird here and whatever it is, it cannot be good for the stock market.


Louis said...
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Anonymous said...

I agree with the wierd part. Oil is trading down consistently with my model (although with fewer counter trend swings than I expected). But gold which has typically traded with the dollar (esp. since April) is now being traded like an energy commodity. Add to that the dollar is looking unrealistically strong.

Anonymous said...

Also I'd add that it starting to look like an "all boats sink as the tide rolls out" situation, but to my recollection gold is the only thing that holds up in bear markets.

Quick Takes Pro said...

gold stocks broke down through support convincingly today (see GDX ETF). All boats are sinking but there are always some that have such strong engines that they can fight it. But if the tsunami sucks out all the water then so long everybody.

I have not yet conceded that commodities as an asset class have peaked. It does not match today's inflation report and yes, I know the report looks backwards.

But when commodities do peak, there will be a period of deflation when stocks, bonds and commodities all fall. That means cash is king.

I would not mind more cash now but commodities are still hanging in there if you look at the long-term. short-term, yeah, they are tanking but there was a bit of froth to work off.

About Patrick said...

I have to agree this has been a very strange market. With oil going down along with the overall market. Today a whopping rally accross the board. I wonder if this strong push was part due to short covering and this may yet be another typical August.

Anonymous said...

I've decided this is neither a bull market nor a bear market, but instead a delusional market. Short traders have no conviction and cover on "as expected" Fed news. While long traders take positions ignoring every recessionary fact about future earnings.

Anonymous said...

How totally insane is it to believe the dollar will stay strong? And GLD breaking below it's 200 day moving average just before Sept/Oct of a bear market?

Quick Takes Pro said...

I agree that this was a short covering rally. My guess is that many traders were short going in to the Fed thinking that they were going to either raise rates or strongly suggest they would soon. When it did not happen, off we go to a short squeeze.

So how does that justify the 200 pointer before the Fed decision? That part we get from crude oil

Now, does it make sense given everything we know? Of course not! As I have said and commenters here agree - this is a strange market.

Read my next blog post about an unfortunate interview I had today.