Friday, August 8, 2008

No time to be a hero

The commodity markets are getting KILLED, and the Euro is about to join the walking dead after a long run in the sun.  


Yes, Peak Oil exists. No, that does not mean Oil cannot go even lower.  Oil could easily break down to $100 or back up to $130.  That means don't trade.  Guessing is no way to make profits.

I have been saying for sometime that I would get exited about Oil somewhere between $110 and $120.  That does not mean that I am willing to go reaching for a falling knife.  Let it stick in the floor and rattle around a bit.

I think Oil will head well over $200 in the next couple of years.  Does it matter is I pay up a little bit?  Not if it saves me the aggravation of watching it sink while I am long.  Trading is about ridding winners, not ridding losers.  No matter what you "believe".  Believers lose money, traders that get off of losers make money.  

Try this sometime.  Just to prove a point.  Go long a VERY small position in whatever.  IF it goes your way, ride it until it starts to roll over, head fake or not - then sell.  Conversely, if it goes against you, sell and then go short.  Even though you are a "believer", go short.  Cover when you it turns up in any meaningful way.  Don't "paper trade", that won't prove the point.  The point is this. Emotions make trading hard.  The best hedge fund guys have ICE WATER in their veins.


"The bears are in control of commodities" a trader friend of mine from New York remarked to me this morning.  "I feel like I just stepped into the shower of a Turkish prison", he continued.  Wisdom and wit go along way as a trader.  

He and I shared the view that EVERYTHING revolves around Oil.  

Here went our If/Then sequence....

If Oil heads lower/Then the Stock Market heads up

If Oil heads higher/Then in addition to oil, go long Silver and Gold.

If the Euro gains MUCH more versus the US$/Then the ECB is into currency debasement much like the U.S.  If that is true/Then at some point Gold and Silver will get their Mojo back.

If Oil heads back up over $135/Then pressure will be back on the US$ (Which brings us back to a race to the bottom between the Euro and the US$.  A person could go crazy with all of this.)

So, it would seem, it is all about Oil.  And at the moment Oil his heading down.  While I always say markets zig and zag, they don't zig and zig, sometimes you gotta wait for the Zag.  This is one of those moments.

Just look at the Financial Index, it is up as I write this, even though Fannie and Freddie are back to their lows and by all appearances are going out of business.  Uranium stocks have been murdered, even though many in power are advocating a major nuclear push.  And Natural Gas is getting cheap enough on a BTU comparison to compete with Coal in electricity generation.  The Oil service and drillers, are trading at 6 to 8 times next years numbers, even though "Drill, Drill, Drill" is the new mantra in Washington.

None of this argues for a low yet in Oil prices.  That does not mean Oil can't turn any minute, but I am standing out of the way of the commodity.  I am long the equities, will stay that way even if oil pulls back further.  In other words, I am as dazed and confused as anyone else at the moment.  The best course of action is to at least "Do No Harm".

Good Luck,

Mentatt (at) yahoo (d0t) com

Accordingly, I am going to take a few days off and let the dust settle.  


Anonymous said...

Is it so complicated to find out if the Chinese are bringing the oil down (so quickly) because of them shutting down the country for the Olympics? Is the trading of commodities so secret that we can't tell who (in general) is NOT buying oil futures. And if September comes and I was wrong on this, whose gonna be there to comfort meeeee????

Anonymous said...

It just doesn't make anysense, the P/E ratio of the Dow is NIL, check it out at market lab in Barron's. There's a potential war breaking out between Georgia and Russia, we are so close to peaking in terms of oil and this year at an 18% increase in M3 money supply (according to shadowstats) would mean 2.5 trillion more dollars around the world. AIG, Fannie, Freddie, RBS, Barclays all report massive writedowns.

This market is supposed to be deader than a dead duck??? maybe every trader is reading self help books, we can ride this out, be positive and buy, buy, buy!

Greg T. Jeffers said...

I find that whenever I am saying to myself "This does not make sense" I am in a losing trade. If you are losing money, you are wrong (at that moment) things can change, sometimes you lose more, and sometimes you were right. Don't ride losers. Get off them as soon as you recognize the "this does not make sense" denial.