OhMyGawdItsaRecession!
Yeah, right.
Nice little panic-type action today, with gold miners and clean energy being the only stock categories I track that didn’t puke into their Alka-Seltzer, and bonds and commodities – especially oil – being generally strong. This type of action never lasts too terribly long, and is analogous to a school of fish suddenly darting in the same direction, away from a thrown rock; they’ll go back to swimming the way they had been swimming, soon.
Now the S&P 500 has closed below the 1365-ish mark that I saw as the bottom of a general support range. Keep in mind that support and resistance aren’t magic (or even majik) and don’t necessarily obey the razor-thin lines we draw on charts. Moving below that range could be nothing more than the result of hitting stops and triggering sell orders placed at that mark. Or, it could be the market crash of the frickin’ century! Yeah, right.
The VIX wasn’t high enough, relative to actual index volatility, to signal enough fear for me to get excited about, and the 2-day RSI isn’t very low, either. NYSE Advances minus Declines got pretty darn low, however, and I suspect some other internals and sentiments were around the same levels as the March or January lows.
From a Timing perspective, I’m not terribly impressed. This wasn’t enough action to trigger any change from its current stance, not enough Fear to buy, and the EZ+Macro isn’t in a place that dictates selling. Oh, bother.
From the perspectives of the other systems I track (and the system that I trade), I don’t care what the S&P 500 index does, I just take the trades the system sets out, when it’s time to do so. Nice work if you can get it.
June 6th, 2008 at 9:37 pm
The question for me isn’t whether or not it is too late to get in on the energy bubble (too late for me). But whether or not the clean energy and infrastructure themes (not traditional energy or utilities) have high expected returns yet to be priced in. thoughts?
June 7th, 2008 at 12:12 am
I think the clean energy theme overall, including the large-caps in the ETF tracking it, is just as faddish as the energy bubble, and is really just the flip side of it. If I thought I was late to the oil party, I’d probably also think I was late to the energy party, too.
I also think the water index ETF is a fad, and isn’t really a collection of plays on water. Use the search box in the sidebar and look for the PHO article.
Now, water and clean energy will certainly have a few plays that are viable long-term companies which will get explosive growth over the next several years, but that’s a horse of different color compared to the above discussion about making sector trades on those themes for the next few weeks or months. The long-term plays will be buy+holds (set an annual review of the positions) of small, carefully considered allocations based on lots of research, and if I did that, I’d probably have to endure some pain during the holding. I would bet that the companies in those themes that are triples two years from today are ones that haven’t been mentioned on any blog or news show yet.
My thinking on this is heavily influenced by the ethanol bubble that just blew up. You might try looking at the last two years of price action for all the pure plays on ethanol, and read some old Seeking Alpha posts on the companies, before approaching alternative energy as if it were here to stay.
June 7th, 2008 at 7:17 am
I don’t know about you guys but I’ve been holding XOM since 1997 (pre-Exxon Mobile days) and its been kicking a$$ since that time. My personal opinion is that $200 a barrel oil is just a matter of time in the long run and I’m adding to my positions on pull backs.
Bill: My model issued a buy yesterday because there was quite a bit of panic from the various indicators I use and have created. Recession or not the recent range of 1360’s to 1415’s on the S&P500 is a pretty big churn point IMHO.
June 7th, 2008 at 7:45 am
Tom, I agree it was a significant spike in fear, but just not enough - relative to recent price volatility - to trigger my system’s buy-in on the fear. Lots of other indicators were pretty fearful, like TRIN, Advances minus Declines, etc., but I’m just using the one indicator in Timing.
June 7th, 2008 at 8:03 am
Hey Bill,
Oil just “generally strong” and not having to worry about what the S&P does is very good work if you can get it
June 7th, 2008 at 9:58 am
In the monthly frequency backtests, there’s not a lot of correlation between Aggressive or Rotational and the S&P500. Fundamental has a little more correlation, and Timing is (of course) the most correlated, most of the time. I only record the week-ending equity when I’m tracking live, although I frequently look at the daily moves, and I’m not experiencing a bunch of lockstep with the market.
Some examples:
Rotational was up yesterday.
Aggressive was down pretty big yesterday, and was up Thursday, but not as up as the market. However, Aggressive was up rather nicely on Wednesday when the market wasn’t.
Over the last four weeks, my return is down and pretty close to the market’s, but over the last three weeks I’m flat, while the market is down 4.5%. Over the last 12 weeks, I’ve underperformed, but over the last 24 weeks, the overperformance is very significant, over 10% higher.
There’s really not any reason for me to care what the market is doing, because the system equities march to their own drummer.
June 8th, 2008 at 1:39 am
Hey Tom,
IF and I emphasize IF you believe $200 oil is coming in the long-term (FWIW, I happen to agree, but think a really nasty correction is going to occur after this recent parabolic spike from 85 to 135) then I’d suggest you do some serious homework on CNQ (Canadian Natural) which is long-lived reserves in a politically secure region (Canada). They have significantly more upside operating leverage to oil prices and a growing production and reserve profile unlike XOM (which IMO will struggle in the coming years with production and replacing reserves). Take a look at the 5-year chart of CNQ versus XOM. If oil goes to $200, I’d say 99% probability CNQ outperforms XOM by a substantial margin. In fact, it won’t surprise me one bit if one of the big majors like XOM or CVX ultimately acquires CNQ for a sizable premium. How else will they grow production?
Furthermore, a world in which oil is $200 is a world where natgas is $15-$20, and in that scenario I think Chesapeake Energy is worth multiples of the current stock price based on their likely future proved reserves and production. I’ve been in and out of CHK a few times since 2003, and it has been a great performer for me. I’m currently long both the stock and the LEAP options.
June 8th, 2008 at 9:36 pm
Hey Bill,
I know your pov on the meaningfulness of the S&P 500, but we all like to guess how many jellybeans are in the jar. Stop by regimenia if you want to guess where U.S. large caps will be next summer. I’m trying to see if there is any consensus amongst the folks who opinions I respect.
June 9th, 2008 at 7:08 pm
Bill,
I really don’t foresee a huge panic. When I think of a panic, I look to the Panic of 1907…..that one was a real doozy.
Jeff