September 13th, 2009

Mysterious Happenings in the Oil Patch (Stocks)

The NYTimes, no charting haven but sometimes interesting none the less, happened to have an article that should be of interest to all who wonder how long this terrific market will continue (and if you’re reading this blog but aren’t interested then you’re in the wrong place). In the article, entitled “Around the World, Stock Markets Fell and Rose, Together“, Floyd Norris reports:

The United States stock market has just completed its best six months since 1933. From March 9 to Sept. 9, the Standard & Poor’s 500-stock index leaped by 53 percent……..Amazingly, however, the American stock market was one of the least volatile markets in the world in the last year. It was among the best markets when it was plunging, and among the worst when it was soaring. Over all, it ranked near the bottom among international markets……

If history is a guide, the strong recovery may be an indication that better prices are still ahead. Since World War II, there have been eight periods before the current market when the S.& P. 500 managed to rise at least 30 percent over a half-year period — in 1963, 1971, 1975, 1980, 1982-83, 1991, 1997 and 1999. A year later, the index had made further gains in seven of them. The exception was 1980, when the economy went into a double-dip recession and dashed the hopes of investors who had bet on a continued rise in stock prices.

I confirmed these results when I wanted to test the importance of all the conversation concerning how awful September and October are historically and, by inference, predicted to be this year, too. What I discovered, however, was that markets closed higher on December 31 than they did on August 31 in 34 out of 47 years since since 1962. The worst 4 month periods of the 14 that had a lower year-end close were 2008 and 2000, both years in which the market had already been declining prior to August 31. The third worst was 1987 due to the Crash that October. The average gain for the 31 up years was for the 4 months was 6.9%. Exclude the 3 crash years, the decline for the remaining 11 years was a non-staggering -3.8%. So the prospects for the next 4 months based on the past 47 years’ statistics is for a strong finish to year-end. (statistics available in spreadsheet form by clicking here)

If you’re not in stocks now or have some new money to invest, what should you buy? Banking stocks as a group are up 119% since March 9, Insurance stocks are up an average 86% and Computer Hardware stocks are up an average 82%. If the big money herd has sideline money left to put to work then are they going to buy these stocks or will they put their money to work on some industries that haven’t been bid up so much already. My guess is that a good chunk of the money will be put into energy stocks which as a group are up 54%.

Specifically, many oil& gas stocks have formed the same reversal patterns (head+shoulders, ascending triangles, etc.), with breakouts highly likely. Some names include (click on symbols for the charts):

  • SD (SandRidge)
  • HLX ((Helix)
  • HERO (Hercules)
  • CRZO (Carrizo)
  • KWK (Quicksilver)
  • PVA (Penn Virginia
  • SM (St. Mary)
  • PXP (Plains Exploration)
  • COG (Cabot)
  • CHK (Chesapeake)
  • APA (Apache)
  • CEP (Constellation)

This is by no means an exhaustive list, it may not even include some of the best stocks and some of these chart patterns may actually fail. But the list could go on and on because there are so many great looking charts for you to scan through to find the one(s) you like best (in full disclosure, I already own the first two on the list).

There’s something going on in the oil patch that’s contrary to what you read or hear from the TV Talking Heads (e.g., huge inventories, price pressures). The charts tell a different story as I see it. They tell a story of slow accumulation and breakouts galore coming as we approach year-end. If you missed out on the low priced financials in March and the energy stocks last year now’s your opportunity again.

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There was another article in today’s NYTimes I’d like to bring to your attention, entitled “At Your Fingers, an Oxford Don“. The article extols the benefits of one-to-one tutoring:

“21st-century technology carries the potential to nudge mainstream education back toward the 16th-century vision of one-to-one tutoring.

The Internet, high-speed networks, powerful and lighter computers, and clever software for video, collaboration and simulations on the Web all help. Equally important is a maturing understanding of how to use wisely the new digital tools in education. The goal, proponents say, is to open the door to more engaged, interactive and personalized learning.”

The article goes on to say that “one-to-one tutoring is the learning method proven time and again to sharply improve a student’s measured performance. A good human tutor can deliver a ‘home run'”. If you’re looking for better stock market results, now you too can get tutoring to improve your chart reading skills. For more information, click here.

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  • Anonymous

    not much action today…I guess SPX needs to wait for 50 MA to catch-up.

  • Jesse Caris

    guru, I admire your tenacity. factiod of the day – On September 10th 2001, the DJI closed at 9605, and friday (9/11/09), the DJI closed at 9605. For the buy and holders, some of you finally got back to 2001.
    guru, what would the blog be without a little perspective and reflection? I'm your biggest contributor…cheers

  • Anonymous

    REIT is the new leader of the market. Any comment on why reit is leding…

    http://finance.yahoo.com/q/ta?s=UYM&t=5d&l=on&z=m&q=l&p=&a=&c=fas,tyh,edc,erx,bgu,tna,drn

  • Jesse Caris

    Guru, Ben Bernake said today that the recession is over. He wouldn't lie. time to go long!

  • Guru

    Jesse, I'll take the other side of that trade. We're getting close to the point where we're going to have to start lightening up – around 1080-1125.

    Just when the WSJ or NYT puts a headline on the front page (remember the Business Week Indicator) that the recession has ended then it's time to start increasing your cash position.

    The correction will be hear just as we're getting comfortable that the recession is over.

  • Jesse Caris

    guru, I of course was being sarcastic! lol, I added to my short position today

  • Manoj

    Guru, Did you mean that we should start increasing cash position?
    If yes, any specific sector(s) specifically to unload?
    Thanks
    manoj

  • Minnesotalee

    UP, up and away to 1295! Don't short this market, it will be a mistake. There is absolutely no technical pattern that would support this. Probably no fundamental reason either. Shorting is done. That's why the market keeps going up because the short squeeze and the pundits who call for a pullback are dead wrong. The odds of 87% of this market going higher are a lot greater than the 12-13% odds of it going down. I'll take the other side of your trade. When will you buy???

  • Saoirse

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.