August 7th, 2012
I came across an old post of May 2008 that may be of interest today (can’t believe that’s nearly four years ago! It is old but it’s worth reread it now in its entirety). In Don’t Fight the Tape – Rev. 2.0 (), I wrote:
Prof. Benjamin F. King (University of Chicago, 1962) who discovered that “50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own.” If the market’s going down, there’s a good chance your stock will too…. Bubbles are fun while they continue; it’s when they burst that it really hurts ….. for the rest of the tape we’re in a bear market and, therefore, the oil stock bubble will end badly.
The members of several Industry Groups including homebuilders, financials, semiconductor fertilizer and for-profit education tend to move in unison through various market life cycle phases. Oil & Gas related stocks imploded shortly after that post. While it’s true that the whole market caved in with the onset of the Financial Crisis Crash; the Oil & Gas stocks looked sufficiently vulnerable enough to demand write about. The stocks listed in that blog declined from June 24, 2008, the date of that blog, as follows:
- TNP: -87% to January 3, 2012
- CRT: -71% to February 25, 2009
- SJT: 73% to July 20, 2009
- NFX: -66% to November 26, 2008
- NGS: -73% to March 11, 2009
- MSB: – 80% to March 4, 2009
- SGY: -95% to March 4, 2009
That was then and now it appears we may be embarking on the beginning of another of those long-term Industry Group cyclical moves during which many Oil & Gas stocks look as if which they may be at the end of the correction begun in 2008 and about to embark on a multi-year move to significantly higher levels. It could take weeks or months for breakouts and there probably will be pullbacks along the way but once launched, the results will be very satisfying. Examples include (click on symbols for charts):
Scrolling through the charts is an excellent exercise in looking for similarities and differences among them. Note that these are 4-day bars in 11-year charts. It’s going to take a quite some time for the patterns to deliver on their promises so there’s no rush out and buy them today. If I’m correct then there will be plenty of time to climb on board before their stock prices appreciate beyond reach.
I’ve already purchased some of these and will plan to add more as I rotate out of some other Industry Groups. The only reason for taking a bite out of these now is because the beginning of a move is often the most profitable when measure in 1) percentage gains and 2) dividend yield locks.