THE ENERGY DRAG

It’s true the S&P did break below the yearly cycle low and that is a warning sign that the cyclical bull may be in the process of expiring. However most of the market has not confirmed that move.

The obvious problem is that energy is now a big part of the S&P and the market is very nervous about the presidents knee jerk reaction to what is happening in the gulf.
The energy stocks are a big drag on the market right now and a big reason why the S&P broke below the February low while the rest of the market has not.
I tend to look on the non-confirmation as a bullish sign and I’m still expecting one more leg up in this bull.
Let’s face it sooner or later the problem in the gulf is going to be corrected and oil companies will go back to business as usual. When that happens its going to take a significant amount of pressure off the market and I won’t be at all surprised to see a powerful rebound out of this intermediate low.

34 thoughts on “THE ENERGY DRAG

  1. pimaCanyon

    thanks, Gary. I believe you’re right, that the non-confirmation is bullish, and when BP gets the spill under control, we will have a big rally. Up for 2, maybe 3 more months, then down we go.

    Because gold has been going up recently when stocks head south, are you anticipating a correction in gold as stocks head into this final high?

  2. Gary

    At some point gold will move into a D-wave correction but it has never happened until after a huge parabolic blow-off top first. Since we are nowhere near that stage yet I have to assume that the best part of this rally still lies ahead.

  3. Blake

    BP is a long ways away from getting this leak under control. If you are waiting for that to happen for the markets to have an excuse to rally, we may be waiting for another month or so

  4. Gary

    I doubt we are actually going to stop all drilling in the gulf and there are only a couple of companies actually affected. At some point investors will come to their senses and realize that this one tragedy has unfairly punished all energy companies.

    This is how great opportunities are born when the market lets emotions carry prices to unrealistic levels.

    Not that I want to invest in an impaired sector but we still have the same thing going on in the mining sector as the gold:XAU ratio is still above 6.

    Market emotions are still pricing miners too cheap. Investors still have a great opportunity staring them in the face if they are able to look past their emotions and spot the bargain.

  5. TommyD

    Gang,
    Could I get some book recommendations that anyone finds useful. Books that are a must-have for the successful investor. Looks like I might have more time on my hands now that I am not trading so much:-)

    Thanks.

  6. khalid

    TommyD:
    My reco’s are The Zurich Axioms (there’s a pdf out there on the internet somewhere if you want it free)
    and
    The Money Game.
    Both are essentially on speculation, but the second really aims to get you to think for yourself and to take what you hear and read with a grain of salt.
    You’ll find that a lot of what you’re hearing or reading today, was all said or written in the 60’s re gold, silver, the Dollar, when The Money Game came out.

  7. khalid

    I also recommend Marc Faber’s book Tomorrow’s Gold
    and anything by Jim Rogers.

  8. TommyD

    Khalid,
    Thanks for those recs.

    Gary,
    You are correct on using the public library. These will be the first to go when the state and gov. run out of money. If I time it right I could have all the books checked out when they close the doors for good.

  9. Anonymous

    Hello fellers

    I continue to short the yeller junk at these levels…some retracement coming me hopes…
    Dawler up… stox way down…

    D G out….

  10. Anonymous

    DG,

    Old yeller seems to like a rising dollar. Don’t know how long that will last, but still…

  11. Gary

    There are much easier ways to make money than shorting a bull market.

    Now that I think about it, that’s probably the hardest way to make money.

    That’s just one of those trades that doesn’t need to be taken.

  12. Anonymous

    Classic retail trader mistake. Shorting a bull market.

    No professional worth his salt would ever waste time and capital on a rookie mistake like that.

  13. Anonymous

    ANON 12:30

    I am actually avg up…

    I know its a bull market for the umteenth time…but im trading…sorry i’m not all in on the long side jest waitin…

    D G out…

  14. khalid

    I think’s it’s funny how some people rag at dawler boy when I don’t see him doing any harm at all… just reporting whatever he’s doing/what he wants to do.
    On the other hand a lot of internet folk bowed down to and were slavishly following atticus or attica or whatever his name was over at that other blog that made all these outlandish claims of trading performance/prowess.
    xtrends, i think it was called?

  15. Gary

    K,
    That’s how human nature works. When a guru is hot he collects a big following of people who believe that he really can predict the future.

    Eventually the market conditions change and typically what happens is the guru can’t change with it. That is what happened with X-trends. He became convinced that lines on a chart really could give him an edge in the market.

    When they started to fail he refused to recognize that the market had taken away his system. He has been fighting the bull market since around 850.

    Folks I’m not kidding when I say that no one can see the future. Just because someone gets lucky a few times and hits a few calls it doesn’t mean they can see the future. It just means they got lucky or that market conditions were right for their particular system to work.

    Sooner or later though the market is going to take every system away. So it’s just senseless to put all ones hopes on one Guru’s market calls.

    It’s much safer and you will make a lot more money by just riding a bull market. As we all know by now that isn’t easy to do. There are going to be periods of draw downs. The bull will try everything he can to shake off as many riders as possible. Usually about the time one gets shaken off thats the time the bull comes roaring out of the gate and of course that’s also the time it’s most difficult to pull the trigger.

    It’s why so many traders/investors just sit and watch as the bull leaves them behind.

    It why investors like Jim Rogers, John Paulson or Buffett make so much money in bull markets. They know that trying to time a bull is a hopless task so they just get on board and hold on. While traders who don’t understand how bulls work are forever trying to trade and avoid draw downs and in the end they end up with little or nothing to show for their efforts.

  16. Narayana

    And Gary, eventually your system of hopping on the bull market and riding it to infinity will be wrong too. Why are you confident that you’ll be able to identify the end of the bull market any better than everyone else?

  17. Gary

    Because I’m confident human nature hasn’t changed.

    When we see the public piling into gold just like they piled into houses and tech stocks it will be time to start heading for the door.

    I can tell you right up front I will probably be early and anyone who hops off the bull with me will have to endure the frustration of watching the market go higher for a while. I was early in Nov. too and I took a lot of abuse at the time but in the end I was correct.

  18. khalid

    Narayana
    you had one of the more interesting trader blogs out there. You’re not doing more seasons?

  19. Anonymous

    This luv fest with uncle warren is slowly unwinding. He is just like the goldman bankers. He is just as slimmy as the rest of the WS scumbags. Think what you want but buffet is a crook now.

  20. Marc

    TK says GDX is headed for the high 30’s. Of course, he doesn’t say why other than pointing to a chart.

    I prefer a good well-thought-out rational to a line on a chart any day.

  21. Gary

    Yeah I’ve found those lines on a chart to be very misleading just ask the guys at X-trends 🙂

    BIg picture: obviously a secular bull market. The only one left. That’s all one needs to know to make money.

  22. Anonymous

    Hi Gary,

    I understand your rationale for not using short-term options for playing the gold bull, but i was wondering why you aren’t interested in using options 1 or 2 years out on gold, silver, or the minors.

    Thanks for all your work!

  23. Gary

    The best time to use options is at the bottom of an intermediate cycle. We are in the latter stages at this time so I don’t really want to use options.

    However even leaps aren’t a sure thing if the market trades sideways for a long time like it did in 06 & 08/09.

  24. Bull in Agriculture

    Gary, the fertilizer stocks are really hammered, I think they are due for a strong rebound. There is a disconnection on what goes on in China and in the US. Agriculture prices have been going up and there are food shortages in China, while in the US, the spot prices of agriculture are heading lower and lower.

  25. Gary

    One could always play them for a bounce but like energy they were the darlings of the last bull. They are not going to outperform in this one.

    The clear leaders are the miners. That is the sector that has the safety net under it. It’s the only sector still in a secular bull market.

  26. Anonymous

    I don’t want to offer an opinion on every agricultural commodity, but Russia is really gearing up their capabilities to grow (and export) wheat (plus their farmers are getting significant subsidies from the government at the moment). This is bearish for prices in the medium term, and I am very short wheat futures.

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