Having done this for 35 years, there are some things I’m pretty sure are going to happen. The patterns just repeat, over and over again. I’m no Svengali or anything, and FOR SURE the timing is a lot more difficult than predicting the event itself, but there are ‘set-ups’ or other tells that show me that a certain event is really likely.
Two weeks ago, I warned folks to keep powder dry, and expect a pullback in oil and related oil stocks.
I couldn’t be sure of the exact timing of this pullback, but I was convinced it was going to happen – and it did, last week on Wednesday through Friday. Some oil stocks came down a significant amount, setting up some good buys on Friday (and even today!), but we’ll get to those.
How could I know such an event was likely? Here’s a trick for you that I’ve learned through 35 years:
Think of the market in two different ways than you’re used to. First, imagine it as nothing more than a random walking of buyers and sellers, all independently deciding with whatever good (and silly) information or instincts they have at the ready to either buy or sell oil (or oil stocks). With no biases anywhere, prices should stay relatively flat.
Randomization doesn’t necessarily mean 50/50 on any one day or set of days. It can give you some rather big movement for no apparent reason at all, just by “chance”. For example; one day it could be that 65% of folks happen to be selling oil. Further, it’s also possible to roll 3 dice and get 3 sixes too, and have almost everyone selling oil on a day for no real reason whatsoever. You’ll get a huge move, with everyone (nearly) scratching their heads trying to figure out why, when there isn’t a reason. I’ve seen it happen, over and over again.
Got it?
Now – imagine that the information folks are getting is pretty one-sided. Now, instead of up one day, down the next, you’re going to get some strong trending in prices – like the 10 day upswing in oil we saw before I made that call two weeks ago.
Finally, consider the information. Overwhelmingly, this is the media: Business networks, finance websites/magazines and blogs. Institutional players (and old pros like me) tend to ignore this stuff, but the retail player, who often control short-term movement of markets are all over that stuff – You’ve seen that in extremis with AMC and GME, for example.
With the upswing in oil, I saw a couple dozen articles, from virtually every source around talking about the oil trade and the prospects for seeing $100 again.
Now, here’s the trick: For a moment, don’t evaluate the quality of the information. IT DOESN’T MATTER. That’s a question for our own fundamental analysis – and this ISN’T about fundamentals. It’s about monkeys and parrots.
The parrots are, of course, the media. They know nothing, almost ever. What they do is rewrite what they hear and see, whether they are journalists or, truly, most of the working advisors giving out free advice on Seeking Alpha or in the chat rooms. Oil’s going up? Find a reason for it and write about it. Going down? Do the same in reverse.
The monkeys? Well, you know who they are. They’re the folks you’re trying hard NOT to be by being here.
Don’t get me wrong. The parrots could be right as rain, as could the monkeys following them. The point is, they’re far, far more likely to be WRONG FIRST. Here’s the trick to know: Professionals live on monkey money. That’s their real job; not to be necessarily smart about markets – but to find the monkey money and take it – and they do, over and over again (It’s all I and my friends did on the floor of the exchanges for 25 years.)
That’s how I knew that the markets were due for a break – I could smell monkey everywhere. To put it simply, and perhaps a bit crudely - After 35 years, you get good at that.
Now, to the trades:
Whoops, can’t give you THAT: Some good ones this week to consider, too. Maybe you want to consider becoming a paying subscriber to Energy Word ALERTS and get some of those trades for yourself? Only $25 a month.
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