Snappers?
Time to be a bit cautious
There’s an interesting perspective watching the oil markets – actually ALL of the markets – from my vacation perch for the last few weeks.
Instead of getting lost in the minutiae, you tend to look at the big view of things – which is something I thought I had already been doing.
It’s not that the big themes have changed, they haven’t – it’s still about Delta and the limits of Fed liquidity. But I suppose my ease at waiting out this market has increased with my vacation sloth. Instead of stressing about every small missed opportunity that I might have caught with oil first sliding down to $62 a barrel and now back up towards $68-69, I’m instead willing to wait for a better long-term entry point for our oil stocks, which have not had much of a rally off of the $6 dollar move in crude anyway. EOG, for example, slipped down to $63-64 only to rally rather unconvincingly back towards $70.
It’s hard, even with a very short-term trading mindset, to get excited about buying even the best of the higher beta independent E+P’s here. I can’t do it.
What’s focused my mind instead, as I come back from vacation, have been charts like this one below:
And even more ominously, this one from a terrific twitter follow @northmantrader:
Both are daily charts of the VIX – the measure of stock volatility. I’ve brought this to you before, because it’s such a sensitive indicator of possible index collapses, like the one that was brought on by the pandemic in March 2020. That stock disaster is best represented by chart number two above – you see that event at the jaw hinge of our friend’s alligator, with the divergence between stocks and volatility perhaps signaling the possibility of another, very nasty ‘snapper’.
I’ll also invite you to view a chart of Bitcoin (wha?) here, which rallies towards and above $50,000 several times, only to continually fail near there (much like the Dow at 35,000?):
What’s counter-acting all of these ominous signs? Well – it’s the runaway inflation, obviously. We see it everywhere, in housing and restaurants and other commodity costs – there’s tremendous momentum for all assets, including oil, to continue to run away from the dollar. And history says that these runaway trains don’t slow down first, politely stop and turn around, they instead usually hit a brick wall - hard.
None of this is news to any of us and I doubt I’ve told you anything you don’t know already. NorthmanTrader has been watching that alligator, primed to snap his maw shut and decapitate any and all unsuspecting investors for the better part of a year now – so far, he’s watched nothing but assets get more expensive.
We haven’t done that, only getting conservative in the last few weeks. For now, I’m going to stay that way – with one small exception below.
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