Donny and The Sheik Are Right

Ok, so I’m in the minority regarding crude oil prices. Bear with me on this…

Eventually oil prices will come down, simply because of alternatives. I say eventually, because I’m not doubting that prices couldn’t move higher from here. However, the “oil isn’t going down” arguements are blatantly assinine, imho (sorry). 

History has shown that there’s a 10 year gap between the growth in oil discovery and oil production. In other words, we discover oil reserves ten years before we consume them. This is documented in an interesting book called “Predictions” by T. Modis. This ten year gap has been remarkably consistent for almost 100 years.

So, all these folks who are predicting that we will run out of oil, don’t know the facts. We will not run out of oil. The U.S. has more proven reserves than ever. We know this to be true.  It’s just a matter of tapping into them.

We have four major sources of energy in the U.S.: oil, gas, coal and “nukular”, as Bush would say. Oil will begin to lose market share to other alternatives, as it’s current price may eventually trigger it’s decline as a primary source of energy. It is setting up its own demise, so to speak (think: whale oil). More attention is being turned to coal, gas, nuclear and other alternatives at the same time that Americans are crying, “EGREGIOUS !!” to $4 gas.

The market will begin to discount all this as time goes on.

I don’t doubt that sometime in the future we could see $80 – $90 oil, or even lower. What we’re seeing is a bubble in oil prices, which could get bigger. But like all bubbles, they go “pop!”—-and often it’s due to some factors we haven’t thought about. 

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I sold 1/3 of the original position in [[BIDU]] @ $343.22. Being up about $20 bucks in one day warrants some profit taking. 

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One of the better short term indicators that I follow is the high/low index on the Nasdaq. This index is so simple that it can be calculated by a fifth grader, yet so telling that you can use it to spot potential opportunities when the market gets to extremes.

The Nasdaq high/low is the ratio of stocks on the Naz that are hitting new highs divided by the total number of new highs and new lows, expressed in terms of percentage. Assuming you have access to daily data on the number of new highs and new lows, you can set up an Excel spreadsheet to do the calculations. It’s pretty low tech. Guys like me appreciate that.  Once you get a daily percentage, then just track it on a 10 day MA.

What I’m seeing now is that the Nasdaq High/Low is at 6%.

Simply put, almost 20 times more stocks are making new lows vs. new highs. Anything below 10% is considered a “washed-out” and very oversold market. The only other times the high/low was recently at these levels was in January and March of this year.

A move to below 6% would put the occurrence at more than 2 std deviations from the mean. In other words, statistical probabilities point to this as a rare situation that probably won’t last for very long.

Confirmation of a short term bottom in the Naz would be if the high/low increased to 12% from where it’s at now.

Consider also that putting in a bottom in the market is a process, not an event. We are now at what appears to be a third “bottom” in the past 6 months.

Just saying…..

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Near the close today, I bought the following bio/medical stocks:

[[CGRB]] @ 28.94

[[EXAC]] @ 30.36

[[GENZ]] @ 76.73

[[OSIR]] @ 14.94

[[NUVA]] @ 47.86

Bio/medical looks attractive to me here. Don’t ask me why. Call it an intuitive thing.

To give the bears equal time:

Potential short sales:

[[ACI]] sell @ $60

[[AKS]] sell @ $50

[[CENX]] sell @ $56

[[FCX]] sell @ $102

[[FLR]] sell @ $170

[[NOV]] sell @ $81

[[OII]] sell @ $ 68

[[PCU]] sell @ $ 97

Disclaimer: This information is not intended to be used as the primary basis of investment decisions. Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. Trade at your own risk.

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…covering my remaining short position in [[MA]].

It was just too frolicky and happy-go-lucky today. One can sense these things, you know.

 

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…to cover another 1/3 of my MA short . I don’t like the way it is acting (to and fro, like a gay frolicking goat). Still short the last 1/3. Will cover the rest of the [[MA]] position if it gets back to $255.

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