I had thought, before Thursday evening, that we were preparing to end this correction. I cannot in good faith believe that now.
The sheer level of devastation – and devastation is in no way hyperbole – that hit the tape Friday does not just flutter away. We are in pure panic mode, based on an as of yet still unseen enemy.
That I can’t see what is causing all the panic frightens me more. The only thing – the only thing – that even comes close to setting off alarm bells for me is the EURUSD and reports out of Europe. The market is trading like it’s 2010-2011 again. That actually makes sense to me. I had figured Europe’s troubles had been masked but not addressed.
But there’s not much data here to back up the fear. It’s not like European yields are blowing out again. The EURUSD is the only visible piece to the puzzle. There’s some churning GDP numbers as well. How can I sell out based on a single indicator and what is still just noise?
The oil blowout itself doesn’t make any sense. I spent the weekend reading through research reports analyzing the situation. The main takeaways are that oil could go a lot lower, no one thinks oil can stay a lot lower for long, no one saw this coming, everyone is pretending like they aren’t surprised by it, and sell everything just in case.
That’s crazy. I can’t follow that kind of logic. And that’s exactly why every worry presented is going to happen.
We are so far past logic on the road to crazy at this stage, it’s almost illogical bringing up logic at all. We just blasted oil 40% based on 5% excess capacity, the only second largest supply build in five years, a conspiracy theory, and a sneeze.
How can you possibly hope to plan for that!??
So here’s the deal; don’t follow me. I’m not your financial adviser, I’m a guy on the internet who’s trading his own net worth for real. And like a real person, I sometimes choose to do stupid stuff. Today, I’m deciding to hold my death basket a little longer. A wiser man, seeing the pack of lunatics closing in on him, might opt to retreat. But I just can’t; maybe I’m too tired of this nonsense to move.
When will I retreat?
I made (I can’t recall exactly) 25-28% last year. I’m down a little more than 15% right now. A complete retrace of 2013 puts me at (20%)-(22%) to breakeven. I’m willing to go there, back to last year, because that would be okay in my book. I’ve been buying most of my old positions back for far less than I sold out in August. Hell, I’ve been buying some of them back for less than I bought them in the first place…
Breakeven at 2013, and I’ll regroup. That’s actually not bad, considering I’d be way past that had I not sold down at the end of August. If we bottom between then and now, I’m still up for 2013, which would be kind of remarkable in and of itself.
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WTI and Brent both up over $2.00 today, yet oil stocks are still getting smacked around (part of my book as well). I see this as either institutional money wants nothing to do with these stocks, or retail investors are selling out based on sheer panic. How would you interpret it? Thanks for the feedback.
Put yourself in this situation:
You’re margined, 2X long, with oil stocks making up over half of your positioning.
Thursday evening, after a pleasant dinner with your family, you watch oil incinerate.
Friday, you suddenly discover your average positions is down somewhere between 20-50%.
Your losses are in the 10-20% range, inside 4 and a half hours.
You do what?
Beyond cursing and throwing whatever item is at an arm’s length reach from me against a wall, I’d be selling.
Full disclosure, I’m about 20% exposed to oil stocks so while I can’t put myself in that situation you described above, I’m definitely feeling the heat.
My sense is that, with oil prices being higher and all the articles and hysteria about oil going to $40, it’s selling at the retail level. However, it was just so odd seeing oil make a 3.5%-4% move up and no response from the stocks.
Right it is odd to watch, no doubt. But remember that a lot of selling was beyond stopping at that point.
“Animal Spirits”