It’s All Comes Back to OIL!
The 2020 extreme aberration in Crude Oil pricing was a temporary phenomenon — not a sign of impending doom.
You remember the story when oil dropped “below zero” last March. In reality, the delivery and expiration mechanism was exploited for profit in a reverse squeeze to slash and burn lingering long positions past their due date.
Looking back (as I’ve said all along) that capitulation was obviously the low point. At the time, all we heard were super-bearish predictions and analysts claiming oil would never recovering. Instead, crude hasn’t looked back once!
The great crude rally — $0 to $55 in nine month
When the March 2020 downside price gap was later filled, we received a strong sign of stability. Crude can be a barometer for economic activity. And the most macro bullish signal was not when stocks completely recovered losses — but when oil was breaking out of its sideways range back in the fall.
That recovery rally led to this latest leg higher in stocks as the badly beaten energy sector started to shine. Now that many of the energy stocks have finally surged, the whole market is on the mend…
Keep it In the Money,
Trading Tip of the Day: Don’t break this key rule…
Jesse Livermore is famous for making (and losing) several fortunes over his lifetime. The “Boy Plunger” made his millions betting against the market during the Panic of 1907. He then screwed up and lost 90% of his winnings almost immediately after on a botched cotton trade.
What went wrong? Livermore admits he mismanaged the cotton trade because he broke several of his key trading rules.
Let’s learn from the Boy Plunger’s mistakes. Here’s one of the key rules that helped him bounce back:
Never buy a stock because it has had a big decline from its previous high.
Yes, turnaround plays are some of the most lucrative trades you’ll ever see. But you won’t hit a winner if you’re only buying because the stock is down big.
Downtrends can last a long time—longer than most investors expect. Snatching up shares of an ailing stock just because it’s cheap or has taken a beating recently is a surefire way to get in hot water.
When you’re looking for turnaround plays, make sure the chart is showing signs of life. Sure, you might miss the first leg of a comeback move. But you won’t lose a chunk of change by taking a chance with a stock that’s in free-fall.
— Greg Guenthner