Friday, July 25, 2008

Bookkeeping: Closing EOG Resources (EOG) and Encore Aquisition (EAC)

Here is the open question - much like banks, these "commodity stocks" will bounce. What do you do on that bounce?

Will they mark a new leg up or just a quick reversal that hot money will sell into? I am (for now) betting on the latter. And if I am wrong, then one can always pay up (buy higher), giving up some gains along the way.... as a real trend will last for a long while.

I heard a striking fact this morning - the last time XTO Energy (XTO) traded at these levels crude was in the $70s and natural gas was in the $6s. The former is now in the $120s and the latter in the $9s. But the stock price is the same. So... either the hot money has been "delevered" as we spoke about yesterday, and needs to sell at any price and this is the buy of the century... or the stock prices are signaling further moves down in the commodities. I don't have a clue. It really doesn't matter why - it just matters that the stocks are being trashed. I have no problem cutting back, watching for technical action to give a more clear signal and then making decisions later when the path is more clear ....even if I give up gains along the way.

Now, unlike the hedgies, I actually discern among the commodities - for example fertilizer I am a lot more bullish on then potentially crude which I believe has been run up by speculation and I was calling toppy a month back. [Jun 26: Can a Top in Oil Be Far Away?] But unfortunately there is no discerning among hot money so when hot money sells, it all breaks down. And the charts for many things in this space are breaking, regardless of fundamentals. Great earnings are being ignored. Etc. So it's prudent to build cash, take some shelter and re-assess when things become more clear. Right now the movement of "hot money" is forcing my hand... again, we are just gnats on their behind.

One candidate to cull is EOG Resources (EOG), one of our natural gas stocks - it has broken below its 200 day moving average and is now bouncing back up to right below. Again, this could be "the bottom", I don't know nor do I really care. If it is the bottom, then this will just be leg 1 of a new recovery bounce and there will be plenty of money to be made - even if you buy higher. For now I want to reduce risk and with "only" a $1000 loss here will take more of our crumbs off the table and re-assess. Fundamentals mean zilch right now so even though this is one of those names with fantastic fundamentals, it means nothing at this point.

I'm selling EOG in the $105s; this was a 1.1% position. Right now everything in this space is just a technical trade - so I'm treating them as such.

Another is Encore Acquisition (EAC) which we are going to take a $2000 loss here selling in the $60.80s. It has broken its 50 day moving average and its 200 day moving average is far below. This was a 1.2% stake.

I have no problem buying both these back at higher prices when/if this group falls back into favor. For now I need to protect capital and not worry about appreciation as much. Hence these moves; these are relatively minor losses in the big picture although we lost some unrealized gains along the way as well.

Long XTO Energy in fund; no personal position

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