Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Where the Energy Sector Goes From Here

Commodities / Energy Resources Oct 23, 2014 - 03:43 PM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: With the stock market now roaring back, investors are left to wonder whether the worst is behind us – or if there’s more pain yet to come.

Given the size of the sell-off, it’s clear a slew of folks expected a “correction,” and to that extent received a self-fulfilling prophecy.

However, at times the decline was more like a snowball cascading down a hill with no overall rhyme or reason.


Of course, there is always the possibility that we could revisit this roller coaster again in the short-term, but it is quite unlikely to have the same velocity.

Hit particularly hard during this slide was the energy sector.

And while every segment of the market felt the brunt, energy seemed to drop with a vengeance… but it didn’t last for long.

As the market bottomed out, energy stocks lead the recovery, posting big advances.

So what do the latest market gyrations tell us about the energy sector?

Here’s my take on where the markets go from here…

Why the Underlying Fundamentals Still Rule

Forget for a moment that some pundits still insist the losses are not over.

There seems to be a “magic formula” circulating among a few of these guys that requires a 10% correction before the patient can leave intensive care.

If they are right (and I doubt it), the decline still has some legs.

Yet, I have never signed on to the idea there are sacrosanct levels markets must reach before it returns to “health.” This has usually been more of an exercise in which these same “analysts” are short and then run on TV to assure the losses hit, earning themselves a nice profit.

We also had a clear indication this time around of how computerized trading patterns and “flash trades” can distort actual market conditions. The rapidity of the flood took even floor veterans by surprise.

But as my Money Map Press colleague Keith Fitz-Gerald often reminds us, “The market is the market. When it is advancing you get on the train. When it is moving down you get out of the way.”

I have always found that to be useful advice. It takes the emotion out of the trade.

But the broader markets usually aren’t that rational. The first move in either direction is initiated by emotion and then extended by “extra-market” trading methods.

It’s sort of like having a disturbed patient on steroids.

Nonetheless, one overarching fact remains clear. Once the children have had their temper tantrum, certain givens return and dictate most of the market activity most of the time.

Some traders may think markets have a life of their own, with the opportunistic snake oil salesmen out there trying to sell you a simplistic cure for everything based on the latest “discovery.”

But the reality is altogether different: Underlying fundamentals rule, not abstract trading programs and algorithms.

These artificial constructs will occasionally accentuate a move in one direction or the other, but they cannot cause the market to move lower or higher for any length of time.

The Inescapable Truth: The World Runs on Energy

As for energy, if anybody had doubts about the importance of this sector, the back and forth movements of the past few weeks should dispel them.

It is true. Energy led the move down. But when a frantic recovery emerged, the same stocks advanced faster than the market as a whole.

In fact, the losses experienced in the leading shares in both the Energy Advantageand Energy Inner Circleportfolioswere not only erased in the last three trading sessions, all of them are now ahead of where they were less than a week ago!

Here’s why: Energy prospects are no longer determined simply by the price of the raw materials.

As a case in point, consider this. The slide in crude oil prices may have been the catalyst that caused the decline, yet when a floor formed in those prices without a significant spike, oil stocks shot up across the board.

In reality, those stocks had become badly oversold, and responded to the upside more on fundamentals than simply a fluctuation in price.

My own view on price is rather simple. The energy sector will do fine and earn handsome profits in traditional projects (i.e., vertically-drilled non-shale) with oil anywhere north of $65 a barrel. Meanwhile, on average, unconventional shale and tight oil requires a price somewhere in the mid-$70 range.

This simply means those companies with competitive factors in their favor (operational expenses, location, managerial ability, and the like) will push out the less profitable competitors.

It also means investors need to be more careful when deciding where to invest.

Despite what the TV talking heads want you to believe, the energy sector does not all march to the same drummer.

What is true it this inescapable reality. Without exception, every sector in the market is dependent upon the availability of energy.

The key is to play these market changes profitably, not fret about them.

After all, you can’t expect the market to ignore the most basic underpinning of all economic activity for long.

Source : http://oilandenergyinvestor.com/2014/10/energy-sector-goes/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in