16 August 2010

Oil Stocks and Growth

Why would somebody with a lot of money invest in oil stocks right now (re: the MSN story today). Investing in those big quality companies hit during the crisis was a very sound decision, but at the time it looked very risky, that is one possible reason, strong companies temporarily cheapened. What I would say as well is look at crude oil's long term chart.

It has been noted in this blog that some research has indicated commodities do seem to have specific computations like the Dow within them. The long term chart is finding support at the levels where it retraced slightly to find the huge highs in 07/08. These highs made any company even small ones with an asset link to oil, very sensitive.

How is this different from the way USD/JPY references earlier behavior this blog noted. Because in forex it is a reference to a valuation. One can say the oil chart, like the Dow is referencing itself, making assumptions about the kind of computation happening. What this means is the fact it broke up through the resistance that caused it problems in 2006 after its steep fall is not referencing a valuation is it referencing an ability to grow.

This is a subtle but powerful difference from forex, because it makes for the possibility of a kind of predictability, in a similar way as one can do this with stocks, but not with forex. In the case of stocks the computation is probably qualitatively different. That would be my possible justification for going with oil stocks, if I were doing this. Obviously if that real recovery happens, it will be good for oil as well. But one could expect a double dip to produce similar effects as the first.

© 2010 Guy Barry All Rights Reserved