Friday, October 1, 2010

From the Department of "Duh": "Crude Oil Trades Near Highest in Seven Weeks on Signs of Improving Demand" (USO)

I caught a bit of flak when this post went up on September 10:
"Why Oil Prices Aren’t Going Down"

Not a big deal, at the time some analysts were calling for a drop in price based on inventories.
I think Bloomberg had a couple stories and the post linked to one guy who was talking $15-18. Those calls didn't seem to square with what people were doing i.e. American drivers, Chinese industry etc.

Over the years the KISS or Occam's Razor approach to markets seems to work more often than not.
And if it doesn't work it's often a sign to stay away.
Years ago there was a M*A*S*H episode where Radar was invited to a poker game. He declined, saying something to the effect "I like to know why I lose when I lose".

Black box trading, or any other black box investment for that matter, has the potential to leave the naïf thinking "What happened", again more often than not. Life itself gives you enough of those moments, who needs more.

I'm not saying you have to totally understand every detail and nuance of a market or trade but common sense can go a long way toward keeping you out of trouble. If something doesn't make sense I tend to trust my instincts.

On the other hand, in March 2008 we pocketed 1000 DJIA points to the upside between St. Patrick's day and May 6, based on our proprietary "What's on T.V." Timing Model (backtested to February):
Salvador Dali and Abby Joseph Cohen

"It's safer than the stock market."
-Salvador Dali Gallery ad on Bloomberg T.V.
The bullish call was totally nonsensical but based on an aquaintance with both markets.
As it turned out:
a) I was dancing in a minefield, doing handstands on the edge of a volcano, whatever analogy you want to use for going long; we haven't seen that May 6 DJIA 13,020 print again.
b) With all the Dali fakes out there the risk was pretty similar over the ensuing twelve months.
Long intro. Here's Bloomberg:
Oil rose for a third day, headed for its biggest weekly gain since April, after economic data from the U.S. and China bolstered optimism that demand is growing in the world’s two largest consumers of the fuel.

Futures reached their highest level in more than seven weeks as China’s purchasing managers’ index rose in September at the fastest pace in four months, according to a report today. The U.S. government yesterday reported economic growth and a decline in jobless claims that exceeded forecasts. Oil also rose after OPEC member Ecuador declared a state of emergency after what it called a “coup attempt” yesterday.

“The Chinese data spurs hopes of continued strong oil demand in the second largest consuming country,” said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. “The reaction to the Ecuador news is unwarranted, but in a bullish environment, it is an argument to buy.”

Oil for November delivery climbed as much as $1.18, or 1.5 percent, to $81.15 a barrel on the New York Mercantile Exchange, the highest price since Aug. 10. It was at $80.90 at 1:09 p.m. London time. Brent crude for November settlement was up $1.06, or 1.3 percent, at $83.17 a barrel....MORE