FIVE RULES of Successful Trading

[drbubb]

THE FIVE RULES of Successful Trading :

First Mention of these RULES, for the world-in-general, was on...

Commodity Watch Radio's 2nd broadcast: http://www.minesite.com/webcasts/commodity_watch_radio.html

 

#1:

Everyone's a Genius in a Bull Market - So find a Bull Market

(Like commodities - and precious metals stocks in particular.)

 

#2:

Trade as if ... Anything Can Happen

(Keep one eye on the exit, in case events unfold in an unexpected way)

 

#3:

The Market rewards Humility, and Punishes Hubris

(Be open minded to others ideas, and remember when you think you can do "no wrong",

you are probably set-up to do your biggest and worst trades.)

 

#4:

Exploit Cross-Market Intelligence

(You can get clues of what may come to the markets you are trading, by watching other

markets, and understanding the cross-market influences.)

 

#5:

When it Doubles, Sell half

(That is, sell if the volume is flagging. You can hang on, if volume continues strong)

 

= = =

SOME RELEVANT LINKS:

Cross-market charts, FS : http://www.financialsense.com/Market/intermarket.htm

Stockchart, x-mkt charts : SPX/xeu : SPX/TLT : SPX/Gold : Gold/WTIC : Gold/xeu :

Favorite chart links........ : coming

[drbubb]

Using, #4:

Exploit Cross-Market Intelligence

(You can get clues of what may come to the markets you are trading, by watching other

markets, and understanding the cross-market influences.)

 

here's an example:

One of the indicators that I watch is the Oil-to-Gold ratio: ... update

 

 

With WTI at $55.45 per barrel, and Gold at $605 per ounce, the ratio is 0.0917, and was under 0.09 this week.

Oil has fallen down to 9% of the cost of gold, that compares with over 15% at its July 2006 high.

To put it another way, an ounce of gold costs over 11 barrels of oil today, versus less than 7 barrels in July.

 

The historical chart of the Ratio suggests that we are coming into the favorable zone where you may want to consider switching out of gold, and into oil.

 

I recall clearly the opposite move in the middle of 2005 when Oil spiked up against gold, and gold got down to only $425 per oz, and the HUI down to $166- it is about twice that now. At that time, I got heavily into gold shares, and have since, hardly owned an oil share. From now, I will be looking for opportunities in the oil patch- and maybe amongst coal miners too.

 

There are some practical difficulties, which just launching into a wholesale buying of oil shares. Another ratio, of the XLE oil sector etf to Oil (WTIC) makes that very clear:

 

Ratio of Oil sector shares XLE-to-WTI crude ... update

Essentially, Oil stocks never fell as heavily as oil did from its summer highs. And the oil shares began shooting up after the October low. In fact, the largest component in the XLE is Exxon Mobil (XOM) and it recently hit an all time high at $79.00 in mid-December 2006- its up 45 times since 1970, which is great for a stock with such a huge capitalisation. The recent slide in oil has brought it down to $73.24, that's just off 7.3% from its all-time high, while WTI crude is 30% off its July all time high at $80. Therefore, it does not look like a cheap way to play oil. I am searching amongst smaller oil companies for bargains. And also looking amongst coal stocks, which because they provide a competing source of energy, and tend to trade in line with oil prices.

 

= =

 

These charts explain a lot. The relative valuations, seem to help account for some of the price shifts going on in the market in recent days. One way you could put it is: Crude oil is become so cheap, that it is starting to drag down Gold and oil shares, as people make portfolio shifts predicated upon relative valuations.

 

Suggestions are welcome - how about some cheap London-quoted energy ideas?

[HollandPark]

the guys on the financial sense roundtable like:

both energy stocks and junior mining stocks

 

...but also spoke about oil service,

and jimpuplava spoke about "infrastructure stocks", whatever that means

 

the oil service theme seems to fit in with the charts above

[frizzers]

Are you aware of a company like Minesite where you can see presentations by junior energy companies?

[drbubb]

have a look at former minesite-affiliate: http://www.Oilbarrel.com

 

but a Canadian Junior Energy stocks website would be a nice find, IMO

meantime...

Finally, here's a trade idea for those who like to buy UK stocks:

BP Plc.

i am just updating my charts, and it looks like the ideal BUY price would be 535-540p,

which is not far away. Some may want to start nibbling at 550p or higher

 

I will put the updated chart on the BP thread very soon.

at 561p: Yield: 3.74% P/E Ratio: 10.23

link: http://www.greenenergyinvestors.com/index.php?showtopic=1028

No gtees. DYOR

 

LET ME KNOW about your favorite uk and non-uk-quoted energy stocks.

Particularly, if they have a PE below 10

[drbubb]

A PRACTICAL EXAMPLE (as posted on the BP thread)

=================

 

"your general tactic of switching from gold to oil is the exact opposite of what I have been doing"

 

me too.

i had been emphasizing gold since almost two years ago.

but i am looking to shift slowly towards energy.

i think this shift will take about 3-6 months, and will result in my holding maybe 30-50%

of my portfolio in oil shares, oil service, and coal... plus maybe green energy.

 

i reckon these swings back and forth take 3-4 years from gold emphasis to oil emphasis.

 

btw, most oil shares look overvalued relative to the price of oil.

bp looked like an exception, because of its management-related issues. : bp chart

oil service and coal could represent better valuations.

 

I make these judgements, by looking at ratios.

 

Here's the Ratio of oil service (OIH) to oil sector (XLE) ... update

 

recent ratio : (oih-$129.69) to (xle-$55.44) : 2.34

 

To me, this suggests that Oil Service may be a better buy just now. i do think this ratio looks as if it may continue to drift downwards, and so there is no rush to buy Oil Service shares just now, but it is worth watching them

 

= = =

 

here's some more detail on those bp calls:

jul.$65, symbol: BPGM : closed at: $Bid 3.50 - Ask 3.70 (with BP at $64.64)

 

i bought 70 options, costing an average of $2.32 , that's $16,240

 

My investment of $16,240 controls stock worth: 70x $6.464k = $452,500

 

thanks to the high volume, it looks like BP could go higher. i will be facing that

old question: should i stick with my general rule: "when it doubles, sell half?"

[DontPanic]

Instead of playing oil directly have you considered British Energy?

Look at the correlation between BGY v OILB

[drbubb]

interesting concept, DP.

 

i will look into it

[drbubb]

If you look at the Dow (INDU) in gold ounces:

 

 

...you will see that it is basically unchanged in the past year.

And it looks to me like the Dow-in-Gold is about to resume its decline.

 

INDU in oil barrels (WTI Crude) is also interesting:

 

 

Dow-in-Barrels made a nice breakout early this year,

and there are no signs of a reversal (yet)

[drbubb]

GOLD-to-OIL Ratio : how many barrels in an Ounce?

 

Where's it been?

 

Where's the Ratio now? ... update

 

that's :

Gold: $645.90 // WTI Crude: $ 55.04 == Ratio : 11.7 barrels

Bottomed in mid-2005 at 6.36 barrels.

 

If Oil is $60, and the ratio is 14, then gold would be: $840 oz.

We may get there (gold $800+ and ratio of 14, before the year is out)

[drbubb]

THE LONG VIEW : on the Gold-to-Oil ratio

 

 

The Long term Average is 15.3 barrels to an ounce of Gold, so I don't need to switch aggressively at 12:1

or even at 14:1. Perhaps the aim should be to get something like 30-50% of the portfolio into oil,

if the ratio goes back to 14-15.

 

The recent trend still looks strongly in favor of gold.

[frizzers]

Credit Suisse's Bhutani Switches From Metals to Oil in Top Fund

Bloomberg - Credit Suisse AG's Jay Bhutani became the best fund manager in his category last year by buying mining stocks. Now he's selling them and investing in oil shares to recover from slumping raw-materials prices. The $600-million fund,

 

http://www.bloomberg.com/apps/news?pid=206...mp;refer=europe

[drbubb]

i like the concept...

but the problem is: it is hard to find many oil shares that are cheap enough

 

i did buy quite a few shares in PWI- but that was more of a "tax bargain",

and is only now coming back into profit

[frizzers]

Your great interview on the oil-to-gold ratio is now live - http://www.minesite.com/webcasts/commodity_watch_radio.html .

[drbubb]

 

That usual February dip is when the oil co's run down excess inventories, not needed after the winter,

and when demand falls during "refinery turnarounds" (ie shutting them down for 1-2 weeks and retooling

them to produce gasoline rather than heating oil)

 

Once the february dip is out of the way, crude flies

 

Get some cheap oilies, in these next 2-3 weeks

[DontPanic]

That usual February dip is when the oil co's run down excess inventories, not needed after the winter,

and when demand falls during "refinery turnarounds" (ie shutting them down for 1-2 weeks and retooling

them to produce gasoline rather than heating oil)

 

Once the february dip is out of the way, crude flies

 

Get some cheap oilies, in these next 2-3 weeks

Can you explain a bit more about that chart?

Why dont Dec 31 and Jan 1 have the same value?

[drbubb]

Can you explain a bit more about that chart?

Why dont Dec 31 and Jan 1 have the same value?

 

there's an upward trend in crude.

Oil tends to start the new year holding the gains of the prior year

[drbubb]

bump

 

Still relevant, I believe

[littledavesab]

I think you need a new linky to the show

 

http://commoditywatch.podbean.com/2007/01/

 

never browsed the archives that far back before...interesting

 

See also Mr Dines interviewed on Uranium i

james dimes

http://commoditywatch.podbean.com/2007/03/

 

[drbubb]

worth another look, after all these years

[jerpy]

Ride your winners (even if you sell half, top slice etc) and cut your losers would be my advice to anyone new at trading or investing.