Oil prices

Some notes on commodity and oil prices, mostly from Jim Roger's "Hot Commodities":

On Commodity markets:

• Historically, commodity bull markets have lasted an average of 18 years. The last one started 1999.
• Commodity bull markets are bad for stock markets. The last stock market bull run started in 1982, and probably ended 2001.
  
• So we are probably halfway through the current commodity bull market. If this is true, I expect the stock market to stagnate in the next 5-8 years. e.g.: Brief 'mini-rallies' of 1-2 years, whose gains are lost in the subsequent declines.
• During a commodity bull market, retracements of 40-50% are common.
  

On Oil:

• It takes 8-9 years to bring newly discovered oil supplies to market. North Sea and Alskan oil were discovered in '69 and 68 respectively, and both shipped in '77.
  
• 1998 was a trough in oil prices ($10), by 2006 it was $70. As an estimate, the current oil bull market may end in 2015 to 2018.
• We will know when the bull market ends when:
• Higher prices causes long-term changes in consumer behavior to decrease demand. This may be starting to happen now: eg: MRT usage increasing, Americans driving less, China and M'sia cut oil subsidies, Americans debate nuclear power.
  
• New oil comes to the market. eg: Recent Brazil 5-8 billion-barrel Tupi oil field. Iraq mabye (used to produce 2.5m bpd). To judge the size of oil finds: The world used 87m bpd in 2007.
• The wildcard is Saudi Arabia. Most of their oil production is from ghawar oil field. No one knows the size of their reserves (Satellite O'er the Desert). Or even if they will still want to sell it if they have a change of government: 15 of the 19 Sept 11 terrorists were Saudis.
  

Cut loss #3

On Mon 25th, sold Boustead at $1.11 (pre-split $2.22). This trade lost me $770.

Total losses from this misadventure (excludes pfood) are $4515, including brokerage.

Back to doing nothing....

Its very important to take losses as quickly as possible. And not let it get to you. In a bear market, my number one aim is to preserve capital. I am waiting for either:

• the market to turn (which could be any time from now to 12 months later), or else
  
• for stocks to become so undervalued that they are a screaming buy (like in the Asian crisis or SARS). With the exception of pfood, I do not see great quality companies trading at bargain prices. There is no blood on the street yet. Maybe if we get a recession....

Back to doing nothing.....


Cat photo from http://www.freephotos.se

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing,unless there is something to do. Most people always have to be playing; they always have to be doing something. They can't just sit there and wait for something new to develop. I wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, 'I just lost my money, now I have to do something to make it back.' No, you don't. You should sit there until you find something."

Jim Rogers

Cut loss #2

On 21st Aug, sold everything except pfood (long term investment) and boustead (still waiting to confirm if the split shares are debited into my acct):

• HI-P at 57c (loss $465)
  
• Sp Chem at 57.429c (loss $-640)
  
• Oceanus at 39.5c (loss -$720)
  

Total realised loss (incl. Venture, excl Boustead and pfood) is -$3745.

I was hoping for a tradeable rally like the Mar-May one, but we don't seem to be getting it. In the US, we have:

• Too many distribution days at the start of the rally (4 in one month)
  
• No clear leadership in sectors. One day financials are rallying, other days energy, other days tech.
• Failed breakouts.

In Singapore we have a continual sea of red as the STI broke through the 2800 level, and has not even made an attempted rebound.

Pfood 1Q08 results

Released on 12th Aug: quarterly profits up 160%, due to rising sales (up 20%) and lower COGS (up only 11%). A massive increase in gross margin (from 76m to 256m) has more than made up for other issues:

• higher selling costs (up from 35 to 52m)
  
• lower contributions from Pine Agritech (53m to 23m)
  
• Higher tax rate
  

Management comments: "The nationwide supply shortage of live pigs is expected to continue to ease".

Cut loss #1

Sold Venture. At 9.10 it has cut through all support levels like a knife thru butter. Lost $1920 (incl brokerage).

Expect to cut more losses in future.

Dosent seem to be working....

My recent buys do not seem to be working. Have not got clear signals to cut loss yet, but there is a good chance I will. The US rally seems to be weak, with too many distribution days, and the SGX stocks are down (median -3%, excluding the sub-20c counters) from the day that I bought (31st July) till today (17th Aug).

My maximum cut loss will lose me just under SGD 5.5K, which is nothing to lose sleep over. Excluding pfood (as an investment), I have lost abt 2.6K to date.

In the short term, the SGX is out-of-synch with the US market. Think the SGX is due for a short term 'bounce' soon, and will wait for that to either confirm there is a rally or cut loss on the weaker counters:

• Venture is too near support to cut now. Wait and see. The recent fall could possibly be seen as part of a normal reaction as volume was not too high.
  
• SP-Chem and Boustead have done nothing on weak volume...either way, wait for breakout or breakdown.
• Oceanus is still in an uptrend, despite Friday's fall (low vol). Trailing stop loss at 39.5c
• HI-P still in weak uptrend, and the recent fall can be seen as a normal reaction.

Wait and see....

I should probably learn more abt overbought/undersold indicators to time my purchases better in the short term.

Bought oceanus, venture, HI-P

Bought 10 lost oceanus @43c.

Bought 10 lots HI-P @59, 4 lots @ 59.5. Sell if breaks 48c

Bought 1 lot Venture Mfg @ 10.94. S if breaks 9.33, or consider selling if price/vol pattern changes (want to see up days on high vol, troughs on low vol).


It is scary to buy so much in a fledgling rally that has not yet proven itself. I wonder if my stop-loss levels are too wide and loose. most trades have potential losses of 20%. Mabye I should be more cautious.

Market rallying?

IBD flagged a (potential) rally on Tues 29th July,

Abt 4 of 5 follow through days end up as a bull market, or at least a tradeable rally (like the March to May one). Thurs and Fridays mkt action consisted of the market absorbing bad news, as it fell on lower volume. Have to watch how it responds to the rest of US earnings season. Commodity prices are another big risk. We will not know whether it is a false signal, a tradeable rally, or a new bull market till after it is over. (Examples of follow through days in the 00-02 bear market).

Looking at Venture, HI-P

Venture:

On weekly chart, long term support at 9.33







On daily chart:

• May be seeing a reversal after selling climax in mid-Jan.
  
• Since end-Jun, we start seeing accumulation days (green vertical-dotted lines).
  
• Still below 200MA. Possible support 50MA

HIP:

• May be have reversed after long decline. Now above 200MA.
  
• Key support at 48c.

Bought pfood, SP Chem

Bought 14 lots SP Chem @ 61.5, due to the counter's relative strength in the last two months. See if it manages uptrend.

Sp Chem: Cut loss if fall below 66c:

Bought 11 lots pfood @ 83.5. Long term buy based on China pork industry cycle. Expect it to break downtrend and rise to abt $2 in 6mnths to 2 years. Look to sell when it is in $2 area. No cut loss.