Bookkeeping: A Few Energy Purchases

Submitted By Trader Mark
This is quite a traumatic selloff, but once these momentum trades reverse, a lot of rats want to get off the same ship through a very narrow door. I said I would not believe this is a bottom until THE strongest sector (natural gas) got hit, and it appears I'm getting my (ahem) wish. I'm going to being placing some orders into the panic, into 2 service names and one natural gas name we began yesterday.

On the service side we cast Core Laboratories (CLB) to the side early this week [Bookeeping: Closing Core Laboratories] To compensate for that "position" in terms of sector exposure by finally adding back to National Oilwell Varco (NOV) which has not been in a major holding in a long while. It is still not a huge stake but we'll begin buying here in the $75s. There is no great reason to buy "here" other than the 200 day moving average is close below at $73, and we've really cut back our oil services exposure expecting a moment like this. Well not exactly like this (so tremendously compressed into 2 days), but let's just say we were looking for "lower prices". We're moving this stake up from 0.1% to 0.7% of fund.

We are also adding to Atwood Oceanics (ATW), a deep(er) sea driller where frankly if oil is $80, $110, or $140 it really doesn't matter. We have a major shortage of rigs and demand is through the roof. But you can't talk that sort of sense to a panicked market of hedge fund computers. Atwood is at a long term support level... err actually it broke through it ($47) and now sits in the low $46s. It hasn't been this low since March (it has split 2:1 recently) We are increasing our stake from 1.5% to 2.3% of fund

Last, we just bought a new stake Goodrich Petroleum (GDP) yesterday which *should* in fact trade with the price of oil and natural gas (their assets rise and fall with the price of the commodities, unlike the service providers named above). So I can understand it selling off hard unlike the service names. I wrote

So we're starting today off with Goodrich Petroleum (GDP) with 250 shares at just under $66, creating a 1.4% stake, as it pulls back yet again to its 20 day moving average. I'd love to see a move down to the mid $50s near to the 50 day moving average but I said that the last time I talked about these names, and immediately they ran on me.

Well lookee here, how "lucky" we are - it fell in 1 day down to my next target, the 50 day moving average - 13% drops are always "helpful" like that. So here we are @ $57, its 50 day moving average. So I'm sticking my hand out and catching a falling knife and we'll move this up from 1.4% of fund to 1.9%.

Is this the bottom in any of these stocks? I highly doubt it. Once these moves "turn" there is a lot of hot money that will be leaving en masse. So we just threw some buys out there and we'll add more as (if) they fall more. Layer in, layer out. Housing/Financial money out (what we sold today), gas/oil service money in (what we bought today). Rotation. Trend chasers will be doing the exact opposite of my moves today and that's what makes a market. But I'm looking a few months out, they are looking a few hours or at most days. I suppose in 7-8 weeks we'll be selling these names (layer out) and buying more housing/financial product (layer in).

It does amaze me everytime to watch these huge moves of capital from 1 sector to another. I truly believe much of this is due to the new world where hedge funds rule - they cannot show their clients they are losing money in even 1 month before clients start to get "antsy", and thus the minute a trade turns against you, they flee en masse and look for the next hot pocket. Simply my opinion - I could be 100% wrong. One of these days we'll return to a bull market where there is not a cardinal rule that when 1 sector rockets up, another sector must be decimated. But not in this era; buy and hold is dying a quick death.

Today we know what it feels like to be a manager of a financial sector mutual fund - it is not super enchanting. Hopefully we won't have to repeat this for 6 straight weeks like he has had to ;) 3 days down, hopefully less than 5 to go.

Long all names mentioned in fund; no personal positions

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