The Difference Disciplined Trading Makes

 I love it when the trolls come out of hiding, as they have this last week, specifically to rag me for ‘missing’ the last rally in energy stocks. Trolls have the best vantage point to pick stocks; they’re anonymous, never wrong, always up money and tend to disappear when their cheap seats commentary turn out wrong. I don’t have any of those luxuries.

Fortunately, I do have 25 years of experience in the oil markets successfully trading oil and oil stocks – even yesterday as I filed my taxes and despite being outrageously wrong about the massive collapse of oil and oil stocks in 2014, I still managed a trading positive to declare. That’s what good discipline in trading can do for you.

And it is that experience and discipline that is telling me that you still have to stay far away from beta names and oil services in the stock market right now – they are all massively overpriced based on my forecast for oil prices over the next several quarters and quarterly reports about to come in that are going to be horrendous.

Look, I was all about trying to find value when oil prices were in the mid-$40’s and you couldn’t give away the shares of some of the strongest E+P’s. Not only did I recommend names like EOG Resources (EOG) and Anadarko (APC) and Cimarex (XEC), but I also bought them – along with a beta name or two that just looked unnecessarily cheap, like Oasis Petroleum (OAS).

But when EOG rallied from $85 to $93 and Cimarex went from $96 to $115 and Oasis went from ten bucks to sixteen, I said you can have them – I’ll wait for another opportunity to buy oil stocks that are pricing for a different oil market than the one I’m seeing.

Now that EOG is closing in on $100 a share and Cimarex $130, these stocks are pricing oil for $75-$80 – something I believe the market won’t see at least until the 2nd quarter of next year at the earliest.

Ok, I know what is fueling a lot of this: sector rotation. Money managers are sitting at their desks looking at huge multiples in major sectors of tech and healthcare and they’re thinking – “Well, I know one sector that has massively underperformed in 2014 and due for a correction”. And that sector is energy. But now majors like Conoco Philips (COP) are pricing close to $70, which represents almost no downside at all from its stock price in September last year when oil was trading at $90 a barrel. Sure, the majors have a bit more resilience because of their downstream assets, but really – pricing for $90 crude? No thanks.

I’ve looked for other values in the oil space and found some recently in refining and some European majors like Total (TOT).

But I won’t apologize for missing this move in US E+P’s, not after being practically alone in recommending certain oil companies at a time when many thought that oil prices were headed to $30 or even $25. Some even thought oil was headed the way of whale oil.

Just as I was willing to buy stocks that priced oil at $50 when it looked like it was headed far lower, so am I equally uninterested in stocks that price oil at $80 when it looks to me like it will be a very long time indeed before we see that kind of recovery.

I say, wait for a better opportunity.