One of the most common mistakes made by traders and investors is the assumption that the market that they are in is logical. They think that, with all the money at stake and all the high-powered minds devoted to trading, the price of anything must reflects a sober consideration of all factors. In reality, markets are more mob rule than collective wisdom, and group think exaggerates faults as much as it reflects analysis.
Traders quickly learn that, and two things then become apparent. The first is that there is no point in opposing an illogical move in the short term; as the old saying goes, the market can stay illogical a lot longer than you can stay solvent. The second is that, despite that, logic does eventually win out at some point, so you should keep an eye out for things that run counter to common sense. Take the situation with Solaris Oilfield Infrastructure (SOI) for example.
SOI, like a lot of energy stocks, generally moves in direct correlation with oil prices. In this case, though, it makes no sense. As their name suggests, Solaris is not an oil company but an oilfield infrastructure company. More specifically they provide mobile proppant services for shale oil operations. It is generally accepted that what is holding oil down despite OPEC’s actions and rapidly increasing global growth is the continued increase in U.S. shale oil production, and that has to benefit a company that services those operations. For SOI to fall on lower oil prices that…
