The Market Didn't Take a Holiday

Written By Nick Hodge

Posted November 27, 2010

Welcome to the Energy and Capital Weekend Edition — our insights from the week in investing and links to our most-read Energy and Capital and sister publication articles.

If you’re anything like me, you were more worried about travel and holiday meal details than the nuances of the energy market this week.

And I can’t say it was a good week to take take a break.

Even shortened, there was a lot of action…

The Dow fell nearly 100 points on Monday before recouping it. It fell over 150 points on Tuesday. And it gained more than 100 points in the first half-hour of trading on Wednesday.

North Korea bombed the South for the first time since the Korean War. Irish banks are defaulting. Almost 400 Cambodians were killed in a stampede. The Pope, in a Cookie Monster moment, declared condoms are a “sometimes” prophylactic. And Bristol failed to win DWTS.

Oh, and it was Thanksgiving with a Black Friday chaser.

Like 2010 in a nutshell

We’ve been stuck trading in range all year.

The Dow chart looks like a heartbeat monitor, bouncing back and forth between ~10,000 and ~11,000 in three-month spans all year. This week’s action was a tenth-scale model of that.

Same with oil…

We’ve essentially been stuck between $70 and $90 all year. So oil’s rise from $76 to $88 from late September through mid-November and its immediate fall to $80 since then is true to form.

I think we’ll stick with these patterns for some time, probably through 2011.

After experiencing the Great Recession, we’ve all become Pavlonic dogs — the lows making us salivate over great entry prices and the highs panicking us into selling for fear of another collapse.

It’s symptomatic of the country’s broader and growing divisiveness regarding ideologies, religions, politics, and economic classes.

It’s a tug-of-war for the masses and the market.

So what are you to do?

I’d say trade the range in the short term while preparing for the long term.

That means buying the Dow and oil when they approach the low 10,000s and $70s, respectively… And selling a few months later, when they top out around 11,000 and low-$80s.

You could also short in the converse manner.

It also means buying what’s hot and selling what’s not, and finding subsets of those categories.

For example, natural gas prices have been and are expected to remain suppressed, but operators in hot formations like the Marcellus are doing well.

Cleantech is hot, but wind is in the doldrums while batteries remain the sector du jour.

We’ll continue to help you sort it out with coverage like the kind you’ll find below.

Call it like you see it,

Editor, Energy and Capital

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