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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Saturday, September 23, 2006

Falling Knives -- Oil & Gas


The oil price has fallen sharply since the panicky
hedge buying ended in late June. the powerful and
dynamic uptrend in place since 2003 has been broken
decisively. Cover stocks are at or near multi year
highs and there is fresh supply coming onstream in
2007. However, capacity utilization at the wellhead
is still running high.

It is a new ball game, and players need to adjust
accordingly. There is substantial trend support now
in the low to mid $50s per bl. and if oil stays on
the weak side, that would be the next interesting area.
As often as not commodities make spike bottoms as
opposed to lengthy basing periods, so traders need to
be mindful that a sudden turn around to the plus side
could mark a low. Let the falling knife fall if you
want to come in long and think now whether you want a
base to look at or whether you are willing to play a
spike with a stop under it. Barring some major new
event, the fundamentals will be fuzzily negative
reflecting the cover stock overhang and the headwind
of a slow economy.

Nat. Gas

Gas has collapsed from the late 2005 high of $15. mcf.
It is down nearly 70% and has caught hedgies in its
volatile clutches. There is very long term trend support
and several year base support in a range of $4.00 - 5.00.
There is a seasonally strong month straight ahead. There
is still a storage overhang. Let the knife fall. Think
through whether a spike up is for you if there is no
flag waving base. Recognize a drop to $4.00 would not
surprise any seasoned trader. Recognize also that a
bounce up to $5.50 - 6.00 mcf. next month would still
have gas in a bear market.

Best of luck.

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