Triple Short Term Crisis of Oil & Gas Stocks （屋漏偏逢连夜雨）

Posted on March 9, 2020 Written by
oil & gas stock crisis

Global Oil & Gas sector has been under crisis mode over the past 6 years, Brent crude oil fell from US$115 (year 2014) to $27 (year 2016) per barrel, about 25% of peak price, a very low optimism for the past 2-3 decades, ending the mega bull run for commodity market (including crude oil, gold, agricultural products, etc).

Over the past 4 years, crude oil together with commodity market in general has been struggling with recovery in prices, achieving an intermediate high of US$86 (year 2018), falling down again to $50, then gradual growth, stable between $60-$70 in last 2 years with joint effort by OPEC and non-OPEC (eg. Russia) oil producer countries to control the oil supply, in an attempt to stabilize the market prices.

Unfortunately, Crude Oil is currently facing triple short term crisis over the past 2 months:

1) Coronavirus

There is less global demand for crude oil. There is less manufacturing in countries such as China which is a major energy consumption country. Some global airlines also cut down flights by more than 30%.

Less demand = Lower price for crude oil.

2) Fall in global stock market

Fear driven stock market fall (especially in US) has affected the confidence of global investors who also invest or trade crude oil, anticipating lower demand for crude oil.

Bearish emotion = Lower price for crude oil

3) Political Conflicts (OPEC vs non-OPEC)

After expiry (end of Mar 2020) of agreement on production cut, it is possible for supply for both OPEC and non-OPEC to increase significantly. Of course, it is possible for interested parties to extend the collaboration but their influence would be weaker each time. The global market share of crude oil could be taken by countries who may not follow the agreement (eg. Iran which needs cash or US with shale oil as new major exporter with lower cost per barrel).

Higher Supply = Lower price for crude oil

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As a result of triple short term crisis, Brent Crude Oil drops to US$45/barrel currently. $40-$45 is an important support zone (low prices during 2009 global financial crisis), if breaking below $40 while there is no quick solution in a few months with reversal for 3 short term crisis above, it may challenge the last long term support, $27/barrel recorded in early 2016 during the earlier Oil & Gas Crisis.

If so, global Oil & Gas stocks would be under price pressure, falling back to low optimism again. Upstream Oil & Gas sector (eg. exploration of oil) would suffer the most from falling in oil price, following by integrated oil & gas companies. Mid-stream (eg. storage and delivery of oil & gas) and Down-stream sectors (eg. refinery, processing of petro-chemical) would have less impact on its business. Careful selection of Oil & Gas stocks are critical, especially if the current Level 2 (Oil & Gas sector) crisis may be combined with bigger scale of Level 4 black swan (Global Financial Crisis.

Oil & Gas stocks are generally cyclic in nature due to fluctuation of oil price, therefore better to position with Buy Low Sell High strategy, more suitable for trading.

“Crisis is Opportunity” is true only if one knows What to Buy (giant stocks), When to Buy (timing, too early may catch the falling knife) and When to Sell in future (taking profits or potential cut loss if trading in an uncertain global stock market at high optimism).

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Filed Under: Commodity Market, Macroeconomy, Stock Market Tagged: , ,

Airlines Stock Crisis: Delta Airlines vs Singapore Airlines

Posted on March 7, 2020 Written by
Airlines Stock Crisis: Delta Airlines vs Singapore Airlines

Both Delta Airlines (NYSE: DAL) and Singapore Airlines (SGX: C6L) are well known international airlines. However, choice of stock for investing is different from choosing airline as a passenger. We need to consider from investing perspective, both business performance and share prices.

Delta Airlines is a giant airline stock with strong business fundamental. No wonder Warren Buffett starts to collect more of this stock despite the price falls like a knife which he is not afraid to catch it as he believes the bleeding period is within his tolerance level to exchange for 1/3 discount (26% optimism, near to low optimism <25% but in downtrend direction, Ein55 members may monitor when it may recover again while optimism is still low).

Our dear Singapore Airlines is not a giant stock, fundamental is below average, optimism (28%) is approaching low (towards 25%) but long term potential is relatively weaker, more suitable for short term trading (when timing is right), not for investing.

Some smart investors select stocks as if choosing life partner, holding for long term to maximize the value of partnership, therefore won’t miss when the rare opportunity has come. However, no one would know the “perfect” moment (eg. the lowest price). For Warren Buffett, he just needs to buy with discount within his acceptable limit, buy low enough, no need to speculate the lowest price and he could hold till recovery in both business and share prices.

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Filed Under: Fundamental Analysis, Market Outlook, Stock Market Tagged: , , , , , , , ,

Winter Time of Global Airline Stocks

Posted on March 6, 2020 Written by
Winter Time of Global Airline Stocks

First major airline in trouble after only 2 months of Coronavirus crisis. Flybe is the largest regional airline in Europe, cannot even sustain a few months of winter time, may not able to “fly” again due to lack of funding.

At the same time, Warren Buffett is indeed different from others, holding to 4 major airline shares: Delta Airlines (NYSE: DAL), American Airlines (NASDAQ: AAL), Southwest Airlines (NYSE: LUV) and United Airlines (Nasdaq: UAL). In general, airlines sector stocks (NYSEAcra: JETS ETF) have dropped about 1/3 share price over the past 1 month from its peak. There is more downside with bearish short term stock market, both at Level 3 (US stock market under correction, even recent 0.5% interest rate cut by the Fed won’t help to recover the confidence) and Level 2 (less travelling, “doom” for airline, burning money each month).

“Be greedy when others are fearful” is correct in principle but may not be suitable for everyone as it requires more investing skills than expected. Warren Buffett could be greedy now (eg. buying more Delta Airline stock) during crisis because he has a deep pocket with strong holding power with diversification over many industries. However, it may not be wise for others to follow Warren Buffett exactly as each person has unique personality, financial condition and investing strategy. Warren Buffett’s Berkshire (NYSE: BRK) loses 50% share price during 2008-2009 subprime crisis but he could still sleep soundly each night. Others may suffer depression with 50% loss in capital.

For retail investors and investors with small capital, weak holding power and low risk tolerance level, it is relatively safer to follow trend for entry or exit. Airline stocks are usually cyclic in nature, main strategy would be buy low sell high. Currently it is only a Level 2 crisis (airline sector earning drops significantly), but if Coronavirus drags longer than 6-12 months, it could become regional crisis (some countries economy will be affected) or even evolving into the next global financial crisis.

If we don’t know Coronavirus well (how it started and when it may end), shorter term investing or holding cash as opportunity fund would be relatively safer. In the meantime, smarts investors have to start to search for global giant stocks with strong business fundamental which can last through the potential financial crisis.

Learn from Dr Tee free 4hr course on Crisis Investing Strategies (What to Buy, When to Buy/Sell), either for Coronavirus Crisis (affecting consumers related sectors such as airlines, retailers, tourism, F&B, transportation, etc) or global financial crisis (affecting all sectors and all countries in the world). Register Here: www.ein55.com

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Filed Under: Macroeconomy, Market Cycle Investing, Stock Market Tagged: , , , , , , , , , ,

Crisis Stock Investing with 4 Qualities of Low Optimism Stocks

Posted on April 26, 2018 Written by

crisis stock investing

Crisis stock investing is investing in cyclic giant stocks, ideal for Buy Low Sell High investing strategy.  Usually crisis may happen at business (Level 1, company losing money), sector (Level 2, bearish sector), country (Level 3, recession) or global (Level 4, financial crisis), creating different degrees of fear in the stock market, resulting in fall of share prices.  Subsequently, when the market fear turns into greed, these crisis stocks may become uptrend momentum stocks, ideal for selling high.

There are 4 different qualities of crisis stocks with long term low optimism. An investor has to carefully identify the nature of crisis stock investing, understanding how the falling in share prices are induced.

1) Low Quality Low Optimism (L1 Crisis Stock Investing)

Long term optimism of stock is low, driven by decline in L1 business but L2-L4 are fine.  Noble Group could be an example. Without consideration of sustainable business, pure strategy of Buy Low may result in Get Lower in share prices, which is a common pitfall for Technical Analysis.  Both Fundamental Analysis (FA) and Technical Analysis (TA) should be integrated with Optimism Strategies with consideration of Personal Analysis (PA)

2) Average Quality Low Optimism (L2 Crisis Stock Investing)

Long term optimism of stock is low, driven by decline in L1 business & L2 (sector), while L3-L4 are fine. Examples include oil & gas crisis stocks in the last 1 year, casino crisis stocks 2 years ago, etc.  It happens during the sector rotation which the sector market cycle may not align with the country/global economy cycle.  If the sector is not a sunset industry, usually it would recover again as there is unique demand vs supply within each sector for investment.

3) High Quality Low Optimism (L3/L4 Crisis Stock Investing)

Long term optimism of stock is low, driven by decline in L1-L4 (business/sector/country/global financial crisis). More than 50% global cyclic giant stocks during global financial crisis would be affected in both business (drop in earning or even losing money) and share prices (L1-L4 from individual stock to global stock indices).  Since the market fear at L3/L4 may not last long (global political leaders would take actions by then to save the whole world), the downside of global stock market is limited but an investor needs to have sufficient holding power through the cold winter time of global financial crisis.  For example, many cyclic giant bank stocks may behave this way.

4) Excellent Quality Low Optimism (L4 Crisis Stock Investing with strong L1 Business)

Long term optimism of stock is low, driven by decline in L2-L4 (sector/country/global financial crisis) but L1 business is fine. Less than 10% global growth giant stocks during global financial crisis could still be profitable or even growing in business while the share prices falling relatively less (defensive in nature) than the average in global stock market.  In fact, defensive growth giant stocks are suitable for Buy Low & Hold for long term investing, sell is an optional strategy.

The safest time to buy a giant stock is when everyone is afraid the sky will fall down while the business is still operating normally with consistent performance. This could be a rare opportunity to buy during a crisis but many people are too normal, do not know how to take this advantage to truly buy low sell high.

A smart investor may not need to consider only crisis stock investing.  There are other strategies such as growth stocks, dividend stocks, undervalue stocks and momentum stocks, etc, may be integrated to form a balance stock investment portfolio.

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Filed Under: Market Cycle Investing, Stock Market Tagged: , ,

Crisis Stock: Noble Group vs Iceberg (壮士断腕、可悲可泣)

Posted on March 3, 2017 Written by

Ein55 Newsletter No 057 - image - cut arm

Poor Noble Group (SGX: N21), just about to recover, Iceberg is back with new report. Similar to Ezra and Cosco, it is a crisis stock with declining business and stock price.

It is not suitable to apply conventional method to analyze Noblle Group. Technically it is like a new company now, most of the good assets are sold to save the company by paying the debt. It may not have the same power to recover to the past glory.

Since it is a trader stock, fundamental will be relatively not so critical as in a bullish market, even weak fundamental stock could rise many times under speculation. It is more suitable for short term trading, using short term TA signals. 23 cents support was broken downward, combining with Iceberg (negative PA), tough on Noble. It is still above the intermediate support of 20 cents.  There is no need to guess for trading, prices with support and resistance will show us the probability.

NAV (Net Asset Value) criteria may not be suitable for Noble Group as it becomes asset light business, the asset quality is also a question mark. Good assets are properties and cash, many company have these quality assets, some with discounted share price.

Iceberg may be shorting all the way on Noble to low optimism with profits. If Iceberg is profit driven, similar to hedge fund, they could change to long position to “accept” Noble now, so that they could profit from recovery of Noble. Since Iceberg is still consistent in their negative views, it deserves some respect as they have principles. At low optimism, even for lousy business, very little profit potential to short a stock. With recovery of commodity market, Noble could have survived the greatest business crisis.

In ancient time, a warrior could cut off own arm to save one life when bitten by poisonous snake. Noble has cut his arm of core asset to save from 2 “snakes” with multiple bites from Iceberg and Muddy Water, starving in a cold winter (commodity crisis).  It deserves a chance to recover.

壮士断腕、可悲可泣。

 

Filed Under: Stock Market, Stocks A-Z, Technical Analysis Tagged: ,
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