Trailing Stops and Peak Oil

by John Dalt

Dec 18, 2008

Our discussion of trailing stops in yesterday’s newsletter prompted a question. A reader asked, “Must I watch the screen all day to sell since I am not supposed to enter the stop loss in my computer”? The answer is No. We only need to check the closing price daily. This is to adjust the stop loss price up if we have set a new high, and to check if the price has fallen below our trailing stop. Remember, the trailing stop is based on the closing price. If the stock closed lower than the trailing stop, enter an order to sell the next day. I am cautious, using only limit orders, as market orders entered on the opening bell can be volatile. You can use market orders if entered after the open. A companion rule is never buying a stock we have been stopped out of for at least six months. A stock that has been a treasured asset in the past does not automatically qualify for future investment potential. Waiting six months allows us to come back to the company with a fresh outlook.

The Santa Claus rally fizzled today.  Quadruple witching day can be exciting, with wild swings.  Today was anticlimactic, although we were up over 200 this morning only to give it all back, go negative and then close up.  This volatility is not unique, in the last few weeks this has been the norm.  I do not know what I am going to do when everything settles down and the trading is in a tighter range!  Next week should be pretty quite with reduced volume, just rearranging the deck chairs.  The news to rescue GM and Chrysler gave the market a boost this morning.  I think everyone anticipated this happening, as the White House had signaled President Bush would not let the auto makers fail.  There was hope in the last few days that the White House may actually force GM and Chrysler into bankruptcy with taxpayers backstopping the debtor in possession financing.  It was not to be, Paulson played kick the can down the path to OH! BAMA! 

Oil was down this morning through the close of the commodities market, but then rallied late in the day with USO up $.33.  Maybe somebody read what the Saudi Oil Minister said about cutting production until the price rises to $75.  Saudi Arabia is the only country that can cut production independently of other producers enough to affect world markets.  I read a forecast last night on oil production in 2009, it does not look good.  Six months ago we all could recite the problems with peak oil and how there was no way out of the jam we were in.  Our memories are too short.  Production from non-OPEC countries is falling, and more of it is consumed in the producer countries.  Therefore, you have Venezuela, Mexico, and others producing less gross barrels and consuming more themselves, leaving even less available for export.  Now is not the time to buy a gas-guzzler!  The next shortage will be even worse than earlier this year, and will arrive with blazing speed.  I do not know when, just that it will.  Remember you read it here, twelve months from now $4.00 gasoline will be a fond memory. 

WARNING:    The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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