CHICAGO, Nov. 9, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Baker Hughes (NYSE: BHI), National Oilwell Varco (NYSE: NOV), Cabot Oil & Gas (NYSE: COG), EOG Resources (NYSE: EOG) and Energy SelectSector SPDR ETF (NYSEARCA: XLE).
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Here are highlights from Tuesday's Analyst Blog:
Why Energy Ruled October
Do you know which broad market sector had the best performance off of the October lows? If you knew it was energy, then you follow the market pretty closely.
Now if you can tell me why, I want you to be on my trading team.
Was it because crude oil went from $75 to $95? Yes, this was definitely a factor. The fact that oil held above what I consider a key recession level was confirmation that the economic tank was half full.
But there was another element in these one-month returns.
Energy stocks got taken to the woodshed because they are so cyclically-sensitive. And when markets are free-falling, or at least making new 52-week lows near correction territory (20% off highs), the air gets beaten out of these names first.
But what ends up happening is that with all the funds and shorts piling on, the selling here gets overdone very quickly. Here are four energy stocks I trade that saw gains of 40% to 60% in October simply because they were so thrown out with the bath water.
I show the stock's high and low for the month to illustrate the point. A chart would simply be too shocking.
Baker Hughes (NYSE: BHI): $42 to $62
National Oilwell Varco (NYSE: NOV): $48 to $76
Cabot Oil & Gas (NYSE: COG): $55 to $81
EOG Resources (NYSE: EOG): $67 to $95
And the table above highlighting the Energy SelectSector SPDR ETF (NYSEARCA: XLE) is actually a tame snapshot of the last 30 days performance. This basket's high/low for October was $54 to $73, a 35% leap off the bottom.
Irrational Panic Creates Bargains and Bottoms
The lesson here is about how markets swing on emotional extremes. "Oversold" is putting it lightly as you can see. And that's where the opportunities are on big sell-off days.
Now, you might say, "Hey Cooker, your hindsight is 20/20... so what?"
To which I respond, "I told you on August 31 to look for a capitulation toward S&P 1,050 and to buy it with both hands."
Here's what I wrote in Gray Skies = S&P 1,050 Bottom...
I've heard technical guys talk about S&P 980 and I say, "Listen, if that's your extreme oversold/bottom level target, there will be plenty of guys like me -- and many with a few billion more dollars than I -- buying between 1,025 and 1,050."
In other words, while a spike below S&P 1,000 is certainly possible, buying good stocks anywhere within 50 points of it will a fantastic long-term opportunity. This is, of course, in the "gray skies" mild recession scenario.
But even in worse cases, I will still be buying there because I am definitely not in the Dow 5,000 camp of long-term doom.
Don't worry if you missed this bottom. There will be others. That's the great thing about trading... irrational participants are always creating huge opportunities. And that will never change. I'll try to help you spot the next one too.
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