Federer strolled to a record breaking 8th win at Wimbledon. The amount of wins is impressive, but it’s his ability to stay fit and strong that is his secret to success. He rested his body when others were battering theirs. He targeted the slams and ignored most else.
Investing is very similar. You have to know when to reduce exposure and when to increase it. Summer periods or the ‘sell in may’ mantra has long been a period for ‘reducing exposure’ and proven to be fairly successful. So how many of you sold in May and plan to come back in Mid September? With major indices at all time highs, 2017 could be one of those years where selling in May delivers losses or missed profits. In terms of commodities, it is widely expected that H2 is the period whereby PoO and other commods will deliver growth as they bounce back from years of being out of favour. For many PoO related equities, most are at 2017 lows. That’s incredible considering the ‘worst’ should be over for PoO. OPEC cuts are now 7 months in and compliance remains strong. US crude draws are rising by the week, US shale is stuttering ans the Rig count which was rising by roughly 20 to 30 rigs per week is now virtually at a standstill. Floating storage vessels that were containing millions of barrels of oil have been all but expended. China demand has been higher than forecast and there is a crisis looming in the middle east as Saudi’s take unprecedented action against Qatar.
Yet here we are with PoO at below $47pb (wti) and the hedge funds virtually ‘all’ net short. It seems a peculiar position to be in. One would normally expect the opposite. However, if you look back to 2016, you’ll see that many casino type hedge funds went under – some survived but made losses that are eye watering. All called the PoO recovery wrong. They were short then and they got spanked. In late 2016, they switched tact and went net long. But after just 3 months many were switching back to net short. Talk about being impatient! So here we are again, approaching a period whereby the data supports OPEC actions but the hedge funds defy common sense and remain short. If history repeats itself, some are going to go under again assuming PoO finally breaks into the mid $50’s again… which is long overdue.
August looks set to be one of the strongest months for PoO as Saudi’s pull more supplies off the market to manage demand closer to home. The US data could see huge draws over the coming weeks. Of course, this requires continued OPEC compliance and there have been a few signs of late of some OPEC members filling the space made by Saudi cuts. That’s not good news and it comes as no surprise that the Saudi’s have called an EGM for July 17th (today) although this is still rumoured of course. OPEC are set to meet Russia the following week on July 24th, so one imagines they will need to have their stall in order if discussing further cuts or extensions which they want Russian to be part of.
Top ten picks results based on 28 weeks as folllows:
Good performance by the Daily Mail picks as they shoot to the top. It’s been nip and tuck all year for the Telegraph and Daily Mail. Who will win? One thing is sure, the sharehub top ten need PoO in the mid $50’s or higher if they are to mount a challenge of any sort. That said, after the 150% growth rate of last year, the current 14% gains look pretty poor by those standards. On side note, it should be highlighted that many of the newspaper top ten picks deliver dividends which are not factored into the % increases. It’s not usually more than 4% to 6% but should be considered in the bigger picture.
Stocks to watch out for July/August…
PMO is due to update on Zama-1 DEEP as well as possible deal on Tolmount licence. Faroe should have news on Brasse sidetrack. PVR could deliver the summer blockbuster drill result that all investors dream of. They have two targets back to back and part of the same drill. So if the first is a duster there is always a chance te second could deliver. And finally a mentioned for Hummingbird Resources who are quietly going about their business at the Yanfolia gold mine. It might take a few more weeks or months of finalising the development and derisking it before the market finally rerates the stock but for the moment, the sp is lagging fair value by some distance. The stock should be into the 30’s by now based on comparison to peers. An update from the company should be coming in the next few days or couple of weeks.