I agree with you. Past performance may not be a good guide to predicting stock movement in the O&G sector.
I use FA for most DD and am not intimate with TA.
As a long term investor, I care little about short term stock price movement.
I do wonder If TA followers might be missing something here though. My understanding is that TA relies on a stock's price to move within a range and that when a stock appears to be at an extreme a trade is made in anticipation of the stock price moving back to within a more normal range. This would make some sense to me in normal cycles. What if things are different now?
If we are now in a new era for global O& G supplies, would it not follow that maybe the whole channel of a stock's price movement steepens. This would seriously undermine any predictions of forward stock price moves using TA IMO.
A wise (and successful) investor once said that the most dangerous thing you can say (or hear) in investing is "it's different this time". This was the catch phrase for all the Tech stock investors.
When some of the Tech companies were showing infinate P/E ratios (loosing money, had no assets, but stock kept in increasing in value at outragous rate) no one was concerned because "it was different this time", "the internet has created a new economy".
I picked this up from Don Coxe, although I doubt he is the first or only on to say this.
jrpsshadow, I know in the past it was dangerous to think things were "different this time". The NASDAQ bubble, and the beliefs at the time were characterized by the belief that firms were immune to competition to a large degree.
What happened? Capacity was overbuilt, new competitors emerged, innovation rendered some technologies obsolete, and valuations came screaming back to earth. The fact that technology was changing so fast should have made investors cautious as the simple question of a firm's continued existence was not certain. If a firm did not stay current with its technology, it risked ending up in the dustbin. I would add that bubbles existed and valuations were stretched and in no way reflected or discounted the uncertainty of the technology investment environment.
This is hardly the case with O&G. The global energy supply difficulties do not appear to have any easy answers. Firms compete in the sector, but are chasing a dwindling resource. Short of a global recession, global demand continues to grow, and meeting it going forward, it appears that it won't get any easier. Energy prices will have to rise further into the future if this is true.
In addition, O&G company valuations are no where near "bubble levels". I would say that current valuations in the E&P's are probably more close to discounting a recession than anything else.
My thinking is more based on fundamentals and may well be wrong but evidence seems to be accumulating to support a new way of thinking about energy.
So the question is, if the slope of the forward channel within which a stock price moves does in fact steepen, could this undermine interpretations of future stock price movements?
My thinking here is that much analysis relies on reversion to the mean within a defined channel with an historical slope. If things are "different this time", one would expect that the price of energy will move up much faster going forward. This would imply an overall steepening of the slope of the curve and the whole channel.
Reading charts to predict the future based on the past may not be as reliable if an expected channel is no longer relevant.
Maybe a bigger risk is NOT subscribing to the belief that it is indeed different this time. Maybe O&G firms could go to the moon and make the NASDAQ bubble look small???
If PE's for O&G were at 30, then yes, you could make the argument that a recession could knock the stuffing out of some valuations. But with PE's more close to 10, I don't think there's much downside from here. I believe there are many investors who would step up to buy O&G stocks in any correction as global demand for O&G products would to a large degree continue, thus limiting the severity of any correction. It's global demand that's important, and in my mind, predictions of LARGE reductions (i.e. 3+ mmb/d) in global demand yoy for energy, should be viewed with skepticism when the rest of the world's consumption is growing the way it is.
The one thing that would change my mind would be if I saw a huge supply response by the producing nations and I'm not seeing it(yet) in spite of these nice high prices.
So, I think maybe it IS different this time - but keeping my ear to the groundjust in case. JMO FWIW.