Chart of the Week: U.S. Open Scorecards

I was pulled in quite a few different directions when considering this week’s chart of the week. There was the rally in the euro, some positive debt offerings in Spain, new highs in gold, BP’s $20 billion escrow fund, etc. On the volatility front, the last week was the first time ever that the VIX fell more than 15% in consecutive weeks.

Of all the things that stuck in my mind this week, however, the one I found the most compelling was the course the United States Golfing Association assembled this week at Pebble Beach to test the world’s best golfers in the world for the U.S. Open championship.

While this was a relatively short course, the challenges posed by natural obstacles, difficult greens and the U.S. Open’s notoriously long and unforgiving rough were such that not one of the 156 golfers was able to break par. In keeping with tradition, the U.S. Open course was set up to extract the maximum penalty for any missed shot.

In fact, as I see it, the championship was decided not by how many birdies a golfer was able to make, but by how well he was able to avoid trouble. The scorecards of the top three finishers tell the story and together comprise this week’s chart of the week. In the end, the winner, Graeme McDowell, persevered by not allowing the course to bully him into anything worse than a bogey. Runner-up Gregory Havret had only one double bogey on his scorecard, but it was just enough to keep him one stroke back from McDowell. Third place finisher Ernie Els, who plays with the demeanor of someone who is always unflappable, ended up with two double bogeys and finished two strokes back. In the end, it was the disastrous double bogeys – and one’s ability to avoid them – that spelled the difference.

The reason the Pebble Beach odyssey stuck in my mind is that it reminded me that traders should approach trading the way they would approach a golf course like Pebble Beach. The goal should be to play for pars and look to capitalize on any birdie opportunities that arise. To the extent possible, this means keeping the ball away from hazards and obstacles, as well as avoiding low percentage plays. It also means not compounding small mistakes by pressing and trying to make up lost shots in a hurry. Impulsive play is almost always penalized; patience and discipline are the only way to survive.

In golf and in trading, it is better to be able to drive the ball into the fairway than to hit it 300 yards and not control where it is going. Consistency, precision, patience and opportunistic aggression. That is the recipe for winning golf and winning trading – at Pebble Beach or in your own back yard.

For more on related subjects, readers are encouraged to check out:

• Bernard Lagat and Trading Strategy
• Comfort Zones, Focus and Thinking Like a Biotechnology Firm
• What My Dog Can Tell Us About Volatility
• Dogs and Earthquakes: Dueling Metaphors?

[source: U.S. Open]

Disclosure(s): none

Turmoil in the Oil Patch

Several factors have combined to create turmoil in the oil patch. Most notably, the Deepwater Horizon oil spill has hammered the stocks of BP and Transocean (RIG), while tainting the entire oil and oil services (OIH, XES) sector. On top of the spill, the European sovereign debt crisis has generated concerns about an economic slowdown of the European region and beyond, while manufacturing data and other news out of China hints at the possibility of weakness in the most significant area for future growth in energy demand.
In short, valuations across the sector are way down and yet the long-term supply and demand imbalance will likely suffer no more than a small dent as a result of the events of the last couple of months.
The energy sector has a very promising future and I am looking to add to existing positions on weakness. As the chart below shows, there are some indications that crude oil (USO) may have put in a bottom and the exploration and production ETF (XOP) may also be beginning a bottoming process as well. Outside of fossil fuels, alternative energy plays in solar (TAN, KWT) and wind (FAN, PWND) are somewhat suspect in that critical governmental subsidies from the likes of Spain and Germany appear to be a victim of the sovereign debt crisis. Still, these alternative energy plays, including some broad-based alternative energy ETFs (GEX, PBD), have also been marked down dramatically and should also benefit as crude oil prices start to rebound and governments come under increasing pressure to make use of ecologically sustainable energy sources.
For more on related subjects, readers are encouraged to check out:

• Clean vs. Not-So-Clean Energy
• Energy ETFs and Katrina
  
• Chinese Solar Stocks on the Rise
  

[source: ETFreplay.com]

Disclosure(s): long OIH and XOP at time of writing