Everybody it seems is saying that commodities in general and oil in particular are a bubble. There is an important investment truism that markets always go much higher and much lower than anyone expects. It’s a further truism that at critical economic and investment turning points the majority are always wrong.
So far as the chart below illustrates, there is nothing untoward about the recent crude oil price action, it is no more than an orderly pull back, no more or less than any other pull back over the last twelve months.
The major trend to which the price may revert is at $100 per barrel, which is also a two thirds retracement of its recent advance and the level of the tops made at the end of 2007 – in all, a big technical support level. As long term investors, it is perfectly sensible for us to remain exposed to the market whilst this correction takes place.
One of the main difficulties of this business is to remain invested in bull markets and not be tricked out of them. Now is the start of the hurricane season which although last year had no effect, might come in and mess up the party completely. But nevertheless like Fagin in the musical Oliver! “We are reviewing the situation!”
Commonsense tells us that the super cycle for commodities has a considerable future life, so what we are witnessing is a correction in an ongoing primary bull market. If we do make a decision to take money off the table, it will be for a temporary period only, we would fully expect to be re-invested at some time in the future, hopefully, benefiting by re-investing at a lower price than the price at which we might exit.
By John Robson & Andrew Selsby at Full Circle Asset Management, as published in the threesixty Newsletter