Monday, August 01, 2005

SELL ENERGY BUY TECH?

XLK: XLE = .44!

What a difference four years can make. Actually a little over 4 years ago the SPDR index for technology stocks; XLK was selling for 2.25% of the SPDR index for energy stocks. Today it is selling for .44% of the same index!

This type of number does not mean that energy has peaked or that tech is at bottom. Never-the-less, the magnitude of the turn around is significant. Those who are over-weighted in energy should definitely take notice.

Cramer has been pounding the table on energy of late. He is bullish on the most volatile of the energy sectors and these sectors have certainly been on a nice run. In the same way that housing stocks have run and run and run, energy may be in a long-term up trend. We already know from the 70's that it can take a long while for supply to over-take demand.

However, the technology sector benefits from the high energy prices. Many an energy saving capital project makes sense only if prices are high. The "build-out" phase of the internet is upon us. Mobile web will soon be considered a necessity for many jobs and many consumers.

If you have long term gains in energy, you should consider taking partial profits. Redeploy in technologies that are catching fire again. In the short run, it is a tough call because the biggest gains often come in a spike when everyone is piling onto the winning sector. However, that is also the way to get caught in a dramatic sell off. In the long run, I believe the ratio of the XLK to the XLE will move higher than .44. If it does, you will have done better in tech than in energy!

BUY THE BULL! OIL HIT A NEW HIGH TODAY BUT NEW SUPPLIES ARE BEING ADDED DAILY AND CONSERVATION MEASURES ARE BEING TAKEN DAILY. THREE YEARS AGO I WROTE THAT A SMART INVESTMENT WOULD BE TO BUY MIDWEST CORN FIELDS. THE ENERGY BILL MEANS A LOT OF CORN IS GOING TO BE GROWN TO MAKE OIL. IT DOES NOT MATTER THAT THIS IS NOT A VERY EFFICIENT USE OF OUR PRIME LAND. THE POINT IS THAT THERE IS A SERIOUS FOCUS ON BRINGING ON NEW SUPPLIES. THE TAR SANDS OF CANADA ARE AS ACTIVE AS THEY HAVE EVER BEEN AND BIG PROJECTS ARE PLANNED. THE END OF THE SUPPLY/DEMAND CRUNCH IS ALREADY IN SIGHT! THE PRICE OF OIL IS STRONG BECAUSE THE ECONOMY IS STRONG. THE GOOD NEWS IS THAT THE ECONOMY IS NOT YET TOO STRONG. BUY THE BULL!

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