Speed Bumps Ahead for Oil and Gas Stocks

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After a 13.7% gain in just six trading days through last week and 46% since Feb. 6, this is one overheated market. There are many reasons to think that it has gone too far, or at least too far, too fast, and that makes it very tempting to pick the top.

There is one old saw in the trading world that says not to step in front of a speeding locomotive. When a market starts to run higher in total defiance of the fundamentals, either the fundamentals are wrong, in which case the price rise is justified and will keep going, or the market is in a momentum-driven frenzy akin to the tech bubble in 2000.

This is the case with the crude-oil market today. After a 13.7% gain in just six trading days through last week and 46% since Feb. 6, this is one overheated market. There are many reasons to think that it has gone too far, or at least too far, too fast, and that makes it very tempting to pick the top.

The problem is that although a top of some kind is coming, betting against the market even just a few days early can spell disaster. Rather than pick that top or chase crude oil and energy stocks to the moon, it seems like a better idea is to ease up a bit, take some (not all) profits and wait until the momentum buyers find somewhere else to play.

To help understand these fast moving markets, chart watchers use all sorts of data that may not even be chartable. For example, many investors are familiar with sentiment analysis and contrarian thinking, which purports that if everyone is bullish chances are it is too late to buy. Conversely, when everyone has given up on stocks, it is usually the best time to buy.

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