Monster run

These last 2 weeks have been huge for me with hwo.to breaking out and closing out the week at a fresh 52 week high at $2.30. A few weeks back I had a really good feeling it would break out to this level and it did! But now after this big run it's going to be tempting for people to take profits. I won't be one them. No, this is not greed, it's about principles. I've been right about hwo...very right and I will continue to sit tight until the stock goes to where it fundamentally should go to. The stock still trades at under 4 times trailing earnings and on a forward earnings basis, it's even cheaper which means the stock is still dirt cheap; as a result, I'm not going let an overbought RSI indicator or any other technical indicator cause me to sell when the fundamentals are still very attractive like this. I've seen my fair share of situations whereby RSI and other indicators are rendered useless when an asset price is in the midst of a big, long directional move up or down and there's no telling if hwo is in such a situation until after the fact. Like Partridge, I don't want to sell to get back in on a pullback and risk losing my position. It's not worth such risk given where I believe the stock should eventually go to. However, I did pull the trigger on a macro hedge today (more on that below).

I believe the catalysts for the recent advance in hwo are as follows. 1) On Monday, National Bank Financial started coverage of the stock with an outperform rating. I think this is the only firm who has officially covered the stock in over 4 years. 2) Their PNG customer Oil Search recently announced a partnership with S.A. Total to explore for gas with the hopes of creating an offshore LNG plant. Drilling is to start in early 2013. 3) natural gas prices have been firming and are at YTD highs. 4) Exxon's purchase of Celtic this week is a positive signal for Montney plays which I believe is hwo's main market in Canada. People have been saying that it also signals Exxon's intention for LNG exports and that too can only be a positive for hwo longer term. 

Despite the move in hwo, I think the story is just starting. It's just now starting to land on people's radar. Having said all this though, given shaky markets as of late and how the stock has had a big run, I need to be mentally prepared for a pullback in the stock. I pulled the trigger on a hedge this afternoon. I bought some puts on the XLE, Jan 77 puts to be exact.  I chose to hedge via XLE because hwo.to is an energy stock. Market action suggests we're in the midst of a correction. Although I don't think the correction will be severe, I don't think it's over either and so why chance it remaining unhedged while sitting on a big winner. This hedge is only 4% of my account. To my delight, hwo.to has been bucking the market trend trading completely independent of the market but, as a matter of prudence/discipline, I can't assume this will continue if markets were to slide substantially. This hedge was bought and paid for just on today's move in hwo alone!

We've seen the markets get spooked by weaker than expected earnings in IBM and GOOG. These are heavy hitters. I'll give the bears some respect here. Action like today whereby the market gets slammed and closes near the low of the day usually indicates more downside is to come even if there's a bounce the following day. Despite the big down day the market is not ST oversold (broad market is right at neutral, Naz is mildly oversold). Remember after the QEX announcement  I saw anecdotal evidence of panic buying from underinvested fund managers? Well, it's those guys who are selling now or are about to. But having said that,  any of the ST bullish froth that was in the market is rapidly unwinding. AAII sentiment is almost at the 2:1 bear to bull ratio that has market significant bottoms in the past few years. Next week AAPL reports and I get the sense that people are worried about it given tech's weakness as of late and glitches with the Iphone 5. 

I don't want to get overly fixated about the general markets as my one and only holding has been trading in its own little world. Should I even care about what the markets do given that hwo doesn't give a rat's ass about it? I should....at least a little because if the macro picture were to take a turn for the worse it could eventually have an impact on the stock. 2008 was an extreme example of when macro trumps micro.....literally every stock got hammered. The bear market of 2000-2002 however did not have the same impact. Some stocks, like small cap value stocks and gold stocks for example actually thrived. But don't kid yourself....in bear markets it's a lot tougher to make money stock picking. I don't think we're in a bear market (we're only a few % off  theYTD high for cripes sake) but I don't think the downside is done and so either way, a partial hedge at this point is prudent and wise given my circumstances.