Crude Oil Market Analysis

AZD,

Since I am being asked the reason why, I feel obliged to respond.

Let me set up the structure of how I wish to proceed.

First, everyone has his own reason for asking a question, and his reason may not be the same as yours. In order to discuss the question without any miscommunication, I need to set up the proper platform for the discussion. (A response from a reader earlier expressed his opinion that there was a miscommunication between me and SethArb, which opinion I have noted.)

Since this is not your original question but SethArb's, and the question was expressed in SethArb's words, please state in your own words what question you wish to ask. When you express a question in your own words but not in another man's words, your question reduces the likelihood of being misunderstood as carrying the same connotation as the other man's.

Then please articulate the reason how an answer to the question expressed in your own words, although similar to SethArb's, would help you to understand Crude Oil Market Analysis or to achieve any other purpose of yours. If you do have any other purpose of asking a question, please state clearly what the purpose is so as to help me to answer your question.

I have stated that I welcome all comments on Crude Oil Market Analysis. Thus I will endeavor to respond questions posted here. But in order for me to answer a question, I must know exactly what the question is. If SethArb's question is exactly the same as yours, please copy and paste his question and then so state.

Dr. Chen

 

doctor chen

I wish to thank you for taking the time to reply to my question

and wish you good luck in your success in trading and in
making your "blog" a site that is viewed by millions

 

As I stated earlier, "I will endeavor to respond questions posted here."

I have no control over how many "millions" of people will view Crude Oil Market Analysis. But "if you build it, he will come."

Dr. Chen

 

Dr. Chen,

Fair enough.

1) "Since this is not your original question but SethArb's, and the question was expressed in SethArb's words, please state in your own words what question you wish to ask. "

I will go with SethArb's question:

"hello doctor ... sorry if this has been asked before
but do you ever trade the calls you make or are they "paper trades?"

2) "Then please articulate the reason how an answer to the question expressed in your own words, although similar to SethArb's, would help you to understand Crude Oil Market Analysis or to achieve any other purpose of yours."

If you are not making regular trades, it would seem that your long, detailed commentary would carry less weight. Most people know that it is one thing to "paper trade," but once real money is on the table, things change. Emotions can kick in. I don't see you addressing the emotional aspect of trading. For example, yesterday oil jumped sharply. If you are short oil, this has to have some impact on your commentary/trading strategy.

3) If I may ask, do you have a Ph.D., and if so, in what area?

4) If I may ask your opinion on this, what is the relationship between the price of crude oil and the OIHs? How would/should a drop/rise in crude oil normally affect the price of the OIHs?

Thanks,

AZD

 

AZD,

Here is my understanding of your question, and I express it in the way I understand it, so that if I misunderstand you, you will know my misunderstanding.

You are asking, “look, Dr. Chen, I see you’re making calls in the ‘strategy’ paragraph of the Crude Oil Market Analysis, but you are not telling me whether you put your money where your mouth is. It’s much easier to trade on paper than to trade with your money on the line, but I don’t see you discuss the emotional side of trading.”

The purpose of your question is to find out why COMA shows no emotion in its trading.

First of all, I dispute your claim that COMA never discussed the emotional side of trading.

To wit:

“Crude Oil Market Analysis (1/17/07)

Mea culpa!

The Crude Oil Market Analyses had called for “tak[ing] profit below $50.40 for three days from Jan. 10 to Jan. 12, but yesterday’s Crude Oil Market Analysis called for ‘tak[ing] profit at $50.20.” Today’s market low was $50.28. The last eight cents turned out to be the most expensive eight cents in the current trade!

Crude Oil Market Analysis (1/24/07 p.m.)

The U.S. oil industry agrees with Crude Oil Market Analysis (“COMA”), but the market does not. As a result, COMA made the right forecast of the fundamentals but still lost money.

Crude Oil Market Analysis (1/31/07)

Today is a déjà vu all over again.

On Jan. 24 Crude Oil Market Analysis stated, “the U.S. oil industry agrees with Crude Oil Market Analysis, but the market does not. As a result, COMA made the right forecast of the fundamentals but still lost money.” The same summary applies to COMA today.”

Secondly, I have always invited COMA readers to leave comments. Whenever you believe that COMA is not discussing the emotional side of the trade or missing any other point which you think is important, you are invited to leave your comments or questions there. I endeavor to respond to my readers’ questions.

For example, you asked, “for example, yesterday oil jumped sharply. If you are short oil, this has to have some impact on your commentary/trading strategy.”

This is very easy to answer.

COMA stated on Feb. 1:

“Strategy: Sit tight.”

Since COMA has no position in the market, COMA has no emotional reaction to the market’s fluctuation, and COMA cannot step into the shorts’ shoes and empathize with their misfortune.

Let me emphasize my invitation to you again. If you believe that COMA ought to react to a certain market condition emotionally but does not seem to do so, please point it out immediately. I will respond.

I have a Ph.D. in economics.

I can only profess some limited knowledge about crude oil market and can only provide analysis on crude oil market. Therefore, I shall decline to provide any analysis on products other than crude oil, such as OIH.

Dr. Chen

 

Dr. Chen,

1) The "emotions" expressed in your referenced commentary do seem to be limited - COMA-like if you will. LOL That's not a criticism, just an observation.

2) I suppose my ultimate point is that it would indeed add credibility to your commentaries if you were "putting your money where your mouth is" as you worded it. One of the more impressive threads on Elite Trader is the P&L thread where traders are "putting themselves out there," win or lose. Unfortunately, there is often little commentary about the rationale behind the trades - just the trades. In your thread, the opposite exists. You have the rationale, but no actual "log of trades."

3) You wrote, "I can only profess some limited knowledge about crude oil market and can only provide analysis on crude oil market. Therefore, I shall decline to provide any analysis on products other than crude oil, such as OIH."

That is too bad. I would have been interested in your opinion, however limited.

Thanks for your response.

AZD

 

I appreciate you posting your insight, Dr. Chen, and look forward to future posts. You wouldn't happen to sideline as a politician, would you? If not, I think you may be missing your true calling.

 

This issue comes up alot on many threads. The title of the thread is Crude Oil Market Analysis, so analysis is just that. As soon as you say go long or go short though, I think it is a different story. Traders with real money want to know who are you, can you trade, etc. Unfortunately this leads to a lot of chest thumping and some pissing contests, which have ruined many otherwise useful threads. I am not sure what the solution is. At the end of the day we make our own choices and have to live with them. I am enjoying the information here so far and I think the analysis is good. Keep it coming!

 

I follow the daily FX research reports of several international banks. Their approach is identical to Dr. Chen's. They give a fundamental analysis and suggest trades to take advantage of it. I have no idea if the analysts trade these suggestions or not, nor do I care. The value is in the analysis, which stands on its own. A lot of things can happen in trading to turn a brilliant analysis into a losing trade.

Dr. Chen definitely has a handle on the crude market. He is not running a chat room or handholding people on trades. I really don't understand the comments about the "emotional" aspect of trading. Why is it his problem if you wet your pants when a trade goes against you? He is analyzing the crude market, not conducting a trading seminar.

 

AN ALLEGORY

Some years ago the U.S. Mint began to issue five quarter coins per year in which one State is featured on each coin, and the coins are issued in the order in which each State joined the Union, making Delaware appear on the first quarter coin and Hawaii on the last one.

The job of the U.S. Mint is to issue coins for circulation.

However, as soon as the U.S. Mint decided to issue these 50 coins, hot contests began among the States on the issue of what should appear on each State’s coin. For example, North Carolina wanted the Wright Flyer to be featured on its coin, but Ohio contested that Ohio is the birthplace of aviation, since both the Wright brothers and John Glenn were born in Ohio.

The most highly contested issue is which State ought to feature corn on its coin, since the farm States including Nebraska, Kansas, Iowa, and Illinois all produce a significant amount of corn and tie their identities closely with corn.

As these States contested among themselves and sought the U.S. Mint as the final arbiter of their contest, the Director of the U.S. Mint quipped, “when I took the job, I never expected to have so much discussion about corn.”

Yes. When I started the thread under “Crude Oil Market Analysis” on Jan. 6, I never expected to spend so much time discussing issues not related to the crude oil market, and the amount of effort I have spent on non-market related issues has taken a toll on me and caused delay in the issuance of the Crude Oil Market Analysis for Feb. 2.

Based upon the readers’ responses in this thread, I have concluded that I can finally write “QED” at the end of the responses I have provided since the issuance of the last COMA on Feb. 1.

Now I can focus once again on the issue for which this thread was created—crude oil market analysis. Here it is, in a separate posting immediately following this one.

Dr. Chen